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05 Sep 2017

Pensions Snapshot - September 2017


This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of August 2017 in relation to occupational pension schemes. The topics covered in this edition are:


BBC wins right to decide on future treatment of salary increases 

In a long-running case, the Court of Appeal has decided that an employer (the BBC) had the right to determine whether or not certain future increases in pay could be counted as basic salary for the purposes of a final salary section of its pension scheme.

The case considered the specific wording of the BBC's pension scheme, which contained a definition of basic salary that allowed the BBC to determine what constituted basic salary or wages for the scheme. Therefore, this decision may not be of universal application to all pension arrangements. However, the case does provide some useful guidance to employers who are seeking to implement changes to their pension schemes. In particular, it:

  • sheds some light on how to interpret the statutory restrictions against surrendering pension rights; and
  • confirms that it is reasonable to take into account the employer's (and the scheme's) financial circumstances in the context of determining whether the employer's duty of trust and confidence might have been breached by implementing certain pension scheme changes.

Court of Appeal allows appeal by IBM

The Court of Appeal has concluded that IBM did not breach its duty of good faith or its contractual duty of trust and confidence in its implementation of "Project Waltz", a programme of pension changes which was carried out in 2009. 

The Court of Appeal found that the High Court judge had placed too much emphasis on the "reasonable expectations" of members and should, instead, have focused on (a) whether relevant matters (and no irrelevant matters) were taken into account by the decision-maker at IBM when implementing the changes, and (b) whether the result was such that no reasonable decision-maker could have reached it. While members' expectations were a factor to be taken into account, the High Court had "wrongly elevated" those expectations "to a status in which they had overriding significance over and above other relevant factors".

However, the Court of Appeal upheld the decision that IBM had breached its contractual duty in relation to its conduct of the consultation, leaving the door expressly open for members to claim damages for breach of contract. Nonetheless, this decision will come as a relief to IBM and to other employers seeking to implement cost-saving changes to occupational pension schemes. 

Pensions Ombudsman Determination – Transfer to pension liberation scheme likely to have proceeded even if member had received pension liberation warnings

Mr R was a member of the Local Government Pension Scheme (the LGPS). In February 2013 he requested a cash equivalent transfer value (CETV) quote from the London Pension Fund Authority (LPFA) in relation to his LGPS benefits. Mr R received the CETV from the LPFA on the same day and signed a transfer request two days later with the intention of transferring his benefits to the Gresham Pension Scheme (the Gresham Scheme). This all happened some two weeks after the Pensions Regulator (tPR) had issued a press release highlighting the potential risks of pension liberation (the Press Release).

The LPFA received the transfer request in March 2013, together with HMRC documentation confirming that the Gresham Scheme was a registered pension scheme, and the transfer was subsequently made in April 2013. However, it has since been established that the Gresham Scheme is linked to pension liberation and it appears Mr R has lost his entire pension.

The Ombudsman found that the LPFA should have been aware of the Press Release and so, as a minimum, it should have placed Mr R's transfer request on hold and provided him with suitable pension liberation warnings. However, the Ombudsman determined that, even then, Mr R had a right to transfer and the LPFA was legally obliged to process the transfer request. Ultimately, the decision to transfer was Mr R's.

The Ombudsman then considered whether Mr R would have gone ahead with the pension transfer even if the LFPA had provided sufficient warnings. The Ombudsman's view was that, in the circumstances, Mr R would still have proceeded with the transfer and suffered the loss of his pension fund. He noted that Mr R had made a number of attempts to access his pension fund prior to the transfer and was also willing to transfer guaranteed pension benefits in exchange for an uncertain investment-based alternative. This indicated a strong motivation on Mr R's part to access his pension and to place little weight on any warnings received.

The Ombudsman therefore directed that the LPFA pay Mr R only £1,000 in respect of the significant distress and inconvenience he had suffered due to the failure to provide pension liberation warnings. However, the LPFA was not responsible for the losses suffered by Mr R once the transfer had been made.

This determination brings into focus, once again, the difficult decisions faced by trustees when considering transfer requests. This unsatisfactory position for trustees appears to have been recognised by the Government, which has proposed limiting the pension arrangements to which a statutory transfer can be made as part of its recent pension scams consultation.

Mr Y:  No second bite at the CETV cherry in 12 month window

In this determination the Ombudsman concluded that a member was not entitled to a second Cash Equivalent Transfer Value (CETV) quotation in a 12 month window.  The issue arose because scheme literature issued to Mr Y was not entirely clear that a member was only entitled to one transfer quote within a 12 month period.

Mr Y had used the pension fund’s online tool which indicated that he was entitled to a higher CETV than that provided by the original quote and it was this which prompted his second request.  The Deputy Ombudsman decided that, whilst the scheme literature had originally been ambiguous on the point, this had ultimately been rectified so that it was clear to the membership that they would only be entitled to receive one CETV quote in any 12 month period.  The Trustees had also permitted a “transfer amnesty” because of the original scheme literature had not been entirely clear that a CETV quote would only be available once during a 12 month period.  Mr Y had not requested a second quote during this limited “transfer amnesty” window.

It was acknowledged that the Trustees could offer a second quote as a matter of discretion but, ultimately, the scheme provisions and legislation were clear that only one CETV quote needed to be provided to a member in a 12 month window.  Accordingly, Mr Y’s complaint was dismissed.

Principles for calculating pension loss in Employment Tribunal claims – new guidance published

Calculating pension loss when an employee has been dismissed and subsequently wins a case at the Employment Tribunal has always been fraught with difficulty. How can you estimate what the individual would have earned in pension benefits but for the dismissal, particularly where he/she is a member of a defined benefit scheme? Employment lawyers and pension lawyers alike struggled to follow the official guidance on the topic which was withdrawn in 2015 without being replaced.

Now, following a lengthy consultation process, the fourth edition of the Employment Tribunal's "Principles for Compensating Pension Loss" (the Principles) has been published and promises more clarity and simplicity. The Principles do not have the force of law but provide a framework within which parties to employment disputes should work when seeking to calculate the pension loss suffered by a claimant.

The Principles are intended to be simpler and more accessible than the previous version of the guidance and state that they are guided by five key concepts: justice, simplicity, proportionality, pragmatism and flexibility. The Principles make a distinction between "simple" cases, where loss can simply be assessed on the basis of lost contributions, and "complex" cases, where the contributions method is not appropriate and a more detailed assessment is necessary. The "complex" cases will generally be those which involve a defined benefit scheme and/or cases where an individual will not be able to work again (so-called "career loss" cases).

Given that the Principles run to over 150 pages of text, it remains to be seen whether calculating pension loss will, in practice, be straightforward, but it is nonetheless useful to have clearer guidance in place.

Pensions Regulator to prosecute former BHS owner

The Pensions Regulator is to prosecute Dominic Chappell, the former owner of BHS which went into administration in 2016, for failing to provide information and documents requested by the Regulator during its investigation into BHS and its pension scheme.

The offence with which Mr Chappell has been charged is neglecting or refusing to provide information and documents without a reasonable excuse (set out in section 77(1) of the Pensions Act 2004). If convicted, Mr Chappell faces an unlimited fine.

Whatever the outcome, the case provides a useful reminder of the importance of complying fully with the Pensions Regulator's investigations. 




Naeem Noor

Naeem Noor
Senior associate

T:  +44 20 7809 2092 M:  +44 7785 464 458 Email Naeem | Vcard Office:  London

Mark Catchpole

Mark Catchpole

T:  +44 20 7809 2059 M:  +44 7767 624 975 Email Mark | Vcard Office:  London