Estimated reading time: 3 minutes
From Brexit to Safeway via the Lifetime Allowance – Head of Pensions Research, Tyron Potts, maps out an ‘A - Z’ of everything you may have missed in the world of pensions this spring.
The Pensions Regulator (TPR) has issued a Brexit statement saying that it does not expect the UK’s departure from the European Union (EU) “to have a significant effect in respect of the legislative basis under which schemes operate or trustees’ ability to continue to administer their scheme effectively” – whether or not, a deal is reached between the EU and the UK.
This statement was issued before the deadline for the UK to leave the EU and was extended to 31 October 2019 (which stands at the time of publication).
The Competition and Markets Authority (CMA) issued its final report in December 2018, announcing ‘a range of reforms to the investment consultancy and fiduciary management sector’. The report followed an extensive market investigation which began in September 2017.
The CMA found competition problems within both the investment consultancy and – to a greater degree – the fiduciary management markets. The CMA is now consulting on a draft order which will bring many of its proposals into force, including requiring trustees to conduct competitive tenders before receiving Fiduciary Management services. This will apply retrospectively, meaning all pension schemes receiving Fiduciary Management services, (which were put in place without meeting the CMA’s stricter definition of a ‘competitive tender’) must put these services out to retender over the next two years.
In March 2019, the Department for Work and Pensions (DWP), TPR and HM Treasury then published a further response to the CMA review, confirming that TPR will oversee trustees’ compliance with the new duties and will produce guidance in the coming months.
Barnett Waddingham is a provider of independent Fiduciary Management oversight services, but is not a fiduciary manager. Information on how we can help you navigate the CMA review findings can be found in our January 2019 briefing.
Collective Defined Contribution (CDC) Schemes
The DWP has responded to an earlier consultation on delivering CDC schemes, in which it set out how it expects such schemes to work in the UK. In particular, the consultation focused on establishing a framework for the specifics of the scheme agreed between the Royal Mail and the Communication Workers' Union (CWU) in 2018.
CDC schemes are risk-sharing arrangements operating in the space between the traditional Defined Benefit (DB) approach where the employer bears the majority of the risk, and Defined Contribution (DC) where the member bears the most risk.
The Royal Mail Group and CWU have since publicised the anticipated design of its CDC pension scheme. Their booklet includes details of how the ‘pension adjustment mechanism’ will work – increasing or decreasing pensions according to how well-funded the benefits are.
The DWP noted in its response that it intends to legislate ‘as soon as Parliamentary time allows’ and will do so in a way that ‘can quickly accommodate other models of CDC if appropriate in the future’.
Fiduciary duty to sponsors
The High Court has confirmed that pension scheme trustees owe no fiduciary duty to their scheme’s sponsor. The ruling, part of wider considerations in relation to the KeyMed pension scheme, made clear that “a fiduciary can serve only one master” (in this case the scheme’s beneficiaries), although it still leaves trustees able to consider employers’ (and others’) interests.
Hampshire ruling (PPF)
The Pension Protection Fund (PPF) has published a further update on its plans following the ruling by the Court of Justice of the European Union (CJEU) in the case of Grenville Hampshire - pointing out that since December, new court proceedings have started against the PPF. The PPF’s intention is to continue with plans to pay increases to affected members but will limit the size of arrears payments to avoid having to recover overpayments from members if the courts decide the PPF must take a different approach.
The PPF has also published a set of FAQs setting out their intentions.
Insolvency: Contingency planning
Working with TPR, the PPF has published a guide for trustees on contingency planning for employer insolvency - intended to help when there is a higher risk of the sponsoring employer becoming insolvent. However, it also highlights the practical steps that trustees of schemes with strong employers should be taking to reduce future risks associated with insolvencies.
Kodak – Lessons learned
The Kodak No2 pension scheme (‘KPP2’) has entered PPF assessment with a £1.5 billion deficit – the largest claim on the PPF to date. The 11,000 member KPP2 scheme was formed in March 2014 when the trustees of the original Kodak Pension Plan (KPP) entered into a Regulated Apportionment Arrangement (RAA) with the Eastman Kodak Company (EKC), TPR and the PPF. As a result of the RAA, KPP2’s assets included a significant share in Kodak’s imaging businesses (now known as Alaris).
Lifetime allowance protections (HMRC)
HMRC has updated its guidance in relation to protecting benefits from unexpected Lifetime Allowance (LTA) charges – in particular to reflect the new LTA of £1.055m from 6 April 2019.
An updated version of the Lifetime Allowance charge calculation worksheet HS345 has also been prepared for those needing to include pension valuations in 2018/19 tax returns.
The DWP has published a response to the December 2018 consultation on Pensions Dashboards. It says most pension schemes should be able to provide information via dashboards ‘within three to four years’ after the supporting infrastructure and consumer protections are in place. The Government will be legislating ‘at the earliest opportunity’ to compel providers to share savers’ data.
Safeway - Equalisation
An Advocate General of the Court of Justice in the European Union (CJEU) has given a preliminary opinion in the UK case of Safeway Ltd v Newton which was referred to the CJEU by the UK Court of Appeal.
In this particular case, the Safeway trustees had attempted to equalise retirement ages by announcement to members in 1991 (ie shortly after the Barber judgement), which was then retrospectively ratified by deed in 1996. The Safeway scheme’s rules appeared to permit backdated changes to accrued rights (until the law on amending past benefits was strengthened in April 1997 by section 67 of the Pensions Act 1995).
The Advocate General’s opinion was that EU law would still prevent the retrospective change in retirement ages, regardless of what the scheme’s rules say. The CJEU will now consider whether to follow the Advocate General’s opinion (it usually does).