Estimated reading time: 7 minutes
From Barnardo’s and BT to Superfunds via GMP – Head of Pensions Research, Tyron Potts, maps out an ‘A - Z’ of everything you may have missed in world of pensions this winter.
Barnardo’s and BT: RPI vs CPI
The Supreme Court has ruled that the Barnardo's pension scheme cannot change the inflationary index it uses for pension increases from the Retail Price Index (RPI) to the Consumer Prices Index (CPI). Eight reasons for dismissing the appeal were outlined, mostly relating to the precise construction of the Barnardo’s scheme's rules.
Meanwhile the Court of Appeal has upheld an earlier High Court decision, relating to BT. As with Barnardo’s, BT is not able to change the inflation measure for pension increases from RPI to CPI (relating to the third section of the BT pension scheme). The decision hinged on whether the RPI had become inappropriate for increasing pensions. The court concluded that it had not.
CDC Schemes Consultation
The Department for Work and Pensions (DWP) has issued a public consultation. This sets out how it expects Collective Defined Contribution (CDC) schemes to work in the UK. In particular, the consultation focuses on establishing a framework for the specifics of the CDC scheme, agreed between the Royal Mail and the Communication Workers' Union (CWU) earlier this year.
CDC schemes are viewed as risk-sharing arrangements that sit between the traditional Defined Benefit (DB) scheme (where employers bear the majority of the risk) and Defined Contribution (DC) schemes (where members bear the risk).
Some details of the proposed Royal Mail CDC scheme are set out in a policy research paper issued jointly with the Pensions Policy Institute (PPI). For further information, see Danny Wilding’s blog post ‘Delivering CDC Pension Schemes’.
Dashboard: Feasibility Study
The DWP has published a feasibility study examining ways in which the Government can help the industry to create pensions “dashboards” to sit alongside the non-commercial alternative to be hosted by the Single Financial Guidance Body (SFGB). Occupational schemes, including DB schemes, may be expected to provide member data to the relevant dashboard services within the next four years.
The SFGB was launched on 1 January 2019 as a result of the merger between The Pensions Advisory Service (TPAS), Pension Wise and the Money Advice Service (MAS). The SFGB is expected to be renamed later this year.
FCA: Pension Transfer Advice
The Financial Conduct Authority (FCA) has published new rules and guidance for Independent Financial Advisers (IFAs) and Pension Transfer Specialists (PTSs). This is intended to improve the quality of pension transfer advice, particularly in relation to transfers from DB schemes.
The new rules include additional qualification requirements for PTSs, and guidance for IFAs carrying out an appropriate ‘triage’ service (i.e. initial conversations with members).
Most of the proposals in the FCA’s original March 2018 consultation are to be implemented. One notable exception is that, at this time, contingent charging (e.g. fees only payable when a transfer proceeds) will not be banned in respect of DB transfers. However, a further review will be conducted in due course.
The High Court has published its judgement in the case of Lloyds Banking Group Pension Trustees Limited vs Lloyds Bank plc (and others). The case was concerned primarily with the requirement to equalise pension benefits for the effects of unequal Guaranteed Minimum Pensions (GMPs) – referred to colloquially as “GMP equalisation” (even though the GMPs themselves are not generally to be equalised).
TPR has published a step-by-step guide to help trustees identify whether their scheme meets the statutory definition of a Master Trust. Those schemes which do meet the definition will need to apply to TPR for authorisation by 1 April 2019 and comply with additional reporting requirements.
A Master Trust is broadly an occupational pension scheme that provides ‘money purchase’ benefits and is used by two or more employers. However, a multi-employer DB scheme where the only money purchase benefits are in respect of Additional Voluntary Contributions are not classified as Master Trusts. Neither are multi-employer schemes where the employers are all connected.
Further information can be found here.
Occupational Pension Schemes Survey
The Pensions Regulator (TPR) has published the findings of a quantitative survey of DB schemes, carried out in March 2018. According to the research, 92% of trustees and 87% of employers have read TPR's funding code of practice or a summary of it, and the large majority of trustees and employers are meeting TPR’s “working collaboratively” expectations.
The survey also found that smaller DB schemes are falling behind with their governance standards and meeting the principles of the funding code of practice.
Pension Protection Fund (PPF): Hampshire ruling
The Court of Justice of the European Union (CJEU) has handed down its judgment in the case of Hampshire v the Board of the PPF. The CJEU has concluded that Article 8 of the EU Insolvency Directive requires at least 50% of an individual’s “expected old age pension benefits” to be protected in the event of employer insolvency. This means PPF compensation rules in relation to the Compensation Cap will have to be amended.
The PPF has begun writing individuals who may be affected by the CJEU ruling and has published a policy document which sets out a high-level explanation of its approach going forward. The PPF has already written to capped pensioners and is developing a process for how they will increase payments for those affected. The PPF is also speaking to Trustees of schemes in assessment about benefit calculations in light of the ruling.
PPF: 2019/20 Levies
The 2019/20 Pension Protection Fund (PPF) levy rules have been published. The documentation sets out the PPF’s plans for calculating this year’s levy (i.e. the levy payable in autumn 2019). The PPF expects to collect a total levy of £500m. This is lower than the £550m estimate for the 2018/19 levy year, despite last year being a record year of claims on the PPF.
Meanwhile, the PPF has updated its Levy Data Correction Principles document, which outlines the key principles that will be applied when the PPF considers a levy data correction request from schemes and advisers.
State Pension Age - Equalised
State Pension Ages have now been equalised at 65 for men and women (with effect from 6 November 2018) following the end of an eight-and-a-half year transition period.
Superfunds: DWP Consultation
The Department for Work and Pensions (DWP) is consulting on measures to support the consolidation of Defined Benefit (DB) Pension Schemes, following on from proposals set out in the March 2018 White Paper.
The DWP has suggested that superfunds will fit in the same legislative space as existing occupational pension schemes, although subject to a more robust regulatory framework which reflects the additional risks posed. TPR will formalise the new supervisory regime in due course. In the meantime, schemes anticipating a transfer to a consolidator arrangement are expected to seek voluntary clearance from TPR.
For more information on pension scheme consolidation as an alternative to traditional exit strategies, please see our briefing note.