This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:
- New requirement to publish DC scheme investment charges and transaction costs on a website – deadlines start to loom large
- FCA & TPR joint regulatory strategy draws inspiration from Bill & Ben
- Chancellor makes no mention of the 'P-word' in autumn Budget 2018 speech
- Ombudsman determination (Mrs S): settlement agreement leading to contractual estoppel
- GMP equalisation – an answer to a thirty-year-old question?
New requirement to publish DC scheme investment charges and transaction costs on a website – deadlines start to loom large
The trustees of defined contribution (DC) schemes (or schemes with a DC section) must provide a Chair’s statement within seven months of the end of each scheme year. Regulations introduced new requirements with effect from 6 April 2018 in relation to the information that needs to be included in the statement about investment charges and transaction costs.
Those same regulations also introduced a requirement that certain information from the statement in relation to those charges and costs be made available and free of charge on a publicly accessible website. This information is:
- the levels of charges and transaction costs that applied to each default investment arrangement during the scheme year;
- the levels of charges and transaction costs that applied to each fund which members are able to select and in which any member was invested during the scheme year;
- an indication of any information about transaction costs which the trustees have not been able to obtain and an explanation of the steps being taken to obtain that information;
- an explanation of the trustees’ assessment of the extent to which the charges and transaction costs represent good value for members;
- an illustrative example of the cumulative effect, over time, of the application of the charges and transaction costs on the value of a member’s accrued rights to money purchase benefits; and
- the information the trustees included in the Chair’s statement about the statement of investment principles (SIP) for the default investment arrangement and the review of that SIP.
Broadly speaking, trustees have seven months from the last day of the first scheme year which ends on or after 6 April 2018 to comply. Those schemes with a year-end date of 30 April 2018 will need to have the information published on a website by 30 November 2018. Some trustees may therefore need to take action soon, if they haven’t already done so, to ensure compliance.
It is worth mentioning that trustees should also:
- provide a hard copy of the website information within two months of a request if a person has requested a hard copy and it would not be reasonable for that person to obtain the information from the website; and
- update annual benefit statements to include details that will signpost members to the website information and explain when a hard copy will be provided on request.
FCA & TPR joint regulatory strategy draws inspiration from Bill & Ben
The horticulturally-themed joint regulatory strategy from the Financial Conduct Authority and The Pensions Regulator (together the Regulators) sets out how the Regulators will focus and collaborate on various priorities for the pensions and retirement sector over the next five to ten years.
The paper identifies that the key overarching harm in the sector is the prospect of people not having adequate income, or the income they expected, in retirement. Amidst infographics of flowerpots and well-tended plant life, the Regulators set out four areas of focus with regulatory objectives to address four causes of the overarching harm. These are summarised in the table below.
The Regulators have also set out various work streams to support each of the above objectives and will prioritise two matters in particular. In 2019, they will conduct a joint review of the customer pensions journey, looking at the materials consumers need to make well-informed decisions about their pensions. In addition, the Regulators state they will use their powers to drive value for money for members of pension schemes, including setting and enforcing clear standards.
During the information gathering phase for the strategy paper, some commentators queried whether the issues affecting the pensions and retirement sector might best be addressed by a single regulatory body. The Regulators dismiss any such vote for Christmas firmly, stating that “the two regulators have distinct responsibilities that do not overlap”.
Chancellor makes no mention of the 'P-word' in autumn Budget 2018 speech
Those listening expectantly to the Budget 2018 speech for key pensions-related announcements would have been disappointed. While the Chancellor did not explicitly refer to pensions in his speech, the Budget 2018 document itself contained a small number of pensions-specific commitments. However, the majority of these commitments covered issues which have been announced previously and are already familiar to the pensions industry.
The few substantive pensions-related announcements in the Budget 2018 were:
- confirmation that the government has allocated £5 million for the development of a pensions dashboard, which would allow individuals to see details of their pension entitlements, including the state pension;
- a commitment by the Financial Conduct Authority to publish a discussion paper on whether to allow unit-linked funds to invest in patient capital by the end of 2018;
- consultation on the pensions charge cap in 2018 to ensure that it does not unduly restrict the use of performance fees in DC pension schemes;
- confirmation that a response would be issued to the consultation on the introduction of a cold-calling ban, with draft regulations to be put before Parliament as soon as possible;
- publication of a Department for Work and Pensions consultation paper on increasing the participation of self-employed workers in pensions; and
- an announcement that the lifetime allowance for pension savings would be increased in line with CPI to £1,055,000 in 2019-2020.
Ombudsman determination (Mrs S): settlement agreement leading to contractual estoppel
In this case, Mrs S had signed a settlement agreement in which it was confirmed that she had been made compulsorily redundant. She had not been awarded an unreduced pension following her redundancy in 2015 and made a complaint to the Pensions Ombudsman, claiming that this was contrary to her scheme rules. Those rules mirrored those considered by the Court of Appeal in AGCO v Massey Ferguson Works Pension Trust  EWCA Civ 1044. In that case, it was held that a member who was aged over 50 and whose employment was terminated by reason of voluntary redundancy at the request of the employer would qualify for an unreduced pension. However, in a case of compulsory redundancy the member would not be retiring at the request of the employer, and therefore would not be an entitled to an unreduced pension.
The Ombudsman held that Mrs S was estopped from making a complaint that she be entitled to an unreduced pension as she had negotiated and agreed a valid and binding settlement agreement which contained express provision that she had been made compulsorily redundant (which then meant that she would no longer be eligible for an unreduced pension under the scheme rules). The Ombudsman further held that the settlement agreement would not infringe section 91(1) of the Pensions Act 1995, which, in broad terms, provides that where a person was entitled to a pension under an occupational pension scheme, the entitlement or right could not be assigned, commuted or surrendered. As per the judgment in IMG (UK) Ltd v German  EWCA Civ 1349, the Ombudsman held that in Mrs S's case, the settlement agreement would not be prevented from having effect because it related to a bona fide settlement of disputed rights.
The case is an interesting example of contractual estoppel and the interplay between a settlement agreement and employees’ pension rights on termination of employment.
GMP equalisation – an answer to a thirty-year-old question?
On 26 October 2018, the High Court in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc and others confirmed that guaranteed minimum pensions (GMP) must be equalised between male and female members.
For a substantive briefing on this case, please read our alert.