Developments in Employee Benefits law and practice

29 January 2018

Weekly update on new developments in the pension industry for week ending 29 January 2018: ‘Spring’ White Paper debated in Parliament | Outcome of consultation on public sector schemes and GMP equalisation and indexation | Pension Schemes Act 2017 (Commencement No 1) Regulations 2018 | Scammers ordered to repay £13.7m | Latest HMRC pension statistics | Latest edition of DC trust landscape published | High Court delivers ruling in Wedgwood scheme closure case

‘Spring’ White Paper debated in Parliament

Esther McVey, the Secretary of State for Work and Pensions, made a Parliamentary statement on the forthcoming defined benefit (DB) pension scheme White Paper. McVey’s statement was in response to the recent Carillion insolvency, which is likely to mean that the Carillion pension schemes will transfer to the Pension Protection Fund.

McVey referred to more powers and a “more proactive” role for the Pensions Regulator and rules whereby some corporate transactions would be subject to mandatory regulatory clearance.  The government does not however want adverse effects on legitimate business activity. It is still reviewing the 800 responses to the Green Paper it issued last year.

Other issues under consideration were the order of priority for pensions in the event of corporate insolvency and employer debts in multi-employer pension schemes.

Outcome of consultation on public sector schemes and GMP equalisation and indexation

The government has announced its response to the consultation on Guaranteed Minimum Pension (GMP) indexation and equalisation in public service pension schemes. This consultation was about how government should continue to meet its obligations to index (price protect) and equalise (make equal payments to men and women) the pension entitlements of a certain group of public servants with an occupational pension known as a GMP. This consultation received 62 responses, broadly in favour of the government’s objectives in continuing to ensure the GMP continues to be indexed and equalised.

The government has been implementing an “interim solution” between 6 April 2016 and 5 December 2018. The outcome of this consultation is that this solution will be extended for a further two years and four months. This will cover those members of public service schemes with a GMP who reach state Pension Age on or after 6 December 2018 and before 6 April 2021. During this period, the government will investigate the possibility of an alternative long-term methodology, known as “conversion”.

Pension Schemes Act 2017 (Commencement No 1) Regulations 2018

Under this statutory instrument (SI 2018/62), paragraph 9 of Schedule 3 to the Pension Schemes Act (PSA) 2017 is brought into force on 1 February 2018. This allows the Pensions Regulator to issue practical guidance about the exercise of functions under the PSA 2017 and the standards of conduct and practice expected from those who exercise those functions. The regulator must also issue a code of practice in relation to:

  • the process for applying for authorisation of a Master Trust scheme
  • the matters that the Pensions Regulator expects to take into account in deciding whether it is satisfied that a Master Trust scheme meets the authorisation criteria under PSA 2017.

Scammers ordered to repay £13.7m

Four people who ran a series of scam pension schemes have been ordered to pay back £13.7 million they took from their victims.

David Austin, Susan Dalton, Alan Barratt and Julian Hanson squandered the money after 245 members of the public were persuaded via cold-calling and similar techniques to transfer their pension savings into one of 11 scam schemes operated by Friendly Pensions Limited (FPL). Victims were told that if they transferred their pension pots to the schemes they would receive a tax-free payment commonly described as a “commission rebate” from investments made by the pension scheme – a form of pension scam.

On 23 January, the High Court ruled that Austin, Dalton, Barratt and Hanson should repay millions of pounds they took from the schemes over a two-year period.

The Pensions Regulator (TPR) had asked the High Court to order the defendants to repay the funds they dishonestly misused or misappropriated from the pension schemes – the first time such an order has been obtained. Austin laundered funds from the schemes into his bank account and the accounts of family members in the UK, Switzerland and Andorra through a number of businesses that he had set up in the UK, Cyprus and the Caribbean, including FPL. TPR showed the High Court evidence of how members of Austin’s family had lived a life of luxury using the money – including showing off their spending on expensive goods, ski holidays and trips to Dubai and the Mediterranean on social media sites. Dalriada, the independent trustee appointed by TPR to take over the running of the schemes, will now be able to seek the confiscation of the scammers’ assets for the benefit of their victims.

Latest HMRC pension statistics

HMRC has released the following:

Latest edition of DC trust landscape published

The Pensions Regulator has published the ninth edition of defined contribution (DC) trust - its annual statistics publication.

The research provides a high-level snapshot of the current landscape of occupational DC trust-based pension provision in the UK, including information on the number and membership of schemes, as well as details on DC memberships of hybrid dual-section schemes. This year's edition covers around 33,500 current schemes from the pension schemes register, with an effective date of 31 December 2017. As with last year's release, the Regulator has included similar snapshot data from earlier versions of its database. These form a consistent time series, each with an effective date of 31 December for 2009 to 2017.

High Court delivers ruling in Wedgwood scheme closure case

The High Court has held that Wedgwood made an effective and valid decision when closing the Wedgwood Group Pension Plan to future accrual and ending the final salary link for benefits already earned.

The case examined whether Waterford Wedgwood had properly introduced powers of amendment consistent with previous rule restrictions. Under the scheme rules, the company could “modify or alter all or any of the rules” provided that this would not “prejudice or adversely affect any pension or annuity then payable or the rights of any member”.

In 2001, the rules were amended to allow the cessation of contributions subject to written notice being given to the trustees first. The amendment was used in 2006 in order to close the scheme to future accrual, including the ending of the final salary link. It was argued on behalf of members that the amendment rule in 1995 did not allow the company to make the 2001 changes. The court had to determine whether the proviso “the rights of any member” protected accrued rights, only, or accrued and future rights. It was held that “the word ‘rights’ does not … naturally cover benefits which might in the future be obtained as a result of future service with the employer”. So future rights were not protected by the relevant scheme rule. {Source: Professional Pensions}

Contact:

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

Stephen Williams, Senior Research Consultant | Email: stephen_williams@jltgroup.com