Pension Ready Reckoner – January 2018

17 / 01 / 2018


Topic Bills  
Data Protection Bill The Bill was introduced in Parliament on 13 September 2017 and is intended to give effect to the EU General Data Protection Regulation which member states must implement by 25 May 2018.
Finance Act 2017 (No. 2) Reinstates provisions dropped due to the June 2017 snap General Election, with retrospective from 6 April 2017: (1) money purchase allowance reduced from £10,000 to £4,000 where DC benefits are flexibly accessed; and (2) exemption from income tax where cost of pension advice to individuals met by employer, up to £500 per tax year. The Bill received Royal Assent on 16 November 2017.
Finance Bill 2018 The Finance Bill 2018 was published on 1 December 2018. To help deal with the problem of pension scams, the Bill will tighten the rules for HMRC registering and de-registering pension schemes, particularly where the sponsoring employer is dormant.
Finance Guidance and Claims Bill Publically funded advisory bodies (Pensions Wise, Pensions Advisory Service and Money Advice Service) are to operate as a single umbrella organisation. It is expected the new body will operate from Autumn 2018, meanwhile the existing bodies continue.  The Bill is expected to receive Royal Assent this Spring.
Pension Schemes Act 2017 DC master trusts, both those operating on a not for profit and on a profit basis, are to be subject to a new regulatory regime, including authorisation and monitoring overseen by the Pensions Regulator. Detailed Regulations have yet to be made. It is expected the new provisions will come into force on 1 October 2018 subject to a transitional period for existing master trusts.
Topic Statutory instruments
Draft Regulations re payments out of certain non-UK schemes These draft Regulations are ancillary to the Overseas Transfer Charge introduced on 9 March 2017. The Regulations are likely to be made in Spring 2018.
Draft Regultions re Section 75: deferred debts The Government consulted in April 2017 on a further easement under the Debt Regulations – deferral of section 75 debts in certain circumstances. It is hoped the new Regulations will be made during 2018.
Draft Regulations restricting statutory transfers These Regulations are awaited. As part of the drive against ‘pension scams’ they will narrow the circumstances where members can require transfers to be made.
Risk Warning Regulations, and Valuation Regulations These two sets of Regulations, coming into effect on 6 April 2018, require further risk warnings to members in certain circumstances, and specify how benefits are to be valued in certain cases for the £30,000 advice threshold. Both sets of Regulations are due to come into effect on 6 April 2018.
Draft Contracting-Out Transfer Regulations The consultation on these Regulations was published on 21 December 2017 and closed on 17 January 2018. It is expected the finalised Regulations will take effect on 6 April 2018. The Regulations will enable bulk transfers of contracted-out rights to be made without member consent in certain circumstances to schemes which have never been contracted-out (an important relaxation given that no scheme can be contracted-out since 6 April 2016).
Topic Recent important decisions  
Sex equality

Safeway v Newton, Court of Appeal October 2017

Issue as to the date from which male and female benefits were equalised under Safeway’s pension scheme. The financial consequences could apparently be as much as £100 million. The Court of Appeal has referred a question to Court of Justice of the European Communities. Given BREXIT, the priority this case will be given remains to be seen.
Sex equality

Walker v Innospec, Supreme Court 12 July 2017

The Supreme Court reversed the Employment Appeal Tribunal and Court of Appeal, and upheld Mr Walker’s claim. The UK legislation, which restricts survivor benefits for civil partners and same sex marriage partners to the members’ pensionable service from 5 December 2005, is incompatible with the EU Directive and invalid.
Sex equality

Lloyds Bank Trustees v Lloyds Bank & Others, High Court July 2018

The High Court is asked to rule whether the trustee is required to equalise benefits for the effect of GMP and, if so, how to equalise.
Employer’s duty of good faith

BBC v Bradbury and IBM v Dalgleish, Court of Appeal July/August 2017

The Court of Appeal in both the BBC and IBM cases decided that the employers had complied with their duty of good faith. The IBM decision in particular explains the proper legal test – essentially that the employer has taken into account relevant (and not irrelevant) factors, and has acted rationally and not reached a decision that no employer acting reasonably could have reached. See the article [hyperlink] in the September 2017 Pensions Compass.
TPR Financial Support Directions (“FSDs“) – Upper Tribunal

Granada v TPR (‘Box Clever’ case)

January/February 2018

Substantive hearing as to whether the decision of the Pensions Regulator’s Determinations Panel (that FSDs were validly issued re joint venture companies) stands.

BT v BT Pension Scheme Trustees, heard in High Court December 2017

BT and the BT Trustees are asking the High Court for clarity on whether the index for increases to pensions in payment can be changed from RPI to CPI on the basis of certain wording in the scheme rules including where the RPI “ceases to be published or becomes inappropriate”. Judgment is awaited.

Barnardo’s v Buckinghamshire, Supreme Court 12/13 June 2018

Permission granted to the employer on 6 April 2017 to appeal to the Supreme Court against the Court of Appeal’s November 2016 judgment preserving the status quo and thus preventing any switch of index from RPI to CPI. The issue of whether members have accrued rights to RPI increases under Section 67 is also likely to be considered.

British Airways v BA Trustees, Court of Appeal May 2018

The High Court in May 2017 decided that, in granting a pension increase above CPI, the Trustee had acted properly. The appeal to the Court of Appeal is on two grounds:

·         the increase awarded is improper as the purposes of the scheme, under its trust deed, prohibits “benevolent” or “compassionate” payments; and

·         that amending the scheme to introduce the power to award increases and exercising that power were both invalid as being contrary to the proper purposes of the scheme.

Our comment: to some extent this case stands on its own given the amendment power is vested unilaterally in the Airways Trustee and the power to award such increases is also solely in the Trustee’s hands. However, the case also raises wider issues as to how far trustees should take employer interests into account. See also our article on the High Court decision in June 2017 Pensions Compass. See the article [hyperlink]

DB to DC transfers: Inheritance Tax

HMRC v Staveley

Upper Tier Tribunal, January 2017

HMRC are claiming inheritance tax following the late Mrs Staveley’s transfer of her pension rights shortly before her death in 2006. The Court of Appeal hearing is in June 2018. Although the case predates amendments to tax legislation re members’ omission to exercise pension rights, the introduction of the March 2015 pension freedoms has resulted in very substantial DB to DC transfers in recent times and this is attracting HMRC’s continuing attention. Our Pensions and Private Client Teams have considerable recent experience in this area.
TPR’s information gathering powers

R v Dominic Chappell

Brighton Magistrates Court,
8-11 January 2018

The Magistrates Court found Mr Chappell guilty of failing to supply, without reasonable cause, information required by TPR under notices issued under section 72, Pensions Act 2004. It is reported that Mr Chappell will appeal. Separately it is understood TPR will be seeking some £10m from Mr Chappell/his company in connection with the acquisition of BHS.
VAT The following recent developments should be noted:

(1)   United Biscuits


This case was heard in the High Court in October 2017 and judgment was published on 30 November 2017.

The trustee claimed that supplies of investment management services to pension schemes, whether the supplier be authorised to conduct insurance business or not, should be treated as VAT exempt.  In other words, the principle of ‘fiscal neutrality’ required that as supplies of investment management services to schemes by insurers were VAT exempt, so should similar supplies by non-insurers. The Court rejected the Trustee’s argument, concluding that investment management services provided by non-insurers were under EU law required to be subject to VAT during the relevant period and that the principle of fiscal neutrality did not apply.  We do not know whether the Trustees are going to appeal this decision.


(2)   HMRC’s recently published internal practice notes state that in relation to scheme expenses and VAT recovery, employers and trustees may:


·            either continue to operate, or revert to, the ‘old’ system whereby the employer pays the expenses and then reclaims VAT but in the case of a single invoice covering both management and investments, HMRC treat only 30% as relating to management services, and therefore only allow that proportion of the VAT to be reclaimed; OR

·            adopt the ‘new system’ of tripartite contracts and seek VAT recovery on that basis.

It is ironic that, after all this time, HMRC have decided the old VAT recovery system is still acceptable. The new system of VAT recovery based on tripartite contracts is still not free from issues, including whether the employer can deduct its expenses payments for corporation tax purposes.