If you have any queries about any of the issues covered, or you require advice on a pensions related matter, please do not hesitate to contact your usual contact.
Adams v Options UK Personal Pensions LLP – Application to appeal refused
As we reported in April last year, the Court of Appeal held that an individual was entitled to recover his investment from a pension fund operator where this had been arranged through an unregulated broker.
It is now reported that the Supreme Court has refused an application for permission to appeal this decision.
TPR issues CN for in excess of £2m - Dosco Overseas Engineering Limited
Dosco Overseas Engineering Limited ("Dosco") was a statutory employer in relation to a DB pension scheme. SMT Sharf AG ("Sharf") acquired a group of companies, of which Dosco was part and subsequently sold that group for €2 million to a shell acquisition vehicle (incorporated for the purpose by Dosco’s management team).
A key individual from the management team had entered into a consultancy agreement with Sharf under which he was financially incentivised to find a buyer for the Group and was paid €250,000 under this agreement following the sale.
8 months after the management team buyout Dosco went into administration and the pension scheme entered a PPF assessment period. TPR commenced regulatory action based on Scharf’s "complete disregard for the interests of the scheme by the inappropriate disposal of Dosco Group to a shell acquisition vehicle, with no investment or realistic prospect of future financial support".
TPR negotiated a settlement with the individual for around £130,000, which reflected the benefit he received under the consulting agreement.
TPR ultimately issued a Contribution Notice against Scharf for £2,082,382.86 which comprised a principal sum of £1,412,113.77 and an additional sum of £670,269.09 for lost investment returns and interest, with a further £114.10 daily interest, subject to a maximum total sum of £2,317,278.70. In this case for the first time TPR has included lost investment returns and interest as part of a Contribution Notice amount.
Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill progresses
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill received its third reading in the House of Lords on 27th April. This Private Member's Bill, if enacted, would amend the legislation under which schemes are allowed to convert Guaranteed Minimum Pensions (GMPs) into ordinary scheme benefits subject to fewer restrictions.
TPR publishes annual funding statement
TPR has published its annual funding statement noting that valuations will be approached against an economic background of high inflation, high energy prices, higher interest rates and slower economic growth – all of which may impact on pension scheme funding and employer covenant, as well as the evolving situation in Ukraine and lingering effects of COVID-19 and Brexit.
The statement set out guidance on the following aspects:
- Considering how market uncertainties impact the employer’s covenant and TPR's expectations of scheme trustees.
- Considering the impact on scheme assets and liabilities from the current high and rising inflation rate, as well as greater volatility in the investment markets.
- TPR's views on reasonable long-term mortality assumptions in the absence of sufficient evidence or a robust assessment of the long-term effects of COVID-19.
- Key risks TPR expect trustees and employers to focus on, and actions to take, depending on the scheme’s funding strength, maturity, and strength of the employer covenant.
It is highlighted that the length of the recovery plan in the reference tables included has been updated to six years to reflect that recovery plan lengths have decreased over recent years.
HMRC issues further GMP Equalisation Guidance
The supplementary guidance covers known tax issues arising in respect of corrective actions required in relation to transfer payments previously paid (which were calculated on a basis that did not take account of the adjustments needed to eliminate unlawful GMP-related inequalities). This also includes an update and guidance on using the GMP conversion method.
In respect of transfer payments the guidance confirms that where it is found that a member has a right to a top-up transfer payment then such payment will be an authorised payment where is satisfies the conditions for a recognised transfer that apply at the time the top-up transfer payment is made so:
- must be a transfer of sums or assets held for the purposes of, or representing accrued rights under, a registered pension scheme;
- must be made in connection with a member of the transferring scheme; and
- must be to a registered pension scheme or a qualifying recognised overseas pension scheme.
In respect of lump sum payments the guidance confirms that a lump sum payment made directly to the member may be possible and such payment will be an authorised payment where it meets lump sum payment conditions at the time the payment is made, so:
- Lump sum payment (relevant accretion) - up to £10,000, following a relevant accretion. In determining if there’s been a relevant accretion the scheme administrator is not regarded as having been aware (or reasonably expected to have been aware) at the time of the original transfer payment that the member was entitled to a benefit under the transferring scheme. This is provided that at the time of the original transfer the scheme administrator was not in a position to know that particular member was entitled to a further benefit and the amount.
This must be paid no later than 6 months after the accretion occurs which period starts when the scheme administrator has established that the member has an entitlement to a top-up payment and the amount of that payment. This means that the scheme administrator has traced the member and has obtained any necessary information (such as bank details) or consents, or both that are required to make the payment.
- Small lump sum payment - up to £10,000 in the form of a one-off lump sum under conditions provided for in regulations however, payments cannot be made if there’s been a recognised transfer from the scheme (or, in some cases any related scheme) in respect of the member during the 3 years preceding the date of the payment.
- Winding-up lump sum payment – up to £18,000 where the scheme is winding up, and other conditions for a winding-up lump sum are met.
On the issue of taxation and in respect of transitional protections which are only retained on a "block transfer" it is confirmed that so long as any subsequent payment is in the form of either a recognised transfer payment or authorised lump sum payment this will not prevent the original transfer from being a "block transfer", however, paying an additional transfer in respect of a member could result in a loss of fixed or enhanced protection if the additional transfer is not a permitted transfer.
On GMP conversion the guidance reiterates that this is a complex area and work on this continues, but notes that use of conversion may impact the deferred member carve-out and cause loss of fixed protection and that schemes wishing to use the conversion method should consider the tax implications that may arise in accordance with the existing legislation.