Ready Reckoner – July 2020
01 / 07 / 2020
|Corporate Insolvency & Governance Act 2020||25/6/2020 ||Attempt to provide lifeline to struggling companies. Measures include suspending enforcement of certain debts, introduction to the UK legal system of Moratoriums, permitting a new type of Restructuring plan and changes to wrongful trading law. Please see the article in Part 1 of this issue “Pension deficits relegated”|
|Pension Schemes Bill 2020||Royal Assent expected in 2020||Scrutiny of the Bill in Parliament resumed on 30/6/2020. Its provisions include new financial penalties and criminal offences for persons recklessly dealing with DB schemes. Please see our article in December 2019 Pensions Compass “Hot air or real deterrent ?” https://wedlakebell.com/hot-air-or-real-deterrent/ The Bill also includes new restrictions on statutory transfers and the framework for the pensions dashboard. The Bill has its report stage in the House of Lords on 30/06/2020 and will in course be considered by the House of Commons.|
|Finance Bill 2019-2021||Royal Assent expected July 2020||Amongst other matters, relaxes the annual allowance taper. This is belated recognition of the problems of “high” earners e.g hospital consultants discouraged from continuing in post by their pension treatment. |
On a different aspect, the Government has amended the Finance Bill for those on pension who, due to Covid-19 are re-employed between ages 50 to 55,: they are to have their “protected pension age” safeguarded so that re-employment in the period 1/ 4/20 to 1/11/2020 will not trigger a tax charge.” New clause recently added to enable certain individuals to retain their “potential” pensions age where re-employed due to Covid- 19.
|Divorce, Dissolution and Separation Act 2020||25/06/2020||This modernisation of divorce law introducing “no fault” divorces provided an opportunity to iron out some pension sharing orders’ issues. This has not been taken. In the light of the new law, it remains to be seen whether couples will rush into divorce without properly considering finances including pension implications|
|Investigatory Powers Regulations 2020||Laid before Parliament 21/4/2020. Resolutions of both Houses needed. Regulations expected to come into force shortly.||Confers powers, including on the Pensions Regulator, to obtain telephone and email data to facilitate combating criminal offences. This links to the new criminal offences under the Pensions Scheme Bill, see above.|
|FROM THE COURTS|
RPI hard coded and cannot be changed
(1) Carr v Thales
High Court, 22/4/2020
|The relevant scheme rule first referred to RPI and then to statutory provisions. The High Court decided that increases to pensions in payment were to be calculated in line with RPI and the reference to statute in the scheme rule did not alter this when the statutory basis for increases switched to CPI.|
| (2) Ove Arup v Trustees of Ove Arup Scheme |
High Court, 5/5/2020
|The High Court decided that RPI is hard coded: there was no “replacement of the index”; also, neither the 2013 freezing of RPI methodology, nor it ceasing to be a national statistic, amounted to the composition of the index changing so as to justify switching index.|
| (3) Univar UK Ltd v Smith |
High Court, 19/6/2020
|The High Court ordered rectification of the scheme rules so that RPI was not hard coded and the statutory change to CPI should be applied. Although the trustees and the employer had discussed the RPI wording in the new rule, the Court found the employer and the trustees did not understand the legal implications bearing in mind the wording of the previous rule. On behalf of the members it was argued RPI should stand but the Court decided otherwise.|
|Tax deductibility of individual’s in specie contributions to his SIPP|
HMRC v Sippchoice
Upper Tribunal Tax, 12/5/2020
|The Tribunal decided that under Finance Act 2020 to achieve a tax deduction contributions need to be a monetary amount. The process outlined in HMRC’s Pensions Tax Manual, whereby a promise to pay is later satisfied by the transfer of assets, does not fall within the Finance wording wording for tax deductible contributions and HMRC’s Manual is incorrect.|
The repercussions of this decision for others who have followed the Manual are not yet clear. HMRC need to decide what, if anything, to do about past cases and how to revise this part of their Manual.
Please see the article in Part 4 of this issue https://wedlakebell.com/part-4-problems-with-self-invested-personal-pensions-sipping-from-a-poisoned-chalice/
|Inproper Investment |
Re Norton Motorcycles
|In connection with the sole Trustee’s investment in Norton preference shares and Norton Motorcycles insolvency in January 2020, the Pensions Ombudsman has held the sole Trustee personally liable for the loss, |
based on the sole Trustee’s failure to take proper advice and lack of investment diversification.
|Liability for poor SIPP investments|
Adams v Options Sipp UK (Carey)
High Court 18/5/2020
|The High Court decided the SIPP trustee was not liable notwithstanding the unusual investment made by the SIPP at the direction of the SIPP member. Contrast this decision with the recent Financial Ombudsman Service (“FOS”) decision relating to the same SIPP operator and the same type of investment where FOS decided the SIPP operator was liable. Please see the article in Part 4 of this issue https://wedlakebell.com/part-4-problems-with-self-invested-personal-pensions-sipping-from-a-poisoned-chalice/|
|Pension Protection Fund (“PPF”) |
Hughes v PPF
High Court 22/6/2020
|In this recent decision the Court ruled the PPF’s monetary cap on PPF compensation for members under normal pension age was unlawful age discrimination against younger members. The cap does not apply to members who begin to receive their pensions on or over normal pension age. |
Mr Hughes, who retired 3 years before normal pension age and then became entitled to PPF compensation on his employer’s insolvency, was prior to the insolvency entitled to a scheme pension of some £66,000 per year. Due to the PPF monetary cap this was reduced to some £17,481 per year, a 75% drop. The PPF are studying the decision. Due to its wide ramifications an appeal cannot be ruled out.
|FORTHCOMING COURT DECISIONS|
|Inheritance tax – pension transfers|
HMRC V Parry (Staveley case), Supreme Court 31/10/2019
|Some 8 months after the Supreme Court hearing, the Court has yet to issue its judgment. How the IHT legislation works on pension transfers between schemes is of considerable interest. Wedlake Bell’s pension and private client teams have considerable expertise in this area.|
|GMP sex equalisation|
High Court, April / May 2020
|Many issues about how to achieve sex equalisation of GMP benefits accrued in the period 17/5/1990 to 5 /4/1997 were decided by the High Court in 2018. This sequel relates to the issue of which scheme bears the burden of GMP sex equalisation on transfers – is it the transferring scheme, or receiving scheme. Are very historical transfers to be treated differently ? Any comments the Court gives about the administrative difficulty of implementing equalisation will also be of interest.|
|Sex equalisation – ability to downgrade benefits retrospectively|
Safeway v Norton
High Court, 2/7/2020
|In line with the European Court’s decision in October 2019, the UK High Court will consider whether the scheme can downgrade benefits retrospectively on the exceptional ground (permitted in principle by the European Court) of the financial position of the scheme being otherwise being seriously undermined. (The events relate to pre 6/4/1997 benefits and so the benefits in question are not protected by section 67 Pensions Act 1995).|
|TPR Consultation on Funding Code||This links to provisions of the Pension Schemes Bill relating to funding of DB schemes (generally, see above under Parliament, Recent Legislation) . TPR envisages a twin track treatment of scheme valuations in future – fast track and bespoke (bespoke taking longer for TPR to review). The Consultation closes on 2/9/2020.|
|TPR Statements on Covid||Please see the article in Part 2 of this issue.|
|TPR Regulatory Guidance on DB Superfunds, June 2020||TPR has published an interim framework for Superfunds as potential consolidators of smaller pension schemes. On its own TPR’s Guidance does not provide the answer. Superfunds were unexpectedly left out of the Pension Schemes Bill and the way forward for Superfunds is not entirely clear. One specific Superfund has apparently now been accepted by HMRC as a registered pension scheme.|
The Governor of the Bank of England has criticised the TPR interim framework for providing inadequate protection for pensioners.
|HMRC Consultation “Raising standards in the tax advice market”|
Consultation closes 28 August 2020
|Some tax advisers are at present unregulated and this has opened the door to scams and/or mis-selling, particularly in the pensions field. |
The Government will consider the Consultation responses and then decide whether to put forward proposals for legislation.
There is a fine line between tax information and tax advice – see the article in part 3 of this issue.
|Treasury Consultation on future of RPI||Whether RPI will ultimately be replaced / severely modified remains to be seen. If so, the Consultation considers whether this should be from 2030 or possibly earlier (but not before 2025). The Consultation closes on the 21 August 2020.|
|FCA Consultation on advice re DB to DC transfers||On 5/6/2020 the FCA published its Policy Statement and other papers. The Consultation closes on 4/9/2020 and |
the FCA intends to finalise its Guidance in Q1 2021.