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Pensions Insights – May 2023

30 May 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.

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 

Company Director ordered to access OPS benefits - Manolete Partners Plc v Ian Russell White

Raised in the context of an Insolvency action the core issue of the case was whether the court can, and should, compel a respondent judgement debtor to draw down benefits under an occupational pension scheme financed by his employer in order to satisfy a substantial outstanding judgment debt following on from a breach of director's duties. The respondent contended that the orders would be in breach of the prohibition in s. 91 of the Pensions Act 1995.

It was made clear that since the trustees were not parties to the application that the court should not make any order which required them to take action. 

The judge was satisfied that subject to the potential bar presented by s. 91 of the Pensions Act, the court had the necessary jurisdiction to grant an injunction requiring the respondent to exercise his rights under the Scheme Rules to draw down his pension pot. 

In terms of s. 91, having considered the relevant case law, the judge noted that the present case could be distinguished from many other similar cases on the basis that the principal asset of the respondent's pension fund was derived entirely from funds provided by the company. Noting that the judgment debt was the result of the respondent's misfeasance and breaches of fiduciary duty whilst acting as the company's controlling director and shareholder, the judge considered that it was neither just, nor convenient, nor equitable that the respondent should be entitled to retain his pension, derived entirely from moneys provided by the company, whilst the judgment debt entered against him in favour of that company's assignee remains wholly unsatisfied. 

Following the approach of Mr Birt QC in Lindsay v O'Loughnane the judge proposed to make an order requiring the respondent to give written notice to the Scheme trustees asking (so far as necessary) for all of his remaining pension fund to be designated as a Drawdown Pension Fund, exercising such rights as he may have to draw down the entire fund, and directing payment to a nominated UK bank account in the name of the respondent, and previously notified in writing to the applicant. 

It was noted that further consideration would need to be given to the mechanics of effecting drawdown, and the payment of any resulting tax liabilities along with means of addressing any default on the part of the respondent in complying with the terms of the order.

The judge invited the parties to seek to agree the terms of the draft order in light of the judgment failing which he would rule on the final wording.

New Law  

Pensions Dashboards (Prohibition of Indemnification) Act 2023 receives Royal Assent

The Act, which received Royal Assent on 2 May 2023, prohibits the trustees and managers of pension schemes from being indemnified in respect of penalties imposed under pensions dashboards regulations.  An in force date for the Act is yet to be appointed.


TPR's Annual Funding Statement

Noting that most schemes have improved funding levels and that many are expected to have exceeded buyout funding levels, key messages from the Regulator in this year's statement include that:

  • Trustees will need to consider if their long-term targets remain appropriate, whether buy-out is viable, or to examine other endgame options.
  • If funding levels have improved significantly, trustees should consider whether continuing with the existing strategy and level of risk is in the best financial interests of their members and beneficiaries or whether they should be applying some of the funding gains towards a less risky funding and investment strategy.
  • For schemes with falling funding levels they will need to reset funding and investment strategies to reach their long-term targets and should review their operational governance processes to ensure future resilience. It is recommended that trustees, their investment managers and advisers refer to TPR's LDI guidance for more information.
  • The level of risk that trustees decide to build into their scheme’s funding and investment strategies should be supported by the support available from the employer covenant and it is important to avoid complacency when monitoring the employer covenant, ensuring effective information sharing protocols are adhered to, and assessing the impact of any changes. Trustees should consider obtaining independent specialist advice to help them, particularly where the covenant is complex or deteriorating, or if it has been materially affected by recent market events.

TPR Corporate Plan – focus on value for money

The actions TPR intends to take to ensure savers get the pension they are entitled to are outlined in its new Corporate Plan for 2023 to 2024. 

Key priorities for the year include:

  • Working with the FCA and the DWP to develop a value for money framework. TPR expect schemes to provide good value for money and "those that can’t, must improve or leave the market".
  • Increased attention on tackling scammers through the Pension Scams Action Group (PSAG). 
  • Embracing innovation, through areas such as assessing any collective defined contribution (CDC) applications for authorisation and supporting schemes to prepare for connecting to pensions dashboards

The plan confirms TPR is preparing for the launch of the new Defined Benefit (DB) Funding Code in April 2024, which will enhance the security of savers’ outcomes in DB schemes. TPR will also lay foundations for a significant increase in addressing quality outcomes in defined contribution (DC) schemes.

Guidance on Protecting Schemes from Sponsoring Employer Distress refreshed 

TPR published guidance in autumn 2020 to support trustees dealing with employer stress or distress during the unprecedented impact on the UK economy caused by COVID-19. Given the ongoing but different challenges the economy is currently facing TPR has refreshed this guidance.

Trustees are reminded that a robust employer is one of the key protections for savers and that they should ensure they have an appropriate understanding of the employers’ financial position and potential future challenges. During times of economic challenge, it is even more important to closely monitor the employers’ financial position and to take appropriate advice.

TPR expects all trustees to have appropriate covenant monitoring in place as part of their integrated risk management framework and urges trustees to revisit this guidance and take appropriate action.

Further Reading