Welcome to the latest edition of our Trustee Quarterly Update!
Recovery of pension overpayments not subject to six year limitation periods
In the recent case of Burgess v BIC UK Ltd, the judge took the view that no limitation period applies to the situation where trustees seek to recover overpaid benefits by setting off the overpayments against future benefit payments. This conflicts with the approach to this issue taken by the court in the case of Webber v Department for Education, on which we reported in our December 2016 Update. For more detail, click here.
Box Clever judgment: Regulator can look back to events before moral hazard powers introduced
A tribunal has ruled that when deciding whether to issue a financial support direction (FSD) under its "moral hazard" powers, requiring a company associated with a scheme employer to put in place financial support for an underfunded scheme, the Pensions Regulator can take into account actions which were taken before the moral hazard powers became law. The judgment also has important wider implications for the approach the Pensions Regulator should take when deciding whether to issue a FSD. For more detail, click here.
Supreme Court holds "no oral variation" clauses are enforceable
In its recent judgment in Rock Advertising Limited v MWB Business Exchange Centres Limited, the Supreme Court has upheld the validity of clauses in contracts which specify that a variation to the contract can only be made in writing. The Supreme Court judgment overturns the Court of Appeal's judgment, which had held that as English law does not require contracts themselves to be in writing, the parties to a contract must always be free to vary a contract orally, including any clause which says that variations must be in writing. For more detail, click here.
Supreme Court rules employer's notice did not take effect until employee had opportunity to read it
In Newcastle upon Tyne Hospitals NHS Foundation Trust v Haywood the Supreme Court held that an employer's written notice did not take effect until the employee had had an opportunity to read it. For more information on the case, click here.
Company's consent to appointment as principal employer does not amount to consent by subsidiary to removal
In our September 2016 Update, we reported on the case of Shannan v Viavi Solutions, in which the court considered the legal effect of a series of pension scheme documents executed over a number of years where changes to the scheme had purportedly been made retrospectively and/or based on a misunderstanding as to the identity of the principal employer. This judgment was subsequently appealed, but only on limited grounds, so most of the points in the first judgment still stand. However, one point on which the Court of Appeal disagreed with the first judgment was the judge's finding that where the old principal employer was a wholly owned subsidiary of the new principal employer, consent of the new principal employer to its appointment could also be taken to be consent of the old principal employer to its removal.
PPF compensation cap may breach EU law
In Hampshire v Board of the PPF, the Court of Justice of the European Union (CJEU) is due to consider whether the level of compensation provided by the PPF is sufficient to comply with EU law. The Advocate General to the CJEU has now given her opinion that EU law requires each individual employee to be provided with compensation of at least 50% of his accrued pension rights. The PPF does not provide compensation at this level for all employees. In particular compensation may be less than 50% where the PPF benefit cap applies (which currently equates to a maximum PPF pension of £35,106 per year).
The outcome of this case remains far from certain given that (a) Advocate General opinions are of persuasive value only and not binding on the CJEU; and (b) it is not yet clear how Brexit will affect the UK's approach to this issue.
New ICO guidance as GDPR comes into force
The General Data Protection Regulation (GDPR) came into force on 25 May. In the run up to that date, the Information Commissioner's Office (ICO) published more detailed guidance on various topics including:
- guidance on the "right to be informed", which includes guidance about fair processing notices;
- guidance on the "right of access" which includes guidance on dealing with data subject access requests; and
- guidance on data protection impact assessments (DPIAs). The ICO has published a list of ten types of processing which automatically require a DPIA. This includes "invisible processing" where data about an individual is obtained from someone else and the data controller does not inform the individual about the processing on the grounds that this would be impossible or involve disproportionate effort. This is potentially relevant to scheme trustees in the context of lump sum death benefits where trustees may hold information about potential beneficiaries which has not been provided by the beneficiaries themselves.
The ICO is also consulting on its draft Regulatory Action Policy. Broadly, this indicates that the ICO's focus is likely to be on breaches which:
- are committed wilfully;
- result in losses or distress for individuals; or
- affect a large number of people.
The ICO will also consider whether a breach involves sensitive personal data.
Financial Guidance and Claims Act 2018 to require new rules on pensions guidance
The Financial Guidance and Claims Act 2018 received Royal Assent on 10 May 2018. The Act:
- provides for the creation of a single financial guidance body through merging Pension Wise, the Money Advice Service and TPAS (apart from the TPAS dispute resolution function, which has moved to the Pensions Ombudsman);
- requires the government to make new rules which will require scheme trustees to ensure that members with money purchase benefits receive or opt out of pensions guidance before taking or transferring their benefits; and
- gives the government the power to ban "cold calling" in relation to pensions and requires the Secretary of State to provide a timetable for doing so if he has not exercised the power by the end of June.
Master Trust developments
We have previously reported on the introduction of legislation which will prohibit the operation of a master trust unless the scheme is authorised by the Pensions Regulator. Broadly, a master trust scheme is an occupational pension scheme which provides money purchase benefits and is intended for use by two or more unconnected employers.
Following consultation, the Government has now published its consultation response and revised draft regulations setting out the detail of the new authorisation regime. There have been some changes to the detail, but not to the fundamentals of the regime. The fee for applying for master trust authorisation is £41,000 for existing schemes and £23,000 for master trusts that only start operating after the requirement for master trust authorisation has come into force (expected to happen on 1 October 2018). The Pensions Regulator has consulted on a code of practice on the authorisation and supervision of master trusts.
Money Laundering Regulations - HMRC announces change of policy
In previous updates we have reported on the implications for pension schemes of new money laundering regulations which came into force in 2017. Under the regulations, certain tax liabilities (in a pension scheme context, generally stamp duty) trigger an obligation to register with HMRC. HMRC had previously said that where the regulations required a scheme to register, it would be required to register with HMRC's Trust Registration Service (TRS). However, at the start of May, HMRC published new guidance saying that where a scheme is already registered with HMRC via Pension Schemes Online or Manage and Register Pension Schemes, there is no requirement to also register with TRS in order to comply with the money laundering regulations.
Separately, HMRC has announced the penalties that will apply where a scheme is required to register under the money laundering regulations, but fails to do so on time. The penalty will be £100 for registrations made up to three months from the due date, £200 for registrations made three to six months after the due date, and the greater of 5% of the tax liability or £300 for registrations more than six months late. As regards calculating how late a registration is, it appears that HMRC may calculate the delay from the due date of 31 January specified in the regulations rather than the 5 March deadline it allowed in practice, though this is not completely clear.
Taxation of scheme benefits for Scottish taxpayers
In its Pension Schemes Newsletter 96, HMRC has published details of how the benefits of Scottish taxpayers will be taxed in the light of the different rates of income tax introduced for Scottish taxpayers for the tax year 2018/19.
New Manage and Register Pension Schemes Service
HMRC's Manage and Register Pension Schemes service newsletter contains details of HMRC's new digital platform for managing and registering pension schemes which will eventually replace HMRC's existing Pension Schemes Online service. The first phase of the roll out will apply to the registration of new schemes, so there is no immediate change in relation to existing schemes. Since the newsletter was published, HMRC has announced some minor delays to the timetable set out in the newsletter.
- Pensions Ombudsman
Change of address and move of TPAS dispute resolution function to Pensions Ombudsman
The dispute resolution function of the Pensions Advisory Service (TPAS) moved to the Pensions Ombudsman with effect from 1 April 2018. On 3 April 2018, the Pensions Ombudsman moved to a new address: 10 South Colonnade, Canary Wharf, E14 4PU.
The Pensions Ombudsman's address, and the fact that TPAS is available to assist members with pensions questions and issues they have been unable to resolve with the scheme trustees, form part of the basic information which trustees are required under the disclosure regulations to provide to members and update as necessary. The wording of the regulations dealing with pension scheme disclosure requirements has not yet caught up with the TPAS change, but trustees may wish to consider adding wording to explanatory literature to clarify the position. Trustees should consider whether there are any communications with members planned which could be used to inform them of the Pensions Ombudsman's change of address.
Ombudsman dismisses complaint against scheme for transferring to pensions liberation vehicle
In the case of Mr E (PO-15726) the Ombudsman has dismissed a complaint against a pension provider which, at the member's request, made a transfer to a scheme which turned out to be a pensions liberation vehicle, apparently involved in fraud. For more detail, click here.
Ombudsman holds scheme responsible for GMP where HMRC records conflict with scheme's
In the case of Mr R (PO-5617) the Deputy Pensions Ombudsman (DPO) has held a scheme liable for providing a member's GMP in respect of a period of service in the 1980s/early 90s where HMRC's records showed the scheme as being liable for the GMP despite the scheme having no record of having assumed responsibility for the member's benefits. For more detail, click here.
- The Pensions Regulator
Annual funding statement
The Pensions Regulator has published its annual funding statement for defined benefit pension schemes. The statement is aimed particularly at schemes with effective actuarial valuation dates between 22 September 2017 and 21 September 2018, but the key messages are also intended to be relevant to other schemes. For more detail, please click here.
The Regulator has published its corporate plan for 2018-2021, setting out what it is doing to become a "clearer, quicker and tougher regulator". In line with the direction of travel indicated by the White Paper (covered below), the Regulator says it plans to intervene more widely, focussing particularly on schemes that present the biggest risks. The plan also indicates that the Regulator intends to focus further on smaller defined benefit schemes.
The Chairs of Parliament's Work and Pensions and BEIS Committees have written to the Chairman of the Pensions Regulator expressing disappointment at the key performance targets in the Regulator's corporate plan, which they regard as being "very modest in scope". The Committees had already been critical of the Regulator in their report into Carillion's collapse. It appears clear that the committees are keen to ensure the Regulator has real "teeth".
Regulator issues first fine against professional trustee for failing to notify its appointment
The Pensions Regulator has issued its first fine against a professional trustee for failing to notify the Regulator of its appointment. Trustees have a legal duty to notify the Regulator of changes to their "registrable information" within a reasonable time period and the proactive nature of this duty is often overlooked. In the case in question, it came to the Regulator's attention, during correspondence about a failure to complete a scheme return, that a professional trustee had been appointed to the scheme eight months previously, but that the Regulator had not been informed. The Regulator imposed a fine of £3000 on the professional trustee and £300 on each of the lay trustees.
The professional trustee's failure to update the registrable information was "apparently due to concerns over other possible penalties", so there was clearly more to the case than just a failure to report a change of trustee, and that likely influenced TPR's actions. Nevertheless, this case is another recent example of TPR's new tougher approach.
Cyber security principles for pension schemes
The Pensions Regulator has issued new regulatory guidance "Cyber Security Principles for pension schemes". The guidance sets out its expectations of good practice for pension schemes with regards to the security of scheme information.
FCA considers ban on contingent charging structures
The FCA has consulted on measures aimed at improving the quality of pension transfer advice where a member is considering transferring benefits from a defined benefit to a money purchase arrangement. This includes seeking views on whether it should introduce a ban on contingent charging, which is when a fee for advice is only paid when a transfer goes ahead. Other possible measures include raising the level of qualifications required for pension transfer specialists and guidance to illustrate how firms can carry out an appropriate ‘triage’ service (an initial conversation with potential customers by providing generic, balanced information on the merits of pension transfers without this legally amounting to "advice").
At the same time as it published the consultation, the FCA also published new rules on pension transfer advice. These include requiring all advice on pension transfers to be a personal recommendation. Following consultation, the FCA has decided to maintain its existing position that an adviser should start from the assumption that a transfer from a defined benefit to a money purchase arrangement will be unsuitable.
White Paper on DB Pension Schemes
In March the Government published its White Paper on defined benefit pension schemes. For more detail, see our e-bulletin.
Guidance on bulk transfers of money purchase benefits without consent
In our last Update we reported on the changes to the legislation on transferring money purchase benefits without consent which came into force on 6 April 2018. On 30 April 2018 the Government published guidance on complying with the requirements.