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Pensions Matter at Pinsent Masons: December 2018

Monthly update from the Pinsent Masons Pensions team.

Select a topic to read more:

Government consults on DB consolidation into "superfunds"
New financial guidance body to lead pensions dashboard project
Court of Appeal: RPI not "inappropriate" for inflation-proofing BT pensions
Part-timers entitled to pensions based on all service, European Court rules
Tribunal allows member's appeal against loss of fixed protection
Draft no-deal Brexit regulations put PPF entry in doubt on EU insolvency
Women's state pension campaigners granted judicial review
Investment Association: Executive pension contributions should be the same as for the general workforce
And finally…


Government consults on DB consolidation into "superfunds"

The government has set out its proposals to allow defined benefit (DB) schemes to consolidate into superfunds authorised by the Pensions Regulator. The Department for Work & Pensions envisages that superfunds would be occupational trust-based schemes under a stronger regulatory framework (analagous to the new regime for DC mastertrusts). Superfunds would offer a capital buffer (provided by external investors) in place of the sponsoring employer's covenant, as well as providing the efficiencies of scale (on investments in particular) and removing the risk of future sponsoring employer insolvency. A number of options for ensuring financial adequacy and sustainability are being considered. The government wants to avoid either undermining the insurance buy-out market or providing a route for employers to offload underfunded schemes where it would be in members' best interests to remain in the employer's scheme. The DWP is therefore proposing a "regulatory gateway" so that a pension scheme would not be able to pass its liabilities to a superfund where there is a realistic prospect of the scheme securing its benefits in the insurance market in the next five years. 

The consultation ends on 1 February 2019.  Many of the government's proposals would require legislation which it plans to take forward "when Parliamentary time allows" - meanwhile potential new superfunds are expected to engage with the Pensions Regulator and the Pension Protection Fund before entering the market, and employers considering a transfer should seek voluntary clearance. 

New financial guidance body to lead pensions dashboard project

The DWP has put forward plans for the new Single Financial Guidance Body to oversee the development of the pensions dashboard. The project will be taken forward by an industry delivery group, with representatives from the pensions industry, and fintech and consumer organisations. The DWP envisages there will ultimately be multiple dashboards to improve choice for consumers. A non-commercial dashboard hosted by the financial guidance body will offer an impartial service for those who prefer it or who may not be targeted by the market. Legislation will be needed to ensure participation by schemes is mandatory, and the government says this will be brought forward "when parliamentary time allows", once a robust delivery model has been created - although it expects schemes to start supplying data to a dashboard on a voluntary basis during 2019. The DWP is seeking views about whether some schemes (such as small self-administered schemes or executive pension plans) should be exempt from participation.

Court of Appeal: RPI not "inappropriate" for inflation-proofing BT pensions

The Court of Appeal has decided that BT cannot move away from using the Retail Prices Index (RPI) for calculating pension increases under its scheme rules. The scheme rules allow a change only if the RPI has "become inappropriate", and BT put forward a number of reasons why this was the case. These included statements from the National Statistician that RPI was a flawed measure of inflation, and the fact that RPI has been superseded by the Consumer Prices Index (CPI) in some contexts. In the High Court, the judge concluded that it wasn't enough for BT to show that it would be better to use another index, or that another index would be more appropriate, or that RPI is merely undesirable. The three Court of Appeal judges unanimously agreed that the High Court judge had been entitled to reach this conclusion. Although wording of the BT scheme rules is unusual, the judgment should give some comfort to trustees grappling with this hotly-debated question.

Part-timers entitled to pensions based on all service, European Court rules

O'Brien v Ministry of Justice (Court of Justice of the European Union)

The European Court has ruled that part-time workers with service before and after 7 April 2000 (when the EU Part-Time Workers Directive was implemented in the UK) should have all their service taken into account when calculating their pension entitlements. This is the latest decision in very long-running litigation, brought by a retired part-time judge who retired in 2005. His case (and the issue of costs) will now be finally decided by the Supreme Court.    

Tribunal allows member's appeal against loss of fixed protection

Hymanson v Commissioners of HMRC (First-tier Tax Tribunal)

Townley v Commissioners of HMRC (First-tier Tax Tribunal)

The first-tier tax tribunal has decided a couple of cases relating to fixed protection against changes to the lifetime allowance. In the Hymanson case, a member's fixed protection was revoked because he continued to make contributions to two of his pension schemes. The tribunal found that Mr Hymanson had a genuine (albeit mistaken) belief that continuing existing standing order payments would not prejudice his fixed protection. HMRC had not taken account of the possibility that this serious mistake meant the payments which caused the loss of fixed protection could be rescinded by a court - so HMRC's decision to revoke fixed protection was unreasonable. This decision shows that members may be able to successfully appeal against withdrawal of fixed protection - although the outcome will depend on the facts of each individual case.

By contrast, another tribunal case this month has emphasised the importance of fully complying with the legal requirements, or fixed protection may not be granted. In the Townley case, the tax tribunal struck out Mr Townley’s appeal against HMRC’s decision not to grant fixed protection. He had not submitted the right application form and a letter to HMRC was inadequate because it did not meet the relevant conditions set down in regulations.

Draft no-deal Brexit regulations put PPF entry in doubt on EU insolvency

Draft regulations dealing with cross-border insolvencies in the wake of a no-deal Brexit may mean pension schemes where the employer is in EU (but not UK) insolvency proceedings cannot apply for PPF entry. The regulations alter provisions inserted to help the Olympic Airlines pension scheme, which was unable to trigger a PPF assessment period because it was not possible for the employer to have an insolvency event in the UK. The change may well be an unintentional result of hasty Brexit lawmaking, and the regulations may be amended before they take effect.

Automatic enrolment earnings trigger frozen for 2019/20

The automatic enrolment earnings trigger has been frozen for 2019/20 at £10,000. Freezing the trigger is likely to capture more of an employer's workers. The qualifying earnings band remains pegged to National Insurance Lower and Upper Earnings Limits, so will be £6,136 - £50,000 for 2019/20.

Women's state pension campaigners granted judicial review

Campaign group BackTo60 has been granted a judicial review of the government's handling of the increase to women's state pension age. The group, which supports women born in the 1950s who complain that they were not properly informed about changes to their state pension age, is arguing for this group to be given the same amount of pension as if they had received it from age 60.

Investment Association: Executive pension contributions should be the same as for the general workforce

The Investment Association has written an open letter to chairs of all FTSE350 remuneration committees outlining key changes to its principles of remuneration. The letter reiterates the Association's concerns about the disparity between executive and wider workforce pension provision, insisting that executive director contribution rates should reduce over time until they are at the same level as those of the general workforce.

And finally…

In 2016 we thought we had discovered Britain's oldest artificial Christmas tree, but Metro has uncovered one family heirloom which is an astonishing 98 years old. Elizabeth Naylor from Sheffield bought the tree from Woolworths in 1920 and her family has given it pride of place every year since then. The tree was damaged in the Sheffield Blitz in 1941 and was almost blown into the fire when gales swept through the city in 1962, but original sellotape repairs have held it together and even the 1920s ornaments are still intact.  

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