05 Oct 2020

Pensions snapshot - October 2020

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This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:

Be prepared for Pensions Dashboards

Pensions dashboards are digital platforms that provide online access for individuals to information about all their pension savings in one place.  The Pension Schemes Bill 2019-21 (the Bill), which is currently going through the House of Commons, will introduce new legislative provisions for Pensions Dashboards.

Most occupational pension schemes are likely to be covered by the new statutory requirements regarding pensions dashboards.  This means that trustees will be obliged to provide "pensions information" to a qualifying pensions dashboard service (PDS) or to the PDS established by the Money and Pensions Service.  Regulations will prescribe what is meant by “pensions information” but it is likely to cover both general information about the scheme and specific information about the member or beneficiary.

For commercial dashboard services, certain requirements, conditions and standards will need to be met to become a qualifying PDS and be able to connect to a Pension Finder Service (a search engine designed to retrieve data from pension schemes).

Taking inspiration from automatic enrolment, the Department of Work and Pensions (DWP) plans to phase in the new pension dashboard duties on pension schemes by way of a staged timeline according to membership size.  This process is anticipated to run for three to four years.  It is also likely that the DWP will put large DC schemes - such as master trusts - first in the compulsory staging timetable.  It may be several more years before a lot of older data from company and private pensions will be visible on a dashboard.

During the initial implementation phase, the DWP expects no more information to be provided to PDSs than is already available to members on benefit statements issued annually or on request.

Enforcement

The Bill provides that regulations may be made to ensure compliance by trustees in respect of their new obligations.  Regulations may give the Pensions Regulator power to issue compliance notices, third party compliance notices and penalty notices.  They may also specify the maximum amount of the penalty for non-compliance (in all likelihood, a cap at £5,000 in the case of an individual or £50,000 for a company).

Data protection

Trustees will, in their capacity as controllers, be providing data to a PDS that will constitute processing of scheme members’/beneficiaries’ personal data.  It may be that consent to processing of personal data will need to be given, as well as allowing consent to be withdrawn at any time. This may prove to be difficult in practice.

If trustees are relying on a ground of lawful processing this will need to be stated in a privacy notice provided to members.  The regulations and rules prescribing the detail of the obligations placed on pension schemes and qualifying PDSs should not be read as authorising or requiring the processing of personal data where this would contravene data protection legislation.

In preparation for providing pensions information to a PDS, trustees should start considering whether to obtain member consent in order to provide members’ personal data.  Trustees should also consider updating their scheme’s privacy notice to state the lawful ground on which they intend to rely for lawful processing.  

Your usual Stephenson Harwood contact would be happy to help with drafting any member communications and/or privacy notice once the final content of the regulations is released.

 

Mr T (CAS-38354-V5L8) – Pensions Ombudsman awards damages for investment loss

In early 2016, predicting volatility in the stock markets following the Brexit referendum, Mr T decided to transfer his pension pot from the Tenco Executive Pension Scheme (the Tenco Scheme) to a self-invested personal pension so that he could invest in the FTSE 100. He emailed the administrator of the Tenco Scheme on 24 March 2016, saying he wanted to complete the transfer before the Brexit referendum on 23 June 2016. Despite several further urgent requests from Mr T, the transfer did not occur until August and September 2016.

Mr T initially complained to the Pensions Ombudsman that he had lost the opportunity to take advantage of the fall in the FTSE 100 following the Brexit vote, because of delays caused by the Tenco Scheme administrator. The Tenco Scheme administrator said it had carried out its duties in a reasonable timescale but offered £100 in compensation for errors in its early communications. The Pensions Ombudsman determined that there had been maladministration in the delay in processing the transfer request and awarded Mr T £2,000 for distress and inconvenience. The Ombudsman determined not to award damages for the investment loss claimed by Mr T, finding that the investment loss was “neither measurable nor the exact nature of [Mr T’s] investment within the reasonable contemplation of the parties”.

Mr T appealed to the High Court on the grounds that the Pensions Ombudsman had not correctly applied the tests of foreseeability and measurability of loss. The High Court upheld the appeal.  The Court concluded that the delay in transferring a member’s pension, where the purpose of the transfer was for investment opportunities, would result in foreseeable financial loss if there were foreseeable spikes in the stock market at that time. The High Court remitted the case back to the Pensions Ombudsman. The Pensions Ombudsman calculated the investment loss based on the day that the transfer should have taken place had there been no delay. The Pensions Ombudsman found that Mr T would have gained a profit of £43,700 in August 2016. The Tenco Scheme administrator was directed to pay Mr T £43,700 plus interest at 8% per year from August 2016 to the date of payment.

It is worth noting that this case is unusual in that Mr T could clearly evidence his intention to invest in the stock market at the relevant time, and he could also show that the Tenco Scheme administrator was aware of that intention.  Notwithstanding that, the case is a useful reminder generally of the legal principles underlying awards of damages and the dangers of delaying in acting on transfer requests.

 

57 is the new 55: Government confirms increase in minimum pension age

The Government has confirmed that the minimum age at which members can draw a pension from their pension scheme will increase from age 55 to age 57 in 2028.  Part of the rationale cited for the change has been that this will keep a gap of ten years between the minimum pension age under private pension schemes and the state pension age (the state pension age is due to increase to age 67 by 2028 for both men and women).

It remains unclear at this stage whether any categories of individuals will be able to take advantage of any form of transitional protection or phasing in of the change, potentially allowing them to keep a minimum pension age or 55 (at least for a limited period post 2028).  Alternatively, the change could simply result in a ‘cliff edge’ change meaning that, on the day preceding implementation, pension benefits could be accessed at age 55 but, on implementation day, they could not.

While the change is some way off, it is something that will, in time, have to be communicated clearly to pension scheme members – not least as to how it might affect their options.  This is particularly so given the ‘pensions freedoms’ that were introduced in 2015 which were supposed to give pension scheme members more flexibility as to how they accessed their pension savings from minimum pension age.

 

Pensions Ombudsman:  Failure to pay contributions and calculating investment loss

In this case, Mr Y was employed by a company called PSDT for a number of months in 2019 and was supposedly enrolled into the National Employment Savings Trust (NEST) to ensure that PSDT met its auto-enrolment duties.

On leaving the employment of PSDT, Mr Y discovered that none of his employee contributions that had been deducted from his salary had actually been paid into NEST.  The employer had also not made any employer contributions, apart from one sole contribution made in June 2019.

The adjudicator at the Pensions Ombudsman noted that the contributions which had not been paid in respect of Mr Y’s employment now needed to be paid by PSDT to NEST.  The adjudicator provided that an assumption of 8% of investment growth should be added to the contributions which should have been paid by PSDT and Mr Y should receive a £500 maladministration award. 

On referral to the Pensions Ombudsman, the Ombudsman noted that he largely agreed with the adjudicator in terms of putting Mr Y back into the position he should have been in and requiring PSDT to make payments of the contributions due to NEST.  However, in terms of investment loss, the Pensions Ombudsman did not agree with the adjudicator’s approach. Instead of applying an assumption of 8% of investment growth, the Ombudsman determined that NEST should be consulted as to how the contributions would have increased in line with investments if they had been paid into NEST when they were due.  As a reference point for investment growth, the one employer contribution that had been made in June could be looked at to see what funds it had been invested in.  The maladministration award was also increased to £1,000.

The Pensions Ombudsman’s approach has the outward attraction of being the approach which is likely to put members as closely back into the position that they would have been in, had everything been done properly in the first place.  However, unlike the adjudicators’ approach (where a simple assumption of investment growth could be used), the approach suggested by the Ombudsman could prove more cumbersome from a practical perspective.  This is because it involves a scheme having to look at how the relevant funds performed and then apply an appropriate investment growth rate for each month of missed contributions.

 

Members of the pensions litigation team (part of our newly formed Employment Pensions & Private Wealth Practice) have advised the Representative Beneficiary in the latest summary judgment pensions rectification case, SPS Technologies v Moitt

This case, in which our team acted for the Representative Beneficiary, is interesting in that the judgment, released on 11 September 2020 by Chief Master Marsh, includes a helpful summary of a number of common issues which can arise in these types of cases and how to address those issues.  In particular, it dealt with the following:

  1. Chief Master Marsh both confirmed and endorsed the use of the summary disposal hearing process in appropriate circumstances, which allows for certain applications to proceed on a summary unopposed basis, where no reasonable grounds of opposition exist.
     
  2. The use of a confidential opinion by the Representative Beneficiary, discussed with the judge at the application in the absence of the other parties, was specifically considered.  This procedure had been adopted over many years by a number of High Court judges and was described as useful to the court – particularly in situations when the claim was not being opposed.  In those circumstances, it was explained that the court valued the candour that was made possible by having a private hearing to discuss the strengths and weaknesses of the claimant’s evidence and the reasons why the Representative Beneficiary had chosen not to defend the claim.
     
  3. In relation to the rectification application itself, the judgment included a helpful summary of the issues to be considered, including restating the relevant test for granting rectification, as recently settled in FSHC Group Holdings v GLAS Trust [2019] EWCA Civ 1361.  In particular, Chief Master Marsh confirmed that, in relation to the test for rectification, applying common sense and logic was insufficient to enable the court to grant an order for rectification; the court still needed to be provided with convincing proof that an error had occurred.  Applying the GLAS case, Chief Master Marsh said that for common intention mistake to be evidenced, the intention of the parties was to be assessed subjectively and he considered that this applied equally for cases where there was a unilateral transaction (as in this case) and a bilateral transaction.
     
  4. In relation to the substance of the error in this case, the outcome was to potentially allow deferred members to be favoured over those who remained in active service – something that parties invariably argue is illogical and, as such, must be an error.   Chief Master Marsh has now judicially endorsed this view, with this type of benefit structure being described as inherently “illogical” (in particular in this case, as members could simply terminate their pensionable service in order to receive higher benefits). However, the fact that the benefit structure was illogical was not sufficient evidence for the court to grant rectification - the parties still need to provide convincing proof, on the balance of probabilities and based on the intention of the parties that an error had been made.
     
  5. Finally, in common with various rectification cases, this case concerned a serial rectification of successive deeds on the basis that the error became embedded in the scheme and was not noticed on two subsequent occasions. Chief Master Marsh confirmed, relying on Industrial Acoustics v Crowhurst [2012] EWHC 1614 (Ch), that this is primarily an evidential issue because it is commonly the case that the parties will not have addressed their minds to the particular error in any subsequent deeds. Chief Master Marsh, confirmed, therefore, that the approach to successive deeds can be seen alongside a principle concerning the admissibility of evidence, also expressed by Warren J in IBM, namely that conduct after the date of the document can constitute evidence of the intention of the person effecting it. This conduct may include matters such as there being no change to the manner in which the Plan is administered and plan booklets published after a change to the Plan that reflect the same position as before.

 

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Graham Wrightson

Graham Wrightson
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Naeem Noor

Naeem Noor
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