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Pensions Insights – August 2022

26 August 2022

In our monthly e-alert, Pensions Insights, we give you our take on the latest highlights in the world of pensions law and policy.

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.

Case Law

High Court rules on forfeiture provisions -  CMG Pension Trustees Limited v CGI IT UK Limited [2022] EWHC 2130 (Ch)

Remedial payments made to members to remedy underpayments of benefits were subject to a six-year limitation period under the Scheme's forfeiture rule.

The Scheme in this case had identified issues with the way in which benefit changes had been implemented and the Scheme administered which required the Trustees to make arrears payments to members.  

The rules of the Scheme included a forfeiture rule relating to benefits not claimed by members within a 6 year period.  Whilst the Scheme employer argued that the rule meant that any sums which fell due for payment more than six years prior were forfeit. The Trustees argued that the rule was not a forfeiture provision and did not have that effect.  The Trustees contended the rule was intended to deal with missing beneficiaries and to prevent funds from being “orphaned or trapped within the Scheme” and not intended to extinguish the benefits of members where they could be identified and paid or to extinguish benefits where they had been unrecognised (e.g. as a result of a mistake by the Trustees). 

The High Court held that the rule is a forfeiture clause and should be construed on the basis that any benefit or instalment of a benefit which has not been claimed within six years of the date on which it fell due for payment is forfeited and the entitlement to that benefit or instalment is extinguished. It also confirmed that the rule was not limited to missing beneficiaries but applies to all unclaimed benefits once the six year period has expired.

Ombudsman direct an employer to pay outstanding pensions contributions - Mrs S (CAS-41447-J2T2)

Mrs S claimed that she had not been paid wages or pension contributions as set out in her contract of employment.  Evidence in this case showed that the employer had attempted to establish a business in the UK and that not only was pension provision not made, but salary was not paid, among a number of other business failings.  

Whilst the Ombudsman made clear that the only body that can deal with breaches of the statutory obligations in relation to auto-enrolment under the Pensions Act 2008 is The Pensions Regulator, it was satisfied, on the basis that Mrs S had a qualifying scheme into which the employer could pay contributions, that it could use its powers to order the outstanding contributions be paid to that scheme.  The Pensions Ombudsman ordered employer contributions in line with relevant statutory minimums to be paid over to that scheme along with interest for late payment.

In addition to the order made in respect of payments to the scheme the Ombudsman noted that TPR would be notified of the failure of the employer to abide by relevant auto-enrolment legislation.

New Law  

Pensions (Extension of Automatic Enrolment) Bill reintroduced to Parliament

The Pensions (Extension of Automatic Enrolment) Bill has been reintroduced into the House of Commons as a Private Members' Bill to make provision about the extension of pensions automatic enrolment to jobholders under the age of 22; to make provision about the lower qualifying earnings threshold for automatic enrolment and for connected purposes.

The Bill is scheduled for its second reading on 28 October 2022.


Refinancing in the current economic climate – TPR sets out expectations of trustees and sponsoring employers

TPR has published a blog setting out its expectations of sponsoring employers and trustees in relation to any refinancing activity. Highlighting the risk of refinancing on employer covenant TPR sets out aspects it expects sponsors and trustees to consider as follows:

  • Interest costs and fees: changes in the cost of debt could impact the employer’s free cash flow and consequently its ability to meet pension contributions. Trustees should understand the impact of any such changes on the employer covenant.
  • Debt structure: When replacing one type of debt with another trustees should ensure they have a good understanding of any impact.
  • Security / guarantees: lenders often take security over assets as collateral for lending which typically result in the trustees’ claims ranking behind lenders debt. Trustees should ensure they understand the implications of any changes on their potential insolvency outcome.
  • Financial covenants: changes to financial covenants could represent a power shift between trustees and lenders in the event of financial stress.
  • Restrictive covenants: lending documents may include clauses that restrict the ability of the employer to undertake certain activity. Trustees should be mindful of such clauses, which may restrict their ability to agree appropriate funding plans or protections for the scheme.
  • Counterparty: where a new lender is preferred, it is more likely that changes will take place in the areas listed above. Trustees should be mindful that different lenders may have different risk appetites and objectives. A change in lender may also facilitate engagement with trustees as a key stakeholder.

Code of Practice on authorisation and supervision of collective defined contribution schemes

TPR's code of practice on authorisation and supervision of collective defined contribution ("CDC") schemes has now been published and came into force on 1 August 2022.

This code’s purpose is to set out how an application for authorisation of a CDC scheme must be made and how TPR will assess the matters that the regulations require it to take into account in deciding whether it is satisfied that a scheme meets the criteria for authorisation. The code is intended to help those involved in CDC schemes to understand how to satisfy TPR that the authorisation criteria are met at application and continue to be met.

The authorisation criteria set out in the code are as follows:

  1. Fitness and propriety – includes assessment of the person who establishes the scheme and the trustees as well as those who are able to appoint or remove the trustees or amend the trust deed or scheme rules.
  2. Systems and processes - the scheme must have sufficient IT systems in place to run efficiently and have robust governance processes to manage the scheme effectively and comply with all relevant requirements.
  3. Member communications - the scheme must have adequate systems and processes to communicate with members so they understand the risks and benefits of the scheme, in particular how the rate or amount of benefits may change.
  4. Continuity strategy - there must be a credible strategy for how members will be protected if there is a triggering event.
  5. Financial sustainability -  a scheme must have sufficient financial resources to operate at set-up and thereafter following a triggering event without increasing the cost to members.
  6. Sound scheme design - this should be demonstrated in the viability report supported by evidence including appropriate advice from suitably qualified professionals and modelling and testing appropriate to a scheme’s complexity.

Further Reading