In the February edition of our Taylor Wessing Pensions Bulletin, we give a snapshot of some recent pensions developments, which include:
Pension Protection Fund confirms 25/26 levy
In our last bulletin we reported on the delay to the Pension Protection Fund's (PPF) final rules for the 25/26 PPF levy, but these have now been confirmed with the total levy estimate being reduced from £100 million to £45 million. The Government has also said it is considering giving the PPF the flexibility to reduce the levy further.
The PPF Chair has added that she would welcome Government consideration around indexation (PPF rules currently do not provide for indexation of pre-97 benefits).
Here is the final PPF Policy Statement (which includes important deadlines for submission of documents at page 11) and Rules for 25/26.
High Court approves merger of schemes in wind up
In Arcadia Group Pension Trust Ltd v Smith [2025] EWHC 11 (Ch), the High Court has approved amendments to a scheme to facilitate a merger, the effect of which would allow an underfunded scheme (the Executive Scheme) to benefit from the surplus of the scheme it was being merged with (the Staff Scheme). The case involved examining the context in which the schemes were operating (and in particular their close relationship and the aims around how they should be funded), the Staff Scheme rules (including whether there were any fetters on the amendment power) and whether or not scheme powers were being exercised for a proper purpose. The Court said the main points to note were:
- The unrestricted nature of the Staff Scheme amendment power.
(i) the power was clear in providing that it continued until the scheme had been wound up and that it could be exercised by the trustees without the need for principal employer consent where the employer was in liquidation (which it was), and there was no fetter on it in the circumstances of the case
(ii) although the scheme had been amended earlier to exclude new members and mergers, the Court concluded that there was no fetter on the power being exercised to reverse that amendment if circumstances warranted it. That analysis included that, in examining the amendment power, 'relevant context does include the history of the scheme because a review of the exercise of a power to amend should involve not just looking at the scheme in its last iteration but also how the power to amend has been used to create the scheme in its current form'.
- The manner in which the main object of the Staff Scheme is defined and the fact that that main object, which was to fund the basic entitlements of Staff Scheme members (ie full scale benefits) could be achieved notwithstanding the merger; the merger would only instead dilute their contingent interest in any possible augmentation due to surplus.
- The close relationship between the Staff and Executive Schemes. In using the surplus in the Staff Scheme to benefit members of the Executive Scheme the trustees would be providing pension benefits the principal employer intended those members to receive (based on the circumstances) even though the intention was that they be provided though the Executive Scheme.
- There was a shared objective of the trustees to achieve a surplus in both schemes and that was pursued taking advice from shared professional advisers.
- The fact that there is a surplus in the Staff Scheme and a deficit in the Executive Scheme was an unintended consequence of forces outside of the control of the trustees.
The Court concluded that the Staff Scheme trustees were using their amendment power to facilitate a merger for a proper purpose.
There was a useful reminder of the approach that should be taken in exercising fiduciary powers and the decision-making process in those circumstances, such as the trustees needing to inform themselves of the relevant facts, take into account relevant factors and to ignore irrelevant ones. Further they should act rationally and reasonably (ie not in a way no reasonable trustee would).
There was also a reminder of the key principles established by the leading case of Edge v Pensions Ombudsman on the issues trustees might have regard to in relation to surplus, which include usually looking at the circumstances in which the surplus has arisen, giving weight to those who are the effective source of the surplus. Further, the 'essential' requirement for the trustees to address what is fair and reasonable in all the circumstances was identified as being one of the key drivers for the merger and the 'strong moral obligation' to enable the merger to take place was said to be an 'entirely proper' matter for the trustees to have taken into account.
Conflicts were also said to have been managed in a way that the decision would not be 'tainted' (for example, only one Staff Scheme trustee took the decision because she was the only one who was not also a trustee or member of the Executive Scheme), and the appointment of a Representative Beneficiary meant that whether or not the amendment could be opposed could be properly tested (with the benefit of specialist legal advice it decided it could not).
Although this case is very particular on its facts there are some useful reminders in the decision about proper process and decision making in these circumstances.
The ICAEW issues a note on the Virgin Media case
The Institute of Chartered Accountants of England and Wales (ICAEW) has issued a note on the Virgin Media case (which we have written about in previous bulletins and is of concern to schemes previously contracted out on a defined benefit basis). One of the immediate issues and uncertainties is how any possible change in scheme liabilities resulting from the decision should be accounted for in sponsor and scheme accounts. This note is said to be aimed at sponsors and their auditors and although it does not explicitly set out any recommendations it may also be of interest to trustees in understanding what information may be required of them and the options auditors may be considering to deal with these issues in the auditing process. A link to the note can be found here.
The Pensions Regulator blog on priorities for 2025
The Pensions Regulator (TPR) has issued a blog outlining its key priorities for 2025 which are said to include saying more about the need for better data, continuing to change how it regulates its most strategically significant schemes (starting with master trusts), implementing a more strategic approaching to raising trustee standards and helping defined benefit schemes to consider the full range of alternative options through guidance. TPR has also emphasised collaboration over 'tick box' exercises. This helps schemes understand how TPR might engage with them going forwards and also what materials/guidance TPR might be issuing in the coming year.
