Employee Benefits Updates | Remedies Decision in IBM Case

28 February 2015

Week ending 1 March: Remedies decision in IBM case|CPS call for annuities auction house| Broad comparability against the NHS Pension Scheme

Remedies decision in IBM case

In an earlier judgment, in IBM United Kingdom Holdings Ltd and another v Dalgleish and others, the claimant, IBM, was held to have breached its duty of good faith in respect of changes to close its final salary pension plan to future accrual. It was also held to be in breach of its contractual duty of trust and confidence concerning non-pensionable agreements to prevent future pay increases from being pensionable on a DB basis and changes to early retirement policy.

A further judgment was handed down 20 February 2015, mainly covering questions relating to the remedies available. The court held, amongst other things, that certain non-pensionable agreements were unenforceable and that early retirement members of the relevant pension schemes were, in principle, entitled to damages or equitable compensation from IBM as a result of the application of a new early retirement policy. Also, members were in principle entitled to damages as a result of the manner in which IBM’s consultation was carried out.

Rule amendment for new funding regime approved

In this case, Re Merchant Navy Ratings Pension Fund; Merchant Navy Ratings Pension Trustees Ltd v Stena Line Ltd and others, the Chancery Division made a number of declarations regarding a proposed amendment to the rules of the MNRPF pension scheme in order to introduce a new contribution regime under which all participating employers, whether current or historic, could be liable to contribute. Amongst other things, it was held that&ndash

  1. Taking all the relevant factors into account, the court was willing to approve the new regime. The trustee had dealt with the matter in a meticulous manner, and had sought all relevant and proper advice upon which it had properly relied. There was nothing to show either that it proposed to exercise the power of amendment in a way that exceeded its scope or that decisions had been made at which a reasonable trustee could not have arrived. The court was satisfied that all relevant and no irrelevant matters had been taken into consideration.
  2. On the evidence, after May 2001, there had been no employment to which the scheme related, and no active members in the statutory sense. There had been no members in pensionable service. Therefore, the scheme had been frozen. There had been no persons in the description or category to whom the scheme related at that time.

According to legal commentators, the ruling allows trustees to take the interests of employers into account in appropriate circumstances. Also, the judgment could have implications for schemes that have closed to future accrual but retained, for example, a final salary link. If as a result such schemes have been treated as open schemes, they will need to reconsider this.

CPS call for annuities auction house

According to a new report from the Centre for Policy Studies – Auto protection at 55 - the government should launch a not-for-profit national annuities auction house in order to automate shopping around for annuities, so to protect consumers from purchasing unsuitable retirement products.

Retirement planning behavioural barriers

According to a new report commissioned by the Association of British Insurers - ‘Freedom and Choice in Pensions: A behavioural perspective’ - the new pension freedoms due to come into effect in April 2015 are likely to increase the risk that savers will make decisions that are not in their own best long-term interests, and the government’s efforts to provide free, impartial advice may not be enough to overcome this.

The report highlights the need to take into account the realities of the way people think and act when trying to engage them in crucial decisions about their retirement. It sets out the behavioural elements of retirement income planning and examines a number of important issues including the lack of consumer engagement, shopping around and switching behaviour, and why choosing the right retirement path can prove difficult for some savers.

New thinking needed to meet retirement needs

A new report written by the ABI’s Director of Long Term Savings Yvonne Braun - ‘Retirement 2050 - Identifying the challenges of a changing world’ - draws on international experience to start a debate about ideas for reform to benefit future generations of retirees.

According to the paper, policymakers should look further ahead than the baby boomers and think about how Generations Y and Z, those born after 1980, can be helped to save and build a decent retirement.

Independent Pensions Commission needed

A new report published by the International Longevity Centre-UK and sponsored by Prudential - ‘Consensus revisited - the case for a new Pensions Commission’ - calls on the next government to introduce a new independent Pensions Commission in order to rebuild consensus-based policy making in pensions and tackle the substantial challenge of insufficient incomes in retirement.

The report contends that unless contributions into DC schemes rise, less than half of median earners will be able secure an adequate retirement income through auto-enrolment.

Given the context of policy change coupled with severe economic and demographic headwinds, the report argues for a new Pensions Commission to take a “holistic, non-partisan view of pensions policy” and make “well-informed decisions on the basis of strong evidence and widespread consensus”.

State Pension coverage: lower earnings limit and multiple jobs: 1996/97 to 2013/14

New analysis from DWP looks at the number of people with multiple jobs who are not earning enough in each job to accrue qualifying years for State Pension.

Broad comparability against the National Health Service Pension Scheme

On 12 February 2015, The National Health Service Pension Scheme Regulations 2015 (SI 2015/94) and The National Health Service Pension Scheme (Transitional and Consequential Provisions) Regulations 2015 (SI 2015/95) were laid before parliament. These regulations constitute the 2015 reforms to the National Health Service Pension Scheme in England and Wales (NHSPS (E&W)), which come into force on 1 April 2015. Similar regulations are expected to be laid imminently, to also come into force on 1 April 2015, for the National Health Service Superannuation Scheme in Scotland (NHSSS) and the Health and Social Care Pension Scheme in Northern Ireland (HSCPS).

Accordingly, with effect from 12 February 2015, existing broad comparability certificates issued by GAD against the NHSPS (E&W) ceased to be valid for transfers of employment involving this scheme which took place on or after that date. This includes situations where contractual terms have been agreed but the transfer of staff has not yet taken place. Certificates for such transfers will need to take account of the new NHSPS (E&W) regulations.

Existing broad comparability certificates issued by GAD which include coverage against the NHSSS and the HSCPS, as well as the NHSPS (E&W), will remain valid only for transfers involving the NHSSS or the HSCPS until the corresponding respective regulations for those schemes are laid. Note that GAD will not issue a further announcement in this regard to confirm when these regulations have been laid.

GAD will now accept applications for broad comparability assessments against NHSPS which take into account the 2015 reforms. In all cases, applications should be accompanied by full details of the pension proposals which are to be tested. Once GAD’s systems have been appropriately updated, GAD will be able to provide broad comparability certificates (including passport certificates) which take into account the 2015 reforms. GAD will consider requests for back-dated passport certificates in cases where these replace a passport certificate that has ceased to be valid.

Equitable Life policyholders receive £1bn

The Equitable Life Payments Scheme was set up to make ‘fair and transparent’ payments to those who had suffered financial loss as a result of government maladministration which occurred during the regulation of Equitable Life.

The Treasury stated the scheme had issued payments to 9,000 policyholders since October 2014, meaning in total 896,000 policyholders had received tax-free payments. In addition, it announced:
  • 412,000 payments had been made to individual investors, totaling £560m
  • 446,000 payments had been made to those who bought their policy through their company pension scheme, totaling £169m
  • 37,000 with-profit annuitants or their estates had been paid a total of £271m by the scheme

The Treasury stated it was committed to tracing and paying the remaining policyholders, and would take all proportionate actions to do so, including liaising with group scheme trustees, working with other government departments and writing to policyholders’ last known addresses. View the progress report here.

Pension saving at highest level since records began in 1997

Workplace pension scheme membership has increased to 59% in 2014, from 50% in 2013, according to the 2014 Annual Survey of Hours and Earnings published by the Office for National Statistics. The increase is likely to be driven by automatic enrolment. Other key findings from the survey are

  • Occupational defined benefit pensions schemes represented less than half (49%) of total workplace pension membership in 2014, for the first time since the series began in 1997.
  • Pension membership increased in all age groups in 2014 compared with 2013, with the largest increase (17 percentage points, to 53%) in the age group 22-29.
  • In the private sector, 33% of employees with workplace pensions made contributions of greater than zero but under 2% compared with 11% of employees in 2013. The increase is likely to be driven by automatic enrolment.
  • The proportion of employees in the private sector receiving employer contributions of greater than zero and under 4% was 43% in 2014, compared with 22% in 2013. The increase may be explained by new members who have been automatically enrolled into a workplace pension with lower initial employer contributions until the phasing of contributions is completed in 2018.

Further FAQs on PPF levy

The Pension Protection Fund (PPF) has published answers to a number of frequently asked questions on the pension protection levy. The latest FAQs cover, amongst other things, the legal advice required for ABC valuations.


John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions| Email: john_wilson@jltgroup.com