A recap of latest developments in the ever-changing world of occupational pension schemes.
| PARLIAMENT | |
| Topic | Legislation |
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Budget – 16 March 2016 |
Key pension tax changes in the Chancellor’s Budget:
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Pre-existing tax changes not affected by the Budget |
Already enacted – Finance (No 2) Act 2015:
To be enacted – Finance Bill 2016 (expected July 2016):
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Single State Pension from 6 April 2016 |
The Government has recently issued numerous regulations paving the way for the Single State Pension from 6 April 2016 and addressing the impact on occupational pension schemes. Notable areas for schemes to consider are:
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Secondary annuity market |
Government is going ahead with the secondary annuity market from April 2017. The relevant tax legislation will be contained in the Finance Bill 2017. Authorised firms are to check whether annuity holders have received “advice” before holders sell their annuity income. The “Pensions Wise” guidance service will be expanded to cover annuitants considering selling their annuities. |
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Accessing (or transferring) DC trust based benefits |
The Disclosure Regulations are being amended so that DC trust based schemes must provide generic risk warnings as a second line of defence, on top of the existing statements/warnings already required. The pensions on divorce legislation is expected to be amended from 6 April 2016 to take into account the new DC flexibilities and how this interacts with e.g. attachment orders on divorce. |
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GMPs – sex equalisation |
Government still intends to legislate but timing uncertain. |
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Consultation |
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Employer debts: changes for non- associated multi-employer schemes |
The consultation on possible changes to the employer debt legislation opened on 12 March 2015 and closed on 22 May 2015 since when nothing further heard… |
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Auto-enrolment: LLP members |
Government has consulted on Regulations enabling limited liability partnerships to exclude certain of the LLP’s members (i.e. those who are genuinely partners in the business) from their auto-enrolment obligations. The Regulations have been issued and will apply from April 2016. For a more detailed exposé of the problems to which this issue could otherwise have given rise, please see our July 2014 Bulletin. |
| INCENTIVE EXERCISES MONITORING BOARD | |
| Liability management in DB schemes
The revised Code applies to incentive offers made to members on or after 1 February 2016. Employers considering such exercises and trustee boards reacting to employers’ proposals should take the new Code into account. |
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FROM THE COURTS |
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| Much activity, especially in the Court of Appeal. | |
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Topic |
Developments |
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Interpreting scheme provisions BCA Pension Plan |
A cost effective way to correct scheme rules: the High Court made an Order under section 48 Administration of Justice Act 1985 authorising trustees to apply the scheme rules in a particular way, on the basis it was clearly necessary to read certain words into the scheme rules to make sense of them. Please see our January 2016 Bulletin for further consideration of this interesting decision. |
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VAT – recipient of services Airtours v HMRC |
The taxpayer’s appeal to the Supreme Court was heard on 25 February 2016. In ‘Airtours’ PWC provided its services (financial report on Airtours) under a tripartite agreement between PWC, Airtours and Airtours’ bankers. Airtours sought to reclaim input tax. HMRC refused the claim on the basis that PWC’s services were supplied to Airtours’ bankers, and not to Airtours. Bearing in mind HMRC’s present stance on VAT and suppliers’ services to pension trustees and employers under tripartite contracts (as recommended by HMRC), the Supreme Court’s decision in ‘Airtours’ is eagerly awaited. |
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Bankruptcy and elections for pension Horton v Henry |
Court of Appeal hearing due April 2016 – in the light of the April 2015 pension flexibilities, this is an important forthcoming decision on whether trustees in bankruptcy can oblige bankrupt individuals to access DC funds under the new flexibilities, to enhance creditors’ returns. |
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Employer’s duty of good faith Bradbury v BBC |
Court of Appeal hearing due in February/March 2017 – a long time to wait! The High Court previously decided in May 2015 that the BBC was not in breach of its employer’s duty of good faith by imposing a cap on pensionable salary. |
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Employer duties IBM v Dalgleish |
Court of Appeal hearing not now anticipated until May 2017 – the High Court decision in 2014/15 that IBM were in breach of the duty of good faith, and the Court’s remedies awarded as a consequence of the breach, are being appealed. |
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Indemnity for section 75 debt Heis v MF Global Services |
Arrangements between group companies including indemnity provisions were, according to the High Court in May 2015, wide enough to include any section 75 debt falling due. The appeal is due to be heard by the Court of Appeal in May 2016. |
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Defective deeds Briggs v Gleeds |
In July 2015 the High Court held that a series of amending deeds were legally ineffective as they had not been properly executed. This and other matters, including the meaning of the scheme’s alteration powers, are being appealed and are due to be heard in the Court of Appeal in July 2016. |
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RPI/CPI Buckinghamshire v Barnardo’s |
The High Court decided in July 2015 that RPI had not been replaced by CPI and therefore under the wording of the scheme rules the trustee could not switch to CPI. This finding is being appealed. The members are cross-appealing on section 67 Pensions Act 1995, arguing that the trustees switching to another index would breach the section 67 protection for subsisting rights. See our November 2015 Bulletin for the High Court decision. The Court of Appeal hearing is on 5 and 6 October 2016. |
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RPI/CPI, take two British Airways v Spencer |
British Airways are seeking to overturn the decision of the BA pension scheme trustees to give themselves power to award discretionary pension increases, following the Government’s switch from RPI to CPI for statutory purposes. Likely hearing of appeal by Court of Appeal in October 2016. |
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Statutory right to transfer Hughes v Royal London Mutual Insurance Society |
The High Court has held that a member had a statutory right to transfer, overturning the decision of the Pensions Ombudsman. Please see the separate article elsewhere in this Bulletin for more detail. |
| AND THE PENSIONS OMBUDSMAN | |
| Topic | Developments |
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Limitation periods Webber |
In a case heard last month, the Pensions Ombudsman held that the date when the six-year limitation period relating to an action for the recovery of pension overpayments stopped was the date upon which the scheme administrator first notified the member of the overpayments and sought repayment. |
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Ill-health early retirement Ascough |
An employing authority in the Local Government Pension Scheme was held to have no duty to advise a member of the option of applying for an enhanced ill-health early retirement pension from active status on his redundancy, despite the fact that the LGPS had known that the member had taken sick leave in 2010 for a brain tumour. The Ombudsman held that unless the member had specifically applied for an ill-health pension, his employer was not under any duty to advise him of his ill-health benefit options. |
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Personal pensions: SIPP provider responsible for transfer delay Lloyd and others |
The Deputy Ombudsman held that a SIPP provider was in large part responsible for delays in making in specie transfers for four account holders to a new provider. This was mainly because the provider had neglected to inform the relevant parties that its procedures required the transfer request to come straight from the new provider. |
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Early retirement terms Layfield |
It was held that the scheme rule requiring employer consent for an unreduced early retirement pension was not overridden by a member communication which did not refer to the requirement. Further, the Ombudsman held that the employer was entitled to withhold its consent to early retirement without any breach of its implied duty of good faith as it could take its own financial interests into account in making that decision. |
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Winding up Muller |
The Ombudsman held that a former sponsoring employer unjustifiably stopped a member’s monthly pension payments which it had been funding itself, following the winding up of the occupational pension scheme, until the employer was acquired by a new owner in 2013. The Ombudsman held that a reference in the scheme booklet to a pension being payable for life from the date of retirement amounted to an enforceable promise to pay such a pension. The employer’s failure to do so was maladministration. Please see the separate article elsewhere in this Bulletin for more detail. |
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Transfer values Bower |
In December 2015, the Deputy Ombudsman held that it was maladministration for a pension provider to supply incorrect annual benefit statements and transfer authority forms which implied there was no transfer penalty and then to impose such a penalty on a transfer without giving notice to a member. However, she held that following the Steria decision, the provider was not estopped from going back on its incorrect representations about the transfer value as the provider’s existing offer of reinstatement meant the member would not suffer detriment if it was not held to the representation. |
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Recovery of overpayments Belk |
In November 2015, the Ombudsman dismissed a complaint by a pensioner about the actions of the scheme administrator and trustees in seeking to recover overpaid pension and failing to put one of his additional voluntary contribution (AVC) funds into payment on time. The Ombudsman held that the respondents were legally entitled to recover the overpayment and reduce the pension to its correct level unless the member had a good defence. The member was unable to provide adequate documentary evidence to support such a defence or to support his claim for increased compensation for late payment of his AVC fund. The case demonstrates the difficulties which can arise for administrators and trustees when seeking the recovery of overpayments. |
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Time limit for complaints Lennon |
In November 2015, the Ombudsman dismissed a member complaint that an employer failed to inform them about valuable pension transfer options as it was outside the three-year time limit applying to complaints. The Ombudsman held that the member ought reasonably to have known about the omission complained of in 2005, seven years before she brought her complaint in 2012. |