In the latest edition of our Pensions Bulletin, we give a snapshot of some recent pensions developments from a legal perspective. These include:
Please get in touch with your usual Taylor Wessing pensions contact if you would like to discuss anything you have seen in the Bulletin.
General election pledges on pensions
Party manifestos have now been published, giving a flavour of what is proposed for pensions. Although many of the pledges are lacking in specifics, it is possible to identify certain themes: promoting investment in the UK and stronger requirements to invest in a way that supports the transition to a lower carbon economy in particular. We expect the pensions industry will breathe a collective sigh of relief when the election is over and there is clarity around the direction of travel. It will also be interesting to see if initiatives proposed by the current government survive a change; these include the extension of auto-enrolment and proposals around surplus extraction for employers. The key aspects of the various manifesto pledges are summarised below.
The Conservatives have promised no new taxes on pensions, no extension of national insurance contributions to employer pension contributions, and that the current 25% tax free lump sum and marginal rate of tax on pension income will remain. In addition, the Mansion House reforms will be implemented. We expect this means the resumption of the various consultations and measures that were put on hold when the election was announced, including proposals to allow surplus extraction and the introduction of a public sector consolidator.
Labour will launch a broad pensions review looking at improving retirement security, delivering better returns for savers and pensioners, and increasing productive investment in the UK economy. Schemes will be mandated to develop and implement credible transition plans that align with Paris Agreement goals, and consolidation will be further encouraged. Despite earlier statements to the contrary, Labour has dropped plans to re-introduce the Lifetime Allowance that was abolished with effect from 6 April this year.
The Liberal Democrats will review pension saving eligibility rules to ensure inclusion of gig economy workers, ensure working-age carers can save properly for retirement, and develop ways to end the gender gap in pensions savings. They will also look at portability of pension savings between jobs. Pension schemes will be required to show that their investments are consistent with Paris Agreement goals, and regulators will be given powers to act if banks and other investors do not manage climate risk properly.
Reform UK wants to review of 'the whole of pensions' and launch a new system whereby 50% of British utilities will be brought into public ownership, with the other 50% owned by pension funds.
The Green Party plans to reduce pension tax relief to income tax base rate for all, and to require pension schemes to disinvest from investments in fossil fuels by 2030.
Tribunal decision clarifies scope of TPR's power to impose penalty
A first-tier tribunal's decision in relation to TPR's imposition of a fine for not preparing a Chair's statement is helpful for trustees in illustrating that sometimes TPR does not have to impose a penalty even though the legislation says that it 'must'. In this case TPR accepted that if a DC Chair's statement is not prepared as required by law a penalty applies, but that TPR also has powers to review the imposition where, upon investigation, it was found no breach had occurred, the decision was procedurally unfair or there was some other 'specific extenuating circumstance' which would make the imposition manifestly unfair. TPR argued that it should consider any point around this "unfairness" when the penalty is challenged and not when it is imposed (because the legislation says that the penalty must be imposed). Judge Snelson disagreed and said that: "In my view, Parliament's intention was that a penalty should ordinarily follow a breach but that, by necessary implication, [the Regulator] would be precluded from penalising trustees where wholly exceptional circumstances fully explained and excused their non-compliance and imposition of a penalty would be manifestly unjust."
He said that TPR's logic was 'unreasonably restrictive' and concluded that TPR should take into account any 'truly exceptional circumstances for non-compliance' when the penalty notice is issued, not when it is being reviewed. TPR has, to date, imposed a considerable number of penalty notices automatically where there has been a breach. This decision will now mean that TPR should take into account any such circumstances in the imposition of the penalty, but what would be considered to be 'truly exceptional' will depend on the circumstances, and trustees should discuss any penalty they may receive with their advisers.
Withholding information from TPR triggers a criminal penalty
In a prosecution brought by TPR, a businessman has been fined £15,000 (£7,500 penalty plus £7,500 costs) for failing to provide information requested by TPR under its statutory powers. The information required related to alleged fraudulent withholding of employee pension contributions that had been deducted from salary but not paid over to the pension arrangement within prescribed timescales. The information had been requested by TPR on 10 June 2020 but had not been supplied by 8 July 2020. The businessman pleaded guilty under section 77(5) of the Pensions Act 2004 to intentionally and without reasonable excuse suppressing documents he was required to produce under section 72 of the Pensions Act 2004.
This case is unusual because it involved a deliberate attempt to avoid providing information. Employers should not ignore requests for information from TPR, or they will risk escalation and potential penalties. Any employer receiving such a request should speak to their advisers in order to ensure an appropriate response.
Proposed changes in complaint handling at the Pensions Ombudsman
The Pensions Ombudsman (TPO) has confirmed changes which will mean that complainants will have to fully exhaust schemes' internal dispute resolution procedures before TPO will investigate their complaint. Although this is already a statutory requirement TPO's Resolution Team has allowed some flexibility, particularly in the period since TPAS transferred its informal dispute resolution service to TPO. TPO is struggling to deal with the volume of cases it is being presented with in a timely way, and it is hoped that this measure will give schemes more autonomy when dealing with complaints and to minimise the risk of them escalating. It may also mean quicker resolution of disputes for members. The change will not apply, however, to cases dealt with by the team of volunteer advisers at TPO who will continue to assist with complaints before the relevant internal dispute resolution procedure has been exhausted. It is proposed that these changes will be made from autumn.
