Pensions Ready Reckoner – January 2019

24 / 01 / 2019

Clive Weber, Partner, Pensions & Employee Benefits Team. Please contact Clive with any queries on this Ready Reckoner.

PARLIAMENT

Recent Legislation Enacted Effect
Financial Guidance and Claims Act 2018 10 May 2018This new Government service – the single financial guidance body ("SFGB") combines the Money Advice Service, Pensions Advisory Service and Pensions Wise. The new body is expected to become operational in January 2019 and many of the framework Regulations took effect from 1 January 2019.
Pension Schemes Act 2017 27 April 2017Master Trusts – Authorisation and supervision regime came into force on 1 October 2018.
Regulations banning cold-callingInto force 9 January 2019Prohibit pensions cold-calling except in limited circumstances. The ban on cold-calling will be enforced by the Information Commissioner's Office. The ICO may impose fines for breach of the Regulations. The ICO will be issuing guidance on the ban and its enforcement.
Proposed Legislation Operational Date  
Collective Defined Contribution schemes ("CDCs")Unknown On 6 November 2018 the Government issued its Consultation on CDCs. The Consultation closes on 16 January 2019. CDCs will offer sponsors a third way between DB and DC pension schemes. It is likely to be a considerable time before the CDC legislation is prepared and adopted bearing in mind "BREXIT" pressures on Parliament.
Multi-employer Pension Scheme Bill Unknown This Private Members' Bill proposes radical reform of the Section 75 legislation. The second reading of the Bill has been postponed several times. It is now due on 25th January 2019 but is unlikely to make further progress.
DB Superfunds Unknown he Government is consulting on the authorisation and regulation of superfunds, including the regulatory conditions for a DB scheme to join a superfund. The Consultation opened on 7 December 2018 and closes on 1 February 2019. Given BREXIT's call on Parliamentary time, early legislation is not expected.
Finance Bill 2019 6 April 2019Widening of tax exemptions for employer premiums paid into life assurance products and employer contributions to QROPS, so that benefit in kind tax charge narrowed.
Draft BREXIT Regulations Unknown On 24 October 2018 the Government issued draft BREXIT Regulations containing amendments to certain terms used in pension legislation. The aim is to ensure that post BREXIT – assuming BREXIT happens – pension legislation continues to operate effectively. Draft Regulations have also been issued to reflect changes to pensions provisions in the Insolvency and Data Protection and other relevant pension provisions given that post BREXIT the UK will no longer be subject to the EU framework.

FROM THE COURTS

TopicRecent decisions
Sex equality – GMPs

Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc & Others

High Court, 26 October 2018
In this scholarly Judgment, Mr Justice Morgan applied legal common sense (for the most part) to the vexed issue of equalising benefits for members with Guaranteed Minimum Pensions ("GMPs") accrued from the date of the Barber Judgment on 17 May 1990 to the end of GMP contracting-out on 5 April 1997. Please view our "GMP Equalisation" Podcast by clicking here for an easy to understand review of the Judgment and its implications.

In a nutshell:
(1) trustees have a duty to iron out inequalities stemming from GMPs;
(2) there is no single correct method. Trustees should follow the method involving the least disturbance to members' existing benefits. This is known as the principle of minimum interference. The statutory power under section 68, Equality Act 2010 where it applies entitles trustees to make alterations required to equalise benefit;
(3) back payments of arrears must be paid (but usually only for a limited period for the past as explained in our Podcast);
(4) interest should be added to back payments at, in the Lloyds case, 1% above base rate; and
(5) the Court declined to decide what adjustment is needed for past transfers from schemes involving GMP – this will be decided at a subsequent Court hearing, probably in Spring 2019.

Upshot – although the above principles seem relatively simple the devil is in the detail. Schemes will need advice about the correct approach in the circumstances of their particular scheme, including in relation to the tax treatment of any back payments, and what they should do about future transfer requests. Please listen to our Podcast.
RPI/CPI

(1) Barnardo's v Buckinghamshire & Others –

Supreme Court, 11 June 2018

(2) BT Telecommunications v BT Pension Trustee

Court of Appeal , 4 December 2018
On 7 November 2018 the Supreme Court unanimously rejected the Employer's appeal. On the wording of the relevant Scheme Rule the Trustees had no power to switch Index – it could not be said that RPI had been "discontinued as an officially used index and replaced". So a clear steer from the Court, but we emphasise that the wording of switching provisions varies from scheme to scheme and the precise wording in the particular scheme is key.

Here the Scheme Rule permitted switching of index in circumstances where the RPI has ceased to be published (plainly not the case) "or becomes inappropriate". The Court of Appeal hearing took place on 9-11 October 2018. Judgment was unanimous – RPI has not become "inappropriate".
Inheritance Tax and Pension Transfers

HMRC v Parry & Others

Court of Appeal, 16 October 2018
The Court of Appeal unanimously found for HMRC. The upshot is that Inheritance Tax ("IHT") is payable on the value of the pension transfer made by the late Mrs Staveley in 2006 out of her Section 32 buy-out policy to a personal pension policy shortly before her death. Had the Section 32 policy remained in Mrs S' ownership, it would have automatically been included in her estate as the Section 32 policy proceeds would have been payable as of right to her estate.

The case involves the complex IHT legislation relating to "transfers of value" and omission to exercise rights. Please see the article in this bulletin. The legislation will particularly need to be considered in the context of pension transfers by members in ill-health.
Sex equality

Safeway v Newton

Reference to CJEU
The CJEU preliminary hearing on the ability under UK domestic law to reduce benefits retrospectively for sex equality purposes is due on 4 February 2019. The decision by the CJEU is likely in summer 2019.

FORTHCOMING COURT DECISIONS    

TopicEffect
Scope of Trustees' power to award increases

British Airways Trustees v British Airways

Supreme Court, 2019
The saga continues: the BA Trustees won in the High Court in May 2017 but lost in 2018 in the Court of Appeal where the Court decided that the scheme trustees' award of a discretionary increase was, in effect, beyond the trustees' powers. The BA Trustees are appealing to the Supreme Court – appeal likely to be heard in May 2019. This is a seminal case on the legal powers of the scheme trustees.
Validity of TPR Financial Support Directions

Granada v TPR – Box Clever case
This long running litigation started in 2011 and continues. The ITV group are appealing against the Upper Tribunal decision in May 2018. The Court of Appeal hearing is due on 13 May 2019 and should throw light on the reach of TPR's FSD powers.
Pensions Ombudsman ("PO") – pension transfersHere are two recent contrasting Determinations:

(1) in the case of Mr S (26 September 2018), the Deputy PO decided that the scheme administrator had needlessly caused a delay in transferring the member's pension from his SIPP to his proposed transferee scheme by carrying out (in the Deputy PO's view) a disproportionate amount of due diligence on the receiving scheme;

(2) in contrast in the case of Mr R, the Pensions Ombudsman dismissed the member's complaint where a scheme refused to accept the member's transfer without the member first receiving independent financial advice (even though the transfer was less than £30,000).

These cases illustrate the potential pitfalls for trustees in the context of transfers. Pitfalls now greatly increased where the transferring rights include GMPs – see the recent High Court decision in the Lloyds Banking Group case mentioned above.

THE ROAD AHEAD

TopicEffect
BREXIT!By the time our Spring Pensions Compass appears BREXIT will be very close, if it is going to happen. Nothing directly to do with Pensions but it is interesting to note that on 21 September 2018 the Court of Session in Scotland referred the following question to the CJEU – if Parliament declines to ratify the proposed terms of Withdrawal from the EU, will withdrawal then automatically happen OR can the notice to withdraw from the EU be revoked by the UK prior to 29 March 2019 so that the UK remains a full member of the UK? In the present turmoil anything seems possible. On the 10th December 2018 the CJEU ruled that an Article 50 notice can be revoked providing the decision to do so is reached by due process. It is thought that due process would in the UK necessitate Parliament passing legislation revoking the exising Article 50 notice.
Tax allowability of pension contributions paid in specie

HMRC v Sippchoice

High Court, 10 March 2018
The First Tier Tax Tribunal decided in favour of the member – the transfers of shares to a SIPP were contributions paid within the meaning of s.188(2) FA 2004 and therefore were tax allowable contributions. HMRC are appealing to the Upper Tax Tribunal and the appeal will be heard on 21st, 22nd or 23rd May 2019.

OTHER MATTERS

TopicEffect
PPF – PPF finalisation of PPF Determination and Levy Rules for 2019/2020In December 2018 the PPF finalised the Rules for the PPF Levy Year starting 1 April 2019. These require certain types of existing contingent asset agreements to be re-executed in a new form by 31 March 2019 for the contingent asset to continue to qualify for PPF levy purposes from 1 April 2019.
Pensions Ombudsman – new provisions for dispute resolution The Government is consulting on new rules to enable the Pensions Ombudsman to resolve disputes early instead of having to reach a full formal determination The Consultation closes on 18 January 2019.
Data Protection The ICO has finalised its guidance on GDPR requirements for contracts between data controllers and data processors.