What new developments are coming up in 2017? This update looks at the ten most significant things we can expect in the new year.
Pensions Green Paper: New mandatory clearance requirements? New powers to alter increase rules?
Just before Christmas 2016, Parliament's Work and Pensions Select Committee proposed some radical changes following its enquiry into the collapse of BHS. These far reaching proposals include: mandatory Pensions Regulator clearance for some corporate transactions, greater Regulator powers (including power to impose punitive fines), shorter valuation timetables and recovery plans in some cases and new powers for trustees to agree changes to the indexation of pension benefits where such changes are needed to make a scheme sustainable. These proposals could have far reaching effects on corporate Britain. Look out for a Green Paper early in 2017.
IFRIC 14 Accounts Changes
The International Accounting Standards Board is planning changes to IFRIC 14 and IAS 19, the accounting standards which address when a pension scheme surplus can be recognised in a company's accounts. The changes may prevent a surplus being recognised if scheme trustees can wind up a scheme or enhance benefits without employer consent. Final form amendments are expected in the second quarter of 2017, applying after 1 January 2019.
Changes to Transfer Rules to combat Pension Scams
The Government's consultation on how to reduce pension scams suggests that it may legislate to limit a member's right to a transfer value. If the Government goes down this route, schemes may need to alter their procedures for dealing with transfers.
Cyber attacks made the news several times in 2016. The Pensions Regulator has recently urged schemes to protect scheme data against cyber attacks, although detail has been lacking. As pension schemes hold a lot of personal and financial data, they are likely to be an attractive target for cyber-criminals. Scheme trustees have a duty to ensure that both they and any third party service providers have appropriate security in place. Expect this issue to rise up the agenda this year, with trustees looking to their administrators and other advisers to ensure compliance.
The Government is currently consulting on a proposed methodology for equalising GMPs. We expect the consultation response to be published in 2017, at which point employers and trustees will need to consider how they approach this issue. For more detail on the GMP consultation, see our update.
Significant cases awaited in 2017
The following pensions-related court cases are likely to be decided in 2017:
British Airways case: Did Trustees have right to grant pension increases against Employer's wishes?
The hearing in the long running BA case has now concluded. The High Court will have to decide whether the Trustees acted properly in exercising their power under the scheme rules to grant pension increases against the employer's wishes when the scheme was in deficit. Scheme trustees often have to deal with scenarios where there may be a conflict between the interests of the scheme members and the employer, so the BA case may have impact on how trustees should approach this issue.
Court of Appeal to consider nature of employer's duties re pensions decisions
There are two cases due to be heard by the Court of Appeal in 2017 in which the Court will be asked to rule on whether an employer breached its overriding duty of good faith (or similar) when making pensions changes. Bradbury v British Broadcasting Corporation relates to an exercise to cap pensionable salary. IBM v Dalgleish relates to a range of pensions changes including closure of a scheme to future accrual, preventing future pay increases from being pensionable, and early retirement policy. These cases are significant when considering scheme change or closure exercises, both in the future and those which have completed in the past.
Court of Appeal to consider whether announcement sufficient to close "Barber window"
In Safeway v Newton the Court of Appeal will decide whether an equalisation announcement was sufficient to close the "Barber window". If so, it will mean that benefits earned after the announcement could be equalised for men and women on the less costly basis, with the formal documentation following on. The High Court held that the Barber window only closed with execution of the deed some years later.
Will the Supreme Court clarify when a switch from RPI to CPI is allowed?
In the case of Barnardo's v Buckinghamshire, the Court of Appeal held that scheme rules that referred to RPI "or any replacement adopted by the Trustees" did not allow the Trustees to choose to substitute CPI for RPI to calculate pension increases because "replacement" referred to replacement by the body that published the index. The employer has applied for permission to appeal to the Supreme Court, and we expect to find out in February/March whether the Supreme Court will hear the case.