R (Hughes) v the Board of Pension Protection Fund
The High Court Judgment of R (Hughes) v the Board of Pension Protection Fund has now been handed down. The decision has a significant impact on Pension Protection Fund ("PPF") compensation.
The key point is that the PPF Compensation Cap will have to be disapplied in its entirety. The PPF's evidence, referenced in the Judgment, was that this will have limited impact on its overall liabilities (it estimated about a 1% increase), and no immediate discernible effect on the levy was expected. However, schemes with significant numbers of capped members may see a more material increase in their liabilities for the purposes of s.179 valuations used to calculate the scheme's levy.
This claim was brought by members of four different pension schemes whose employer became insolvent and who were impacted by the PPF compensation cap. The members asked the following questions and got the following answers:
- Is the PPF Compensation Cap compliant with EU law principles of age discrimination and/or proportionality? No - the cap constituted unlawful discrimination on grounds of age that is contrary to EU law and the rights derived from it. The cap must be immediately disapplied.
- Was the decision of the PPF to use a one-off actuarial value methodology to implement the 50% minimum imposed by the decision in Hampshire v Board of the Pension Protection Fund (CJEU, 2018) lawful? Whilst a year on year approach - suggested by the claimants - was not necessary, the PPF's methodology needs to ensure that the overall compensation payable to a member (or a survivor) will actually equal 50% of the amount of the benefits that the member (or the survivor) would have received under the pension scheme – i.e. not 50% of the actuarially predicted value. How it does that is a matter for the PPF.
- Can a limitation period of 6 years be applied under English law to any back-payments? Yes, because the parallel English law claim was one for statutory compensation payable by virtue of an enactment (to which a limitation period of 6 years applied), not a claim to trust property (to which no limitation period applied).
- Whether the statutory rate of interest the PPF proposed to apply to back payments was appropriate? No ruling was given on this point.
- Are trustees of schemes in assessment obliged to take into account the Hampshire (50%) minimum when calculating the reductions they have to apply to benefits during the assessment period? Yes.
Pensions Ombudsman ruling on employer’s obligations regarding pension schemes following a TUPE transfer
In a decision that has significant implications for employers, the Pensions Ombudsman found that an employer’s failure to contribute towards a pension scheme for those whose employment was transferred under TUPE transfer amounted to maladministration.
This case arose when employees discovered that appropriate pension arrangements had not been put in place for them by their new employers immediately following their employment transfer. An arrangement was eventually provided, however, it was discovered that required contributions had not been paid to that scheme. Following the employer's failure to respond to an internal complaint, the employees brought this issue to the Pensions Ombudsman.
The complaint was eventually considered and upheld by the Ombudsman. The Ombudsman directed the employer to pay the appropriate outstanding employer contributions; ascertain and pay to the scheme investment returns in respect of those contributions, and an award for their distress and inconvenience of £2000 to each of the applicants was ordered. The Ombudsman also confirmed that the Pensions Regulator would be informed of the employer's failure to comply with pension legislation.
The outcome of this determination therefore highlights the need for employers to ensure that appropriate pension provision is made from the date of any transfer of employees under TUPE.
Corporate Insolvency and Governance Act 2020 - implications on pensions
The Corporate Governance and Insolvency Act 2020 has is now in force with many of its provisions having retrospective effect from 1 March 2020 in response to the COVID-19 pandemic and in recognition of the many companies and LLPs that are now in financial difficulty.
The Act introduces a moratorium that allows struggling companies a period of stand still protection from their creditors. This period will last for an initial 20 days but may be extended without creditor consent for a further 20 days, or by the court for up to a year. In addition, the Act provides for a new restructuring plan procedure which would allow companies to propose a plan for creditors. This provision would prevent dissenting classes of creditor or shareholders from opposing a restructuring plan which is in the company's interests. The Act gives the court absolute discretion to enforce a restructuring plan, provided that affected creditors have been given the opportunity to participate in the process and vote on the plan and that those who vote against it would any worse off than they would be in the relevant alternative (ie what would be likely to happen if the plan is not implemented).
As the Bill for this Act was originally drafted there was potential for certain provisions to weaken the position of DB schemes and the Pension Protection Fund ("PPF") in the event of an employer insolvency or restructuring.
Amendments were carried through into the Act though which mean that both the Pensions Regulator and the PPF will have a seat at the table and be treated as if they were creditors during the moratorium and also that certain debts will no longer be able to gain "super-priority" status which would rank them ahead of the pension scheme. Regulation making powers were also introduced in relation to the position of the Pensions Regulator and the PPF as creditors of a company with a DB pension scheme.
Guidance published on pension scheme annual reports and accounts preparation during the pandemic
Three accounting bodies have published joint guidance on the preparing of pension scheme annual reports and accounts throughout the pandemic. The headline points from the guidance for trustees are:
Pensions Regulator ("TPR") responsibilities
Trustees' duties to report to TPR continue throughout the pandemic. Their responsibilities under the notifiable events regime are not relaxed and those running DC masters trusts require to continue to comply with their significant and triggering events.
Control environment of pension schemes
The impact of the pandemic on the control environment of pension schemes is highlighted. This will in turn affect pension scheme annual reports. The extent of this impact will be dependent on the reporting period end date of the scheme.
Trustee's report and chair's statement
Consideration should be made by the Trustees on the impact of COVID-19 on the narrative elements of the annual report, from a governance perspective.
Trustees' assessment of going concern
The Trustees' duties to undertake the going concern assessment remain unchanged. However, greater focus must be placed on this due to the impact of COVID-19 and trustees of schemes may require to disclose a material uncertainty relating to going concern in light of the pandemic.
Scheme investments accounting
Trustees will need to review the nature and extent of risks arising from financial instruments. A scheme's fair value hierarchy investment risk disclosure will require to be updated in light of the pandemic in order to demonstrate their approach to investment risk and that they will be taking a long-term approach to the scheme's investment strategy.
Events after end of reporting period
For schemes with accounting periods ending on 31 December 2019, the pandemic is likely to be a non-adjusting event. In the future, depending on each scheme's individual reporting date, how much the impact of the pandemic should be considered to arise from non-adjusting events will require to be determined.
Full details of the guidance can be found here >
Protected pension age easement extended to 1 November 2020
On 2 June 2020, HMRC confirmed that there will be an extension of the current protected pension age easement up to 1 November 2020. This concession applies when a member is re-employed in order to undertake work relating to the COVID-19 pandemic. Previously, retired public sector workers aged between 50 and 55 faced significant tax on their pensions when they returned to work to assist the government in its response to COVID-19.
In order to rectify this, on 30 April 2020 it was confirmed for individuals who are re-employed in these circumstances, these pensions tax rules would be suspended. There are certain conditions that are required in normal circumstances to be met where the individual is re-employed. The easement means that where it can be shown that the nature of the work is undertaken in relation to the COVID-19 outbreak, these conditions will be automatically satisfied, meaning the taxes will not apply.
If you have any questions at all, please reach out to your usual DWF contact or any of the contacts below.