This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:
- The High Court confirms the correct test for a court to apply when approving a trustee settlement
- DWP consults on simplified annual benefit statements
- The Pension Schemes Bill 2019 – update
- Blatchford: rectification where negative consensus is established
The High Court confirms the correct test for a court to apply when approving a trustee settlement
The trustee of the Airways Pension Scheme (the Scheme) amended the rules of the Scheme to give it the power to award discretionary increases to pensions. The trustee then subsequently sought to exercise that power and grant such increases. British Airways plc (BA) challenged in court the trustee’s amendment to the Scheme rules on the basis it had exercised the power of amendment for an improper purpose.
The matter went through the courts and the trustee was granted permission to appeal the matter to the Supreme Court. The trustee was also granted a Beddoes order which allowed it to meet its cost of proceedings from the assets of the Scheme.
BA and the trustee entered into a settlement agreement in order to compromise the appeal and prevent proceedings in the Supreme Court. The trustee looked to the court to approve the settlement agreement.
The settlement case
In Airways Pension Scheme Trustee v Fielder and another, the trustee and the representative beneficiary differed in their opinion as to the correct test to be applied by the court when approving the settlement:
- The trustee (supported by BA) argued that, in order to bless the settlement, the correct test to be applied was whether the trustee’s decision was one that a reasonable body of trustees could arrive at.
- The representative beneficiary, on the other hand, argued that, where there had been a previous order of the court allowing Scheme assets to be used to fund litigation, the test was that the court should determine that the settlement agreement was in the best interests of the Scheme.
The court rejected the representative beneficiary’s argument and stated that the rationality test was sufficient. The court noted that, in previously granting the trustee a Beddoes order allowing Scheme funds to be used to fund the litigation, the court authorised the trustee to pursue the case but did not direct the trustee to do so. As such, “there [was] no inconsistency in the court reaching its own view as to whether it [was] appropriate for the costs of the litigation to be borne by the Scheme, but deferring to the Trustee’s judgment (subject only to a test of rationality) on the question whether the dispute should be compromised.”
DWP consults on simplified annual benefit statements
The DWP is consulting on its policy approach to the content and presentation of information provided to members of workplace pension schemes through their annual benefit statement (Statement). The consultation is part of attempts to build on the success of auto-enrolment by improving engagement with “working age savers” so that they have a stronger sense of personal ownership of their workplace pension.
The DWP is seeking views on how the use of simpler and more consistent Statements across the pensions industry through greater standardisation of structure, design and content could help improve engagement with pensions. In particular, the DWP is asking for views on three alternative options for achieving simplicity and consistency in Statements:
- A simpler Statement template. This would be based on the two-page, simpler Statement developed by industry experts and available on the PLSA’s website. The Government has welcomed this as an example of what a good, simple, consistent Statement could look like. It has also been endorsed by The Pensions Regulator.
- A “design principles” approach. This would require a set of design principles to be applied to Statements, with the overarching principle being that Statements’ design should recognise the different needs of different demographics, inform members and empower them to make decisions. Other principles would address things like the length, structure, format and content of Statements.
- An approach based on descriptors. This would involve a set of "descriptors" framed to be more detailed than design principles. They would set out requirements for the length, structure and content of simpler Statements. For example, the Statement could be structured with two sections enabling members to see (i) how much money they have in their pension scheme, and (ii) how much money they could have when they retire.
The DWP’s preference is voluntary adoption of simplified Statements. However, it does also seek views on whether it should mandate an approach to simplified Statements through statutory guidance.
The consultation also seeks views on two amendments to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013:
- Costs and charges: should relevant schemes be required to include member-level charges and transaction costs information in Statements?
- SMPI guidance and assumptions: should the Financial Reporting Council be replaced with the Secretary of State for Work and Pensions as the body responsible for producing guidance underpinning statutory money purchase illustrations (SMPIs)? The DWP also proposes to align the assumptions used in SMPIs with those used in the FCA’s rules for the production of key features illustrations (except where the DWP considers that there are strong reasons to justify doing something different).
The consultation runs until 20 December 2019.
The Pension Schemes Bill 2019 – update
Now that the dissolution of Parliament has taken place, and the general election will be on 12 December 2019, the Pension Schemes Bill 2019 (the Bill) will be shelved. The Bill had its first reading in October but it did not reach its second reading. The Bill covered a number of areas of pensions law. In particular, it proposed extending the powers of The Pensions Regulator and the introduction of new criminal offences and fines. When introduced, the Bill had broad cross-party support. It will be a decision for the next government as to whether it will re-introduce the Bill and in what form. More information on the contents of the Bill can be found in our briefing here.
Blatchford: rectification where negative consensus is established
In this case, the High Court allowed rectification of pension scheme documentation which had erroneously incorporated higher pension increase rates than were ever intended.
The case is of interest because it concluded that it was sufficient to establish that the parties had never addressed their minds to the wording which had been included in order to allow rectification. In other words, the court was able to rely on a ‘negative intention’ i.e. an intention not to do something, in order to allow rectification to remove the inserted unintended provisions.
None of the contemporaneous documentation suggested that there was any intention to provide a more favourable pension increase rate. If it had been intended, it was considered that such a change would have been drawn expressly to the attention of the scheme trustees. It was noted by Chief Master Marsh that “an outward expression of agreement is not required in pension cases. If there was a joint continuing common intention to make no change, the consensus (albeit a negative one) is established" and rectification could be granted.