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Pensions Insights – October 2023

30 October 2023

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

Case Law

Trustees decision not to use surplus to augment benefits found to be reasonable - Mr S (CAS-92093-N4D9)

Mr S complained to the Pensions Ombudsman about the Trustee’s decision to return surplus of approximately £12 million to the employer on the winding-up of a section of the Scheme. In terms of jurisdiction the Ombudsman made clear that it could only investigate whether the Trustee followed the correct decision making process, not whether statutory requirements were met.

Whilst the complainant argued that the Trustee did not act in the best interest of the members when it decided to return the entire surplus to the employer, the Trustee pointed out that members benefits had been secured in full and that, as a minimum, members were receiving their full and correct entitlement under the Scheme rules.

The Trustee provided information on its decision making process noting key factors that influenced its decision as being:

  • For the duration of operation of the section all downside risk lay with the employer;
  • The employer was supportive of the Trustee's funding/de-risking strategy and paid significant additional contributions to fund for prudence; and
  • It did not seem fair or appropriate for the employer to be penalised for having been willing to fund the Trustee's prudent approach to funding which approach was a key reason the Trustee was able to secure full benefits for members as early as 2018.

Deciding not to uphold the complaint the Ombudsman confirmed that:

  • The Scheme Rules permitted payment of surplus funds to the employer;
  • A trustee would be acting in accordance with the purposes of the trust where there are surplus assets available on wind-up and, having already secured the members' benefits in full, the trustee decides to pay those surplus assets to the employer in accordance with the requirements of the rules of its scheme;
  • It was appropriate for the Trustee to take into account the interest of the employer when considering distribution or surplus; and
  • The Trustee was not bound to increase benefits. It had to consider whether to augment member benefits and provided it had considered all relevant information was permitted to prefer the interest of some beneficiaries (in this case the employer) over others.


First climate change reporting fine issued by TPR

The first fine for failing to publish a report on trustees’ management and governance of climate-related risks and opportunities has been issued by The Pensions Regulator (TPR). Schemes in scope of the regulations (which came into force in October 2021) must publish their climate change report on a publicly available website by a set deadline.

Monitoring compliance, TPR investigated online publication of climate change reports (a total of 80 in the first year). After being unable to locate the Exxon Pension Plan report, TPR contacted the trustees and the report was published six days later. Although the report had been produced by the deadline, it was not published by the deadline due to an administrative error.

TPR fined the ExxonMobil Pension Plan £5,000 for failing to meet the requirements. Failure to correctly publish a climate change report on time carries a mandatory penalty of £2,500. The maximum penalty for breach of this requirement is £5,000 where a trustee is an individual, or £50,000 in other cases including where the trustee is a corporate body.

Independent Review of The Pensions Regulator (TPR)

DWP has now reported on its review as to whether TPR remains fit for purpose and is still required as a public body.

The report concludes that:

  • TPR is broadly well-run and well-regarded. It has some notable successes in its track record, for example the implementation of Automatic Enrolment (AE); and
  • It has a coherent strategy focussed on clear outcomes with the interests of savers at its heart and holds itself to account against a range of key outcome and performance indicators.

Seventeen recommendations are made, centred around three themes:

  • Risk and growth: The question of how UK pension funds are invested has come under the spotlight. It is important that TPR plays an authoritative part in these policy discussions.
  • Compliance and enforcement: TPR has a thoughtful approach to driving compliance by both employers and pension schemes, but it is important that TPR is known for taking tougher action when necessary.
  • Digital transformation and value for money: TPR has grown significantly in recent years reflecting the additional workload it has taken on. TPR must find ways to discharge existing functions more efficiently.
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 or our key contacts below.

Further Reading