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.
Restructuring update
Two cases demonstrate how important it is to consider the position of any defined benefit pension scheme when planning a restructuring, both to ensure section 75 debts are effectively managed and that TPR's moral hazard powers are not engaged.
Pensions Ombudsman determination relating to the Plumbing & Mechanical Services (UK) Industry Pension Scheme (the Plumbing Pension Scheme)
Employers, Trustees and scheme administrators will all be interested in a recent determination involving the Plumbing Pension Scheme. The case highlights both the need to take care when restructuring to avoid inadvertently triggering a s75 debt, and that those responsible for running and administering multi-employer schemes for non-associated employers can be liable if they assume a duty of care when advising employers on matters relating to the scheme.
The key points are:
- the scheme administrator (as agent of and on behalf of the Trustee), who had incorrectly confirmed to the employer that a debt would not be triggered if he changed the status of his sole-trader business to a limited company, had assumed a duty of care as someone with specialist knowledge of the scheme in giving this information to the employer. The Ombudsman agreed with the employer that if he had been given the correct information he would have delayed making this change and would then have been able to use an apportionment arrangement. Because of this error, although the employer was still liable for the s75 debt, he was entitled to compensation for his financial loss equal to the s75 debt less the proceeds of sale of his business, and an award of £2,500 for non-financial injustice, both to be used to offset the s75 debt payable.
- the statutory limitation period for recovering a section 75 debt only starts to run when it becomes payable – that is, when the amount of the debt is certified by the scheme actuary. The trustees in the case were liable for maladministration because they delayed for seven years in notifying the employer that a debt had been triggered, and in calculating and certifying it.
Regulatory intervention report – Newburgh Engineering
The Pensions Regulator (TPR) has published a regulatory intervention report on a settlement reached in relation to the Newburgh Engineering Co Limited Pension and Assurance Scheme. Over roughly 13 years the sponsoring employer was involved in a series of restructurings that saw the transfer of £16.68 million of assets to other group entities without mitigation. Additionally, the sponsoring employer provided significant financial support to group entities and correspondingly its covenant was eroded.
TPR noted that if those funds had been made available to the scheme the scheme would likely have been fully funded. Instead, the scheme suffered detriment while other group entities benefitted. Following a creditor's voluntary liquidation, the scheme entered the PPF, and TPR pursued those group companies that had benefitted at the expense of the scheme. The eventual settlement of £3.52 million fell short of the full scheme deficit, but represented all of the cash assets of the companies targeted for regulatory action.
Lifetime Allowance (LTA) abolition – continuing developments and things to consider telling your members
Although the LTA was abolished with effect on and from 6 April, HMRC has confirmed, in its recent newsletter 158, that a further set of technical changes to the legislation will be made in regulations which will apply retrospectively from 6 April. Amongst other things, they will address issues in relation to:
- the pension commencement lump sum (PCLS) available to members with enhanced or personal protection with protected lump sum rights of more than £375,000
- transfers for members with enhanced protection
- payments of lump sum death benefits from funds which crystallised before 6 April 2024.
According to HMRC, these forthcoming changes 'whilst important, are not expected to affect the vast majority of savers' and they relate primarily to specific protections or to individuals who plan to transfer their pension savings to a qualifying recognised overseas pension scheme (QROPS). The newsletter says that certain members may need to delay taking or transferring their benefits to avoid having to revisit their available allowances and tax positions later this year. For example, the current legislation does not allow a member with enhanced or personal protection and protected lump sum rights of more than £375,000 to take a pension commencement lump sum of more than that amount. HMRC has recognised this and other issues, but pending any correction Trustees should consider with their advisers whether they need to warn their members about the risks of transferring out or taking their benefits before these changes are implemented.
Note: HMRC newsletter 159 has just been published. This includes clarifications of the treatment of benefits accrued before 6 April but paid after that date, and also identifies some additional issues in the legislation which will need to be resolved. Trustees should continue to work with their advisers in establishing what communications to members may be needed as a result.
Pensions dashboard staging timetable is now published- time to rejuvenate your preparation
The Government has published guidelines which set out when schemes in scope will need to connect to the pension dashboard programme (more details about which can be found in our article here). The requirements of the staged timetable mean that many schemes will need to connect to the dashboards ecosystem some time before the long stop deadline set out in law of 31 October 2026. Schemes' deadline for connection will broadly be identified by reference to the number of relevant members (active members, deferred members, and pension credit members) they have in their scheme at the scheme year end date in the period between 1 April 2023 and 31 March 2024 (with similar rules for schemes subject to FCA requirements).
Master trusts providing only money purchase benefits, with 20,000 relevant members or more as at the reference date have a connection deadline of 30 April 2025 (around only a year away). The timetable for the next cohort of schemes to connect after that is quite tight, so that, for example, money purchase schemes used for automatic enrolment with 5,000 or more relevant members as at the reference date will have to connect by 31 May 2025. With a constantly-busy pensions agenda trustees should now remind themselves of the dashboard requirements and work with their advisers to implement the steps they will need to comply, especially around preparation of data.
The Pensions Regulator (TPR) issues further feedback on TCFD reports
Larger pension schemes (with above £1 billion in assets and authorised schemes such as DC master trusts) have been required, since 2022, to prepare and publish climate-related disclosures. TPR has been analysing sections of the resulting reports and publishing its findings, with the aim of promoting better standards in this area. TPR says it has found many examples of good strategic decision-making in its review and more than 60% of reports in its sample had some form of net zero goal with a target date of 2050 or earlier. The review also identified examples of trustee action on climate risk, which included updating defined contribution default lifestyle strategies to include sustainable funds and exploring opportunities such as forestry, green bonds or committing funds to private market renewables.
When preparing reports TPR said trustees should aim to explain the context of the report (in light of the scheme's size and structure), the materiality of any mandates against scheme assets as a whole, and any action plans for the future.
TPR's feedback also recognises the challenges that still exist when producing climate disclosures and in particular that in some cases the market may still not be providing the information needed for a quantitative analysis of investments.
