Gordons Pensions Spotlight – Edition 4 of 2016

GPS is a regular summary of key developments in the pensions industry. In keeping with Gordons’ aim to clarify and not complicate matters, it is designed as a short paper for company and trustee boards.

AN EVER EVOLVING LANDSCAPE

Those of us involved with UK pensions are well versed in change, although the political events of 2016 are probably the most dramatic we have seen for many years.  While it will take time to understand what they mean in practice, it seems clear that further change is inevitable.

This will almost certainly have an effect on UK pensions.  Although pensions salary sacrifice was spared in the Autumn Statement, the pensions “triple-lock” and pensions tax relief look certain to come under further scrutiny.  Corporate governance initiatives will also be high on the agenda, partly as a result of the effect which the collapse of BHS had on the BHS pension scheme.

WHAT DO YOU NEED TO KNOW?

The Pensions Regulator has started enforcement action to seek redress for the members of the BHS pension scheme. Warning Notices have been sent to Sir Philip Green, Dominic Chappell, Taveta Investments Limited, Taveta Investments (No 2) Limited and Retail Acquisitions Limited. Click here for more information.

Comment: Given the high political profile of the BHS case, formal action was inevitable.  It remains to be seen what can be enforced and what value can be extracted for the pension scheme members.

The Institutions for Occupational Retirement Provision (“IORP”) Directive has been approved by the European Parliament and EU Member States will now have to implement the terms into national laws.  These include restrictions on transfers of funds across borders and minimum standards of information for pension scheme members. Click here for more information.

Comment:  Until the UK negotiates Brexit it is an EU member state and will be obliged to take the necessary steps to implement these terms into UK law.  The UK Government has also suggested that all existing EU rules will be initially retained pending a detailed review.  Companies with cross border activities, will also need to comply with them after Brexit.  In practice, existing UK laws already cover many of the points in the IORP Directive.

As the automatic enrolment obligations are rolled out to smaller employers, the number of formal notices issued by the Pensions Regulator for failing to comply with aspects of the obligations has increased dramatically in the last quarter (to September 2016). Click here for more information.

Comment:  An increase in the number of formal notices was expected as the automatic enrolment obligations affect smaller employers.  In most cases the first notice prompts action to resolve the issue.  Only 5% of first stage notices led to a penalty notice.

WHAT IS COMING UP?

The terms of a new international agreement allowing the transfer of personal data from the EU to the USA are being finalised.  These replace the Safe Harbour Privacy Principles which were deemed unlawful by the European Court of Justice.

There will be yet another UK Pensions Act.  This will include provisions regulating master trusts and regulating administration charges.  Plus ca change!

The Lifetime ISA (LISA) is to be introduced from April 2017, offering a new and flexible way for the under 40 year olds to save. The effect this will have on pension savings remains to be seen.

The Government has announced that it will merge the services currently offered by the Money Advice Service, TPAS and Pensions Wise into a single advisory body offering guidance in relation to money, debt and pensions.

Comment: This is a sensible simplification, although the resources available to the new body will determine how successful it will be.  We hope these will be adequate.

WHAT HAVE THE COURTS AND THE OMBUDSMAN BEEN DOING?

In Mr N v Dundee City Council and the Scottish Public Pensions Agency, the Ombudsman found that the information available to a member who opted-out of scheme membership was adequate to explain the loss of certain death benefits on opting-out.  The member’s widower had challenged the adequacy of the information given.

Comment: Such cases turn on what information was available.  Here the information was in the scheme booklet, on a website and referenced on the opting-out form.  Accordingly, it was sufficient to be deemed accessible.

In Barnardo’s & ors v Buckinghamshire & ors [2016] EWCA Civ 1064, the court confirmed that the trustees of the Barnardo’s pension scheme must use the Retail Prices Index (RPI) for revaluation and indexation purposes.  The hardcoding of the phrase the “General Index of Retail Prices or any replacement adopted by the trustees without prejudicing approval” prevented the trustees switching to the Consumer Prices Index (CPI).

Comment: While not unexpected from the legal perspective, this will restrict the circumstances where employers can ask pension scheme trustees to use the CPI where there is similar inflation protection wording.

In Horton v Henry [2016] EWCA Civ 989, the court clarified that a trustee in bankruptcy cannot require a bankrupt with pension rights which are not in payment to put the pension into payment on reaching the minimum legal pension age.  This clarified earlier contradictory cases in the High Court.

Comment: In line with most other commentators, we welcome the clarification provided by this decision, which is the most sensible outcome.

The UK Supreme Court has made a reference to the European Court of Justice to determine if a person who has transition gendered from male to female must receive a state pension at the female state pensionable age where there is no gender recognition certificate.

If you have any suggestions for ways in which we can improve GPS, please let a member of the Gordons pensions team, know.