31 May 2024
Pensions Bulletins – 4 of 15 Insights
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.
Where there has been an overpayment of benefits, the usual starting point is that trustees have a duty to pay the correct benefits under the scheme, and so must try to recover what has been overpaid. One mechanism for doing so is by "recouping" the overpayments by reducing future pension instalments. A new Pensions Ombudsman decision looks in detail at the legal principles that apply when a member contests the trustees’ right to do that and what defences the member may have. It is notable as it sets out some important factors that Trustees should take into consideration when dealing with overpayment cases and establishes scenarios where a member may be able to successfully defend any trustee claim. The principles set out in the decision will have implications for how trustees manage overpayment claims in practice. See here for further details.
The PO has recently given a determination on a member's complaint that her pension scheme had not implemented equalisation correctly in relation to the pre-17 May 1990 portion of her benefits. The 1990 Barber judgment established, broadly, that pensions are pay for the purposes of equal treatment laws and so it is unlawful to apply different normal retirement ages for men and women in respect of their pension entitlements. The judgment also confirmed that this principle did not apply to benefits in respect of service before the decision (17 May 1990). Further case law established that for the period between 17 May 1990 and when schemes equalised ('the Barber Window'), pension benefits have to 'levelled up' so that the disadvantaged members have to receive the more favourable benefits. For service after that date, benefits can be levelled down for all members.
In this recent PO case, the scheme had a normal retirement age of 60 for women and 65 for men. It was amended for equalisation purposes on 23 November 1992 (so the Barber Window was 17 May 1990 – 23 November 1992) and, as part of that, provided for normal retirement ages to be 65 for men and women for both the period after 23 November 1992 and before 17 May 1990. Mrs E disputed this treatment for the purposes of her benefits accrued before 17 May 1990. She argued that the trustees could not make such a change to that portion of her benefits retrospectively and that her consent, under section 67 of the Pensions Act 1995 (which deals with amendments to 'subsisting rights') should have been obtained and so it was ineffective.
The PO found that the scheme had implemented the changes to the member's pre-17 May 1990 benefits legally. This was because the scheme rules allowed retrospective amendments, and s67 of the Pensions Act 1995 was not in force at the time those amendments were made and so was irrelevant.
This case gives clarity for those schemes that sought to "level down" benefits for pre-17 May 1990 pensionable service, a point which is no doubt being considered with greater frequency as schemes review their benefits in preparation for buy out.
In answer to a recent Parliamentary question the Pensions Minister said although the Government is committed to implementing measures to extend auto enrolment in the mid-2020s (see our reference to the proposals in our January bulletin here), it will carry out a consultation on the detailed implementation 'at the right time'. This is not consistent with its previous stated intention to consult at the earliest opportunity. The implication is that reforms may be further away than thought, and that progress is likely to be deferred until after the General Election.
The Upper Tribunal has upheld a decision to reject certain companies' claims for corporation tax relief in respect of accounting provisions for promises to make future pension payments to unapproved unfunded pension schemes. In A D Bly Groundworks and Civil Engineering Ltd and another v Revenue and Customs Commissioners (2024) it was upheld that these were not deductible expenses incurred wholly and exclusively for the purposes of trade and that the purpose of entering into the arrangements was, in fact, to reduce the companies' liability to pay tax without making any payments. The Upper Tribunal reiterated the point that where the remuneration paid is of a reasonable amount and the services in question are performed for the purposes of the employer's trade, it is usually difficult to envisage circumstances in which the deduction of remuneration will not be allowable. Further, it also said that the presence of a fiscal motive would also not normally prevent a payment of remuneration from being deductible. However this case was an exception because it was clear, on the facts (which included that the pension promises were determined as 80% and 100% of pre tax profits, independent of the level of those profits), that the object of the payment was to artificially reduce the employer’s taxable profit. Employers should be aware that HMRC may seek to challenge claims for tax relief in relation to pension related contributions where it seems that those contributions may not genuinely be for the purposes of funding pension promises and should take care, with the help of pensions and tax advisers in the construction of those arrangements.eived overpayments) over others (those who had not).
by Anna Taylor and Mark Smith