Bulletins | July 5, 2023

Part 2 – Pensions Cases in the Pipeline

In February 2020, the Determinations Panel (the “Panel”) on behalf of the Pensions Regulator (“TPR”) concluded that contribution notices (“CNs”) would be issued to Mr Anant Shah and Mr Rohin Shah for a total of £3,688,108. That was how much a company in India sold for, that had been owned by a subsidiary of the scheme’s sponsoring employer. The scheme itself was an underfunded DB scheme in a Pension Protection Fund assessment period.

The Panel concluded that:

  1. Mr Anant Shah had failed to provide full disclosure about the value of the sale of the Indian company to the scheme trustees; and
  2. Mr Robin Shah knew that the scheme could obtain some of the proceeds from the sale of the Indian company and, therefore, should have taken legal advice before taking any action to put the sale proceeds out of the scheme’s reach.

Incidentally, TPR were not the only ones scrutinising the sale of the Indian company. The Panel were also shown evidence that Mr Rohin Shah did not report to HMRC the gains he made on the sale of shares in the Indian company and that his deliberate conduct had led to an underpayment of tax.

The Panel’s decision pre-dates TPR’s enhanced anti-avoidance powers which came into force on 1 October 2021. This included new criminal offences of:

  1. avoidance of employer debt; and
  2. conduct risking accrued scheme benefits,

including sanctions of unlimited fines, up to 7 years imprisonment and civil fines up to £1million.

Given the behaviour that had caught the attention of not only TPR but also HMRC, could this have been a case in which TPR may have exercised its new criminal powers, had events taken place a couple of years later? Who knows.

It’s certainly likely that TPR’s new “employer insolvency test” and “employer resources test” for issuing CNs would have come in useful here. These new tests focus on the employer’s resources rather than on the scheme as under the pre-existing “material detriment test“. The sale of the Indian company meant the sponsoring employer had no entitlement to the sale proceeds which is precisely the kind of activity that the employer resources test is designed to consider i.e. does the activity reduce the employer’s resources relative to its liability to the scheme?

Key Point
The new CN powers focus more on the employer’s activities and resources and less on the impact on pension schemes, putting employers in the spotlight.

The Respondent’s appeal to the Upper Tribunal of the Tax and Chancery Chamber was scheduled to be heard on the week of 9 May 2023. The Upper Tribunal’s decision is awaited.

CMG Trustee v CGI Limited

Regular readers of Pensions Compass will recall from May’s issue that the Court of Appeal hearing is due on 10 or 11 October 2023.

This case concerns forfeiting arrears due to members more than 6 years ago and trustees recouping overpayments.

Members had been paid extra pension benefits in the past following the scheme’s sex equalisation process and other scheme amendments. The employer argued that the arrears paid were too great and should in accordance with its reading of the scheme’s rule be limited to amounts due not more than 6 years previously and even though the members concerned were unaware of their claims. The High Court upheld the employer’s view and also explained how the legislation relating to trustees recouping overpayments from future pension works.

Key Point
Two similar cases. Two different rulings.

The relevant forfeiture provisions in the CMG case bore similarities with the unclaimed monies provisions in the Axminster case. However, the Court distinguished Axminster on the basis that Axminster dealt with missing beneficiary cases and could not be relied on to deny members’ claims to benefit arrears. The upshot is there are two cases with similar wording in their respective scheme rules which resulted in different judicial decisions. These cases highlight that forfeiture and recoupment are complex legal arears. Legal advice is essential.

BBC v BBC Pension Trust Limited

On 13 May 2022, the BBC filed a Part 8 claim against the trustee of the BBC pension scheme and Christina Burns (a representative beneficiary). The BBC requested clarification from the High Court on the correct interpretation of the scheme rules, namely whether the rules could be used to change the benefits active members might receive for future service or to increase their contributions to the scheme. It appears the BBC is considering its options to fund the scheme, including closure to future accrual.

Many issues around the interpretation of scheme rules can, more often than not, be resolved without having to go to court. There are usually several options available which require legal advice, as the context requires. However, this case serves as a reminder that in some situations, a Court application may be unavoidable, particularly where there is an underlying dispute, as there is in this case.

The Court hearing took place on 3, 4 and 10 May 2023. It may be a few months or longer before a judgment is published.