Judgment in Verity Trustees Ltd v Wood likely to have wider implications for pension schemes

The lengthy hearing in the case of Verity Trustees Ltd v Wood has now completed and it is likely that judgment will be handed down later this year, in Autumn at the earliest.  We understand the court will be considering the following issues which are likely to have wider implications for pension schemes:

• issues relating to the requirement to obtain a "section 37 certificate" for scheme amendments, in particular whether a subsequent actuarial confirmation that the scheme continued to meet contracting-out requirements could constitute compliance with the requirements, and whether a certificate was required for an amendment that closed the scheme to future accrual;
• whether an amendment power restriction preventing prejudicial amendments to "rights" only covers past service rights or also rights in respect of future service;
• where a member has been retired for less than a year, whether the first increase should be apportioned where the rules are silent or ambiguous; and
• where a deed of amendment includes some amendments which are invalid and others which are valid, whether the valid amendments will survive under the principle of "severance" or whether the whole deed is invalidated.

High Court rules that breach of duty claims in incapacity case were time barred

In Phillips v National Grid Gas Plc, the High Court has ruled that a member's claim was time-barred.  The member had argued that the employer had breached a duty to give a properly formed opinion   regarding whether the member's condition amounted to incapacity under the scheme rules, and that that failure was an ongoing breach.  The case is of wider importance for pension schemes because, in cases of document errors that happened a long time ago, trustees will often be out of time for bringing a claim against anyone unless they can show that there was a continuing breach of duty.  For more detail click here.

Changes to law on pension scheme surpluses announced

The Government has announced changes to the law on pension scheme surpluses.  Its response to the "Options for Defined benefit schemes" consultation also clarifies current Government thinking on some related areas of pensions policy.  For more detail, see our e-bulletin.

New requirement for company directors to verify their identity with Companies House 

The Economic Crime and Corporate Transparency Act 2023 is introducing new requirements for company directors to verify their identity with Companies House.  This can either be done directly (provided the director holds the required identity documents) or via an "Authorised Corporate Service Provider" (ACSP).  For new directors the requirements are due to become mandatory from Autumn 2025 (exact date yet to be confirmed).  For existing directors there will be transitional arrangements over a 12 month period from Autumn 2025 which will tie into when the company's next confirmation statement is filed.  Since 8 April 2025 it has been possible for company directors to complete their identity verification on a voluntary basis.  For more detail, see the guidance produced by Companies House.  

We think it is generally a good idea for directors of corporate trustees to complete their identity verification on a voluntary basis at this stage to avoid the risk of overlooking the requirements once they have become compulsory.

New limited partnership governance requirements

Scheme funding arrangements and investments often use limited partnerships (LPs) in their structure. The Economic Crime and Corporate Transparency Act 2023 is due to make changes to the legislation governing LPs.  Once in force, all corporate general partners of an LP will have to have a registered officer who is an individual who is one of the general partner's managing officers.  There will also be a requirement for any corporate managing officer of a limited partnership to have a managing officer who is an individual.  Limited partnerships and Scottish limited partnerships are both commonly used in structuring of investment vehicles used by pension schemes.  Trustees should consider whether any existing scheme funding arrangements or investment structures that make use of LPs are due to be affected by the changes.

New statutory right to neonatal care leave

A new right to neonatal care leave (NCL) has been introduced where an employee who is a parent wishes to take leave in order to care for a child in neonatal care.  (The right can also apply in some circumstances to a person who is not the child's parent but is expected to have responsibility for the upbringing of the child.)  The right applies in respect of children born on or after 6 April 2025.

The legislation provides that a scheme member on paid NCL is entitled to remain in scheme membership on the same basis as if the member had worked normally and received the remuneration likely to be paid for doing so.  However, the member is only required to pay contributions on the amount of contractual remuneration or statutory neonatal care pay actually received.  Any inconsistent provisions in the scheme rules are treated as overridden by the statutory requirements.

There is no statutory requirement that a member must be treated as accruing pension benefits during a period of unpaid NCL.  However, subject to this, an employee who takes NCL is entitled to return with pension rights as they would have been if the employee had not been absent, and is also entitled to the benefit of other terms and conditions that do not relate to remuneration.  The member's period of pensionable service should therefore not be treated as having been broken as a result of taking NCL, and any life cover under a pension scheme should be maintained during periods of NCL (whether paid or unpaid). 

Ombudsman finds GMP equalisation not unreasonably delayed

The Pensions Ombudsman has dismissed a complaint by a member regarding the time taken to effect GMP equalisation. However, the Ombudsman awarded the member £500 for distress and inconvenience relating to the trustee's failure to keep the member updated on progress despite agreeing to do so (CAS-71351-P8X2).  For more detail click here.

Ombudsman upholds decision to pay lump sum death benefit to daughter and not husband

The Ombudsman has dismissed a complaint by the husband of a deceased Local Government Pension Scheme member, upholding the council’s decision to pay the lump sum death benefit to the member’s adult daughter, as nominated on her death benefit nomination forms. The Ombudsman agreed with the council that it was not obliged to investigate allegations by the husband that the daughter had carried out transactions on the member's bank account without her consent (CAS-92761-H7Q6).  For more detail click here.

Member awarded £1000 for administrator's failings re provision of annual allowance statement

A member has been awarded £1000 for distress and inconvenience relating to the scheme administrator's failings relating to provision of pensions saving statements for annual allowance purposes (Dr S CAS-60994-H2H2).  The Ombudsman found that the scheme administrator's failure to provide information in accordance with a commitment given to members amounted to maladministration notwithstanding that there was not actually a legal obligation to provide the information.  For more detail click here.

Pensions Dashboards Programme (PDP) publications

In March the PDP published its standards, ie the technical rules which will govern the operation of pensions dashboards, and a blog post on what schemes need to do to connect to the pensions dashboards ecosystem.  The key actions for schemes identified by the PDP are to:

• confirm their "connect by" date as set out in the DWP's guidance;
• confirm their route to connection (eg via the scheme administrator);
• consult the PDP's pensions dashboards standards;
• prepare their data;
• decide their data matching approach; and
• visit the PDP's website to stay up to date and access its guidance.

The PDP's standards include data standards, technical standards (relevant to IT specialists dealing with connection), a code of connection, and reporting standards.

Separately the Pensions Regulator (TPR) has published a web page encouraging schemes to get "dashboards ready".  

PASA AVC Toolkit – Connecting split administration

The Pensions Administration Standards Association (PASA) Dashboards Working Group has released an "AVC Toolkit" dealing with dashboard connection issues when a scheme has more than one administrator.  This can arise, for example, when the administrator for AVCs is different to the administrator for the main scheme benefits.  Under the legislation, the duties apply to all benefits from the date a scheme first connects to the pensions dashboard, so compliance can legally only be achieved by all of a scheme's administrators connecting on the same date.  In practice this may not be practicable, so PASA has liaised with the Pensions Regulator (TPR) on this issue.  

Where it is not possible to connect in relation to all scheme benefits at the same time, TPR expects efforts to be made to connect in relation to any remaining benefits at the earliest opportunity.  TPR says that it will take a pragmatic approach, taking account of the impact on members.  On the question of whether trustees are required to report the breach of the law to TPR if the scheme does not connect in relation to all benefits at the same date, TPR says that it will not normally consider the breach to be materially significant if prompt and effective action is taken to connect in respect of all remaining benefits by the connection deadline of 31 October 2026.

There may be scenarios where scheduling by the Pensions Dashboards Programme means that it is not possible for all of a scheme's Integrated Service Providers (ISPs) to be connected to dashboards at the staging date in the guidance.  TPR has confirmed that currently there will be no regulatory intervention for schemes who are unable to meet their connection dates in the guidance solely due to their dependence on a "volunteer participant" who has yet to connect.

Annual funding statement 2025

The Pensions Regulator (TPR) has published its Annual Funding Statement 2025.  The statement is particularly relevant to schemes with valuation dates from 22 September 2024 to 21 September 2025 (Tranche 24/25). Some key points of note are:

• as of 31 December 2024, TPR estimated 85% of schemes were in surplus on a technical provisions basis and 54% were in surplus on a buy-out basis.  TPR therefore expects most schemes to be shifting their focus from deficit recovery to end game planning;
• TPR estimates that 80% of schemes will be capable of falling within the Fast Track parameter for scheme valuations;
• TPR expects to publish the response to its statement of strategy consultation in Spring 2025 and some "DB end game guidance" in early Summer;
• TPR suggests it is good practice for trustees to have in place a policy for release of surplus in the context of their individual scheme and suggests trustees may wish to start thinking about how they would approach any request from the employer to release surplus;
• TPR is moving away from covenant ratings towards a system of categorising schemes according to whether they have a funding level at or above low dependency, below low dependency but above technical provisions, or below technical provisions;
• TPR expects s proportionate covenant assessment to be carried out whether or not the scheme meets the Fast Track requirements.  It also stresses that "low dependency is not no dependency", ie that trustees should continue to monitor the employer covenant even if the scheme is fully funded on a low dependency basis; and
• in assessing "supportable risk", TPR expects that as a minimum trustees will reflect a downside event with a probability of one in six applied over the "reliability period", ie the period over which trustees have reasonable certainty over the employer’s cash flow to fund the scheme.

Our thoughts

There is no statutory requirement for trustees to have a surplus policy, and TPR's suggestion that it is good practice to have one seems somewhat premature at this stage, given that we know that the Government is planning to publish proposals on surplus, but don't yet have the detail.

New data quality initiative

The Regulatory Initiatives Grid published by the FCA shows a new entry for the Pensions Regulator's data quality regulatory initiative.  The entry says that data quality is critical to the success of pension dashboards and that TPR is targeting those schemes which it believes are not taking adequate steps to measure and improve the completeness and accuracy of their member data.  TPR intends to use scheme return data to identify which further schemes to target.  

Statement of strategy consultation response

The Pensions Regulator (TPR) has published its response to its consultation regarding the statement of strategy (SoS) that trustees of defined benefit schemes will be required to submit as part of the new funding regime.  The response details various changes made since publication of the original consultation draft.  The general theme of the changes is that TPR has reduced the volume of information that trustees are required to provide and has included more free text boxes to give trustees greater flexibility to describe and explain their approach.  The consultation response also announced the launch of TPR's new "Submit a scheme valuation" digital service.

Regulator sets out approach to supporting growth

In a letter to the Prime Minister the Pensions Regulator (TPR) has responded to a Government request to regulators asking them to set out changes or commitments which they intend to make in the interests of supporting growth.  TPR says that it will step up its compliance activity "to get low quality trustees out of the market".  TPR says it will seek to ensure that "all schemes have trustees capable of considering a diversified range of investments".  TPR also commits to a review of all regulatory interventions over the next 12 months "to identify any that do not drive material benefits for removal or improvement".  In a separate but related announcement, TPR has said that it plans to introduce a framework for the oversight of professional trustees.

Pensions Regulator blog re superfund transfers

In April the Pensions Regulator (TPR) published a blog post clarifying what it needs from trustees and employers where a scheme is proposing a transfer to a superfund. The blog clarifies that trustees do not need to obtain a buy-out quote for the purpose of determining whether a buy-out would be affordable. An objective estimate of the cost of executing a buy-out from an actuary with experience of the market will suffice.  TPR does expect to see a strong rationale as to why transferring is in the members' best interests.  

Pension providers sign Mansion House Accord re intent to increase investment in private markets

Seventeen workplace pension providers managing around 90% of active members' defined contribution pension funds have signed the "Mansion House Accord" in which they express an intent, on a voluntary basis, to achieve a minimum 10% allocation to private equity markets across all main default funds in their DC schemes by 2030, with at least 5% of the total going to UK private markets.  "Private markets" for this purpose means unlisted equities, property, infrastructure and debt/credit.

The Accord makes clear that the signatories' commitment is dependent on implementation by the Government and regulators of various "critical enablers".  These include "a pipeline of UK investment opportunities, which the Government has agreed to facilitate".  The Accord also makes clear that the intention is subject to the signatories' fiduciary duties.

Government announces minimum size for master trusts and "reserve power" to direct investments

At the end of May the Government published its Pension Investment Review Final Report alongside the response to its consultation "Unlocking the UK pensions market for growth".  The Government confirms that it will legislate through its forthcoming Pension Schemes Bill to require that pension providers and master trusts must have at least one main default arrangement with at least £25 billion in assets under management (AUM) by 2030.  The Government plans to engage with industry to refine the definition of default arrangement for this purpose.  The minimum size requirement will not apply to single employer trusts, collective defined contribution (CDC) schemes, schemes that are only available to a closed group of employers related to their industry or profession, or to default arrangements that serve a "protected characteristic" such as religion.

There will be a "transition pathway" to allow additional time for schemes to reach the required scale if a provider or master trust can demonstrate that it has at least £10 billion in AUM by 2030 and a credible plan to have £25 billion in AUM by 2035.  The Government will legislate to prevent new default arrangements being created except with regulatory approval.  

The Pension Schemes Bill will include a "reserve power" to allow the Government to set targets to invest in a broader range of private assets, including in the UK.  The Government says that it does not anticipate exercising this power unless it considers that the industry has not delivered the change on its own following the "Mansion House" commitments.  (See separate item on this.)  

The Government says that it will launch the next phase of its Pensions Review "in the coming months".  This will focus directly on the question of the adequacy of pensions outcomes.

Small pots delivery group report

In April the Government published a report from its Small Pots Delivery Group.  Key points are:

• The Government confirms its commitment to include provisions in the forthcoming Pension Schemes Bill for the automatic consolidation of small deferred pension pots, with the initial definition of "small" being a pot with a value of £1000 or less;
• The previous small pots consultation said that small pots in scope would be those created since the introduction of auto-enrolment to which no contribution has been made for at least 12 months and which are held within charge-capped default funds.  (Pots with guarantees will be excluded.) The latest report does not suggest that there have been any changes to this policy;
• Duties on pension schemes to transfer eligible pots to consolidators are likely to come into force from 2030.  The small pots consolidation regime will be phased in;
• In scope pots will be transferred to an authorised consolidator scheme.  It is envisaged that authorised consolidators will mainly be master trusts that meet additional requirements;
• Members will be able to choose which authorised consolidator they want their pot transferred to.  Members who do not make a choice will have their pot consolidated into the authorised consolidator that holds the largest pot for that member.  If the member has no existing pots with a consolidator, the pot will be allocated in accordance with a "carousel" approach whereby pots are divided in equal proportions between the authorised consolidators;
• A "Small Pots Data Platform" will act as a central hub to undertake data matching and identity verification so that schemes know which pots need to be transferred to which authorised consolidators; and 
• The Government encourages employers to obtain personal e-mail addresses for members, as these may play a significant role in the matching and communication process.

Our thoughts

It is likely to be some time before we see schemes under a legal duty to take action in relation to small pots consolidation.  The implementation timescale of 2030 is beyond the date of the next General Election, though earlier consultations on small pots consolidation took place under the previous government, so there is no reason to assume that a change in government would necessarily result in a policy change on this issue.

The member data to be used for the purposes of consolidation has not yet been determined, but the Small Pots Delivery Group suggests that the primary data set needed will be first name, surname, date of birth and NI number, and that where possible schemes should provide the supplementary data set of mobile number, e-mail address and previous addresses and postcodes.  It would therefore be sensible for trustees to consider at this stage whether their scheme holds this data for existing members. 

Government "actively considering next steps" re section 37 certificates

In February the pensions minister responded to a parliamentary question asking whether the government plans to introduce regulations amending section 37 of the Pension Schemes Act 1993 (ie the section which results in the potential for scheme amendments to be invalid where no "section 37 certificate" was obtained).  The minister's response was that no final decision had been made, but that the government was "actively considering [its] next steps" and would provide an update in due course. 

HMRC researches "hypothetical" withdrawal of NI and tax advantages for salary sacrifice  

On 27 May 2025 HMRC published the findings of research it had commissioned to "understand the experiences, motivations, and attitudes of employers towards using salary sacrifice arrangements for pensions".  The research involved presenting employers with three "hypothetical scenarios" involving the removal or reduction of National Insurance (NI)/tax exemptions in relation to pension salary sacrifice arrangements.  Scenario 1 removed the NI exemption for employers and employees, scenario 2 removed the income tax exemption for employees as well as the NI exemption for employers and employees, and scenario 3 removed the NI exemption but only on salary sacrificed above a £2000 a year threshold.

Our thoughts

The research itself does not expressly say that the government is considering any changes to the law in relation to salary sacrifice and pensions.  However, the very fact that the research has been commissioned indicates that this is a policy area under active consideration.  Publication of the research may be an attempt to "test the water" regarding the likely reaction of public opinion to the withdrawal of exemptions in this area.

FCA report on private market valuation practices

In March the FCA published its findings from its multi-firm review of valuation processes for private market assets.  The FCA notes that private markets have grown significantly in recent years and that the judgment-based approaches required for less liquid assets give rise to a risk of inappropriate valuations.  The FCA's review assessed the robustness of firms' valuation processes and governance.  The FCA says that it considered valuation processes robust if they could evidence independence, expertise, transparency and consistency.

The FCA found many examples of good practice, but also identified areas where firms should make improvements.  Whilst all firms identified conflicts of interest around fees and remuneration, other potential conflicts were only partly identified and documented.  These included potential conflicts relating to investor marketing, secured borrowing, asset transfers, redemptions and subscriptions, and assets and volatility.  The FCA also found that many firms did not have defined processes or a consistent approach for ad hoc valuations to revalue assets during market or asset-specific events.

Our thoughts

The current direction of travel in government and regulatory policy has been to encourage trustees to invest more in private assets.  The FCA findings highlight the risks inherent in valuations of private assets where the lack of frequent trades in the asset in question means that there is less certainty around the accuracy of valuations.

Feedback statement from FCA Vote Reporting Group on template for asset managers

The FCA's Vote Reporting Group has published a Feedback Statement summarising the feedback it received to its proposals for a voluntary, standardised reporting template for asset managers for them to communicate with clients on their voting activity.  The Feedback Statement includes the Vote Reporting Group's agreed voluntary vote reporting template.  The template will be owned by the PLSA (Pensions and Lifetime Savings Association) which will incorporate elements of its existing template into the Group's template to create a new template.  The PLSA intends to publish guidance for the new template later in 2025.

PASA updated guidance on data readiness for buy-ins and buy-outs

PASA (the Pensions Administration Standards Association) has published updated guidance on data readiness for buy-ins and buy-outs.  The guidance includes an appendix listing the data items that are typically relevant for all members followed by four further appendices covering data items typically relevant for in-service members, deferred members, pensioners and dependants.  

PASA Guidance on Identity Management and Assurance

PASA (the Pensions Administration Standards Association) has published new guidance on Identity Management and Assurance.  "Identity management" refers to the, processes used to ensure that only the right people are granted access to services and resources.  "Identity assurance" refers to the process of being sure individuals are who they say they are.  The guidance focuses on the interactions likely to pose the most risk of fraud in relation to to members' pension pots, and highlights identity and assurance practices to counter those risks.  The guidance highlights the payment of transfer values, the point at which a member starts to take benefits, and the death of a member as points at which there is a particularly high risk of fraud.

Extension of EU data protection adequacy decision re UK

The EU has approved an extension of its data adequacy decision regarding the UK until 27 December 2025.  This decision allows the free transfer of personal data between the UK and EU.