UK Pensions Update - April 2019

UK Pensions Update April 2019 CONTACT US | DOWNLOAD | FORWARD | WEBSITE Welcome to the April edition of our Pensions Update, where, in keeping with the muchanticipated arrival of Spring, we give you news of various new beginnings in the pensions industry. We also highlight just some of the many interesting points mentioned at our recent panel event, in which David Fairs from the Pensions Regulator, together with other leading representatives from the industry, discussed the Regulator's 21st Century Trusteeship campaign and the topic of trustee governance more generally. We are also proud to announce that we have once again been shortlisted by European Pensions for the European Pensions Law Firm of the Year Award 2019! If you have any questions on any of the items mentioned in this month's edition of our Update, please get in touch with your usual contact at Baker McKenzie. In This Issue Our 21st Century Trusteeship Panel Event General Pensions News Government publishes response to consultation on pensions dashboards DWP guidance on GMP conversion: a helpful piece of the equalisation puzzle, but other important pieces remain outstanding PPF issues new guidance on contingency planning for employer insolvency PPF publishes strategy for 2019-2022 Lifetime Allowance increase Pensions Disputes News Equal treatment: Advocate-General concludes that retrospective levelling down of benefits during Barber window is not permitted Scope of trustees powers: British Airways settles pensions litigation Recouping pension overpayments: Pensions Ombudsman publishes factsheet defending its position as a "competent court" for the purposes of Section 91 of the Pensions Act 1995 Our 21st Century Trusteeship Panel Event On 26 March, we held a lively and informative panel discussion event where various of our trustee clients and contacts came along to hear David Fairs, the Executive Director of Regulatory Policy, Analysis and Advice at the Pensions Regulator, as well as Susan Hoare of Aon, James Colegrave of Willis Towers Watson and our own partner, Chantal Thompson, discuss some of the pressing current issues affecting trustee governance. David Fairs gave updates at the event about what to expect from the upcoming consultation by the Regulator on trustee governance matters, including the possibility of introducing mandatory trustee qualifications and a new requirement for every board to contain a professional trustee. Each of the panellists also gave examples of how trustee boards could be better governed, including tips about how to use time effectively at trustee meetings. These included providing short executive summaries at the beginning of every board discussion topic and "pre-meetings" to run each trustee through the upcoming full board meeting agenda. David also updated the panel and the audience on how the Regulator is changing its approach to frontline regulation and the various tiers of supervision that will be adopted in the future, preliminary details of which were also shared in the Regulator's "TPR Future - our new approach" document in September 2018. - General Pensions News Government publishes response to consultation on pensions dashboards The Department for Work and Pensions (the "DWP") has published its response to the feasibility report and consultation paper on pensions dashboards issued in December 2018, confirming that pension schemes will be compelled to participate in dashboards and that work will continue towards including State Pension data in dashboards as soon as possible. For more information about the original report, please see our December 2018 Update. The DWP confirmed in its response that it will put forward primary legislation to require pension schemes to make members' data available to them through their chosen dashboard, whilst also recognising that this process will have to be introduced in stages such that larger schemes will be compelled to participate in the system first (the DWP expects large DC schemes to be among the first to participate, potentially as early as 2019/20). The Money & Pensions Service ("MAPS") will lead the delivery of an initial phase of the project and will bring together a "delivery group" by Summer 2019, made up of various stakeholders from the industry, relevant regulators and government. The establishment of a delivery group will permit the formation of a steering group which will set the strategic direction of the project, and MAPS will simultaneously begin work to deliver a non-commercial pension dashboard. The expectation is that the industry will also create and test its own consumer facing dashboards, and that developing a suitable governance system that ensures member protection will be a priority. In terms of timing, whilst the "digital architecture" and many of the systems and processes for dashboards still have to be agreed, the Government expects that the majority of schemes will be providing data via dashboards within a 3 to 4-year timeframe. However, the Government also expects the information available on dashboards to be phased, starting with simple information and moving onto more complex information as the Government begins to understand how consumers interact with dashboards generally. DWP guidance on GMP conversion: a helpful piece of the equalisation puzzle, but other important pieces remain outstanding The Department for Work and Pensions (DWP) has published its long awaited guidance on the use of Guaranteed Minimum Pension (GMP) conversion legislation. The guidance has been produced with the assistance of an industry working group in order to help occupational pension schemes to address inequalities in scheme benefits due to the existence of unequal GMPs. Since the decision in the Lloyds Banking case, occupational pension schemes with GMP benefits have been considering how to equalise benefits for men and women for the effect of GMPs accrued after 16 May 1990, with GMP conversion being one of several options potentially open to schemes to achieve this. The guidance provides some helpful detail for trustees and employers on how the process of conversion might work in practice – including a potential ten-step methodology for implementing conversion. This builds on the preferred conversion methodology which the DWP first consulted on in 2016, which was generally well received by the pensions industry as it did not require annual comparisons between men and women in order to determine the amount of the equalised benefit, but rather relied on a one-off actuarial valuation of equivalent male and female benefits. Under this approach, the higher of the two calculated amounts would be applied by the trustees to provide equalised benefits, which cannot be money purchase benefits, but which are no longer subject to the requirements of the GMP legislation. The new guidance represents a step forward for trustees and employers in getting to grips with how conversion might work as an option but a number of thorny issues will need to be worked through if schemes do decide to progress with conversion, including potential employer consent issues. However, schemes are likely to want to wait for clarity on a number of other issues, notably the tax implications of GMP equalisation - these will be an issue for schemes regardless of whether they are planning to equalise via conversion or another method - as well changes to the current conversion legislations. The timing for when we will see further guidance from HMRC on the tax issues, or when we might see further legislative amendments, remains unclear. PPF issues new guidance on contingency planning for employer insolvency The Pension Protection Fund (the "PPF") has issued new guidance for trustees on contingency planning for employer insolvency. The new guidance has been prepared to assist trustees in understanding the sorts of changes that they will face when there is a increased risk of the employer suffering an insolvency event. In particular, the PPF notes that trustees should consider the particular risks posed by the employer's financial situation and ensure that the trustee board has the correct mix of skills, knowledge and expertise so that "robust and timely decisions can be made in the members' interests". The steps recommended by the PPF include: ensuring that the trustees have a full understanding of the scheme's governing documents; conducting a review of the scheme's payroll and banking arrangements to ensure they can still be run in the event of an employer insolvency; maintaining a list of scheme documents and all participating employers (including a list of which member is attached to which employer); backing up all electronic data; and creating and maintaining a strategy for communicating with members and the media. The PPF has apparently worked closely with the Regulator to produce the guidance, and notes in its press release that the new guidance should be read in conjunction with its guidance on managing DB benefits. The guidance is aimed primarily at trustees who think that their employer is in trouble and there is a risk that their scheme could enter a PPF assessment period as a result of employer insolvency. However, much of what it recommends is consistent with more general principles of good governance. PPF publishes strategy for 2019-2022 The PPF has published its Strategic Plan for 2019-2022, which sets out its strategic priorities for the period. These include maintaining sustainable funding in what the PPF has referred to as "volatile times", building innovation within its systems and processes, offering a "brilliant" service for members and schemes, creating the "best of financial and public services culture" and providing clear value for money. To view the new Strategic Plan, please click here. Lifetime Allowance increase On 6 April 2019, the standard lifetime allowance for tax purposes increased from £1,030,000 to £1,055,000 for the 2019/2020 tax year. Pensions Disputes News Equal treatment: Advocate-General concludes that retrospective levelling down of benefits during Barber window is not permitted The Advocate General ("AG") has handed down his opinion on the question of whether European law prevents the retrospective levelling up of pension ages (i.e. levelling down of benefits) to equalise normal pension age during the "Barber" window (that is, from 17 May 1990 until formal equalisation under the scheme's rules). The AG's view is that such retrospective levelling down is not permitted, even where a pension scheme's power of amendment expressly allows changes to be made retrospectively as a matter of UK law. The question was referred by the Court of Appeal as part of the ongoing litigation involving the Safeway Pension Scheme. For further detail about the background to the case, please see our October 2017 update. We will need to wait and see whether the Court of Justice of the European Union (CJEU) agrees with the AG - the AG's opinion is persuasive, but not binding on the CJEU. The impact of the final CJEU decision will be financially significant for the Morrisons group (which took over the Safeway business in 2004) which stands to lose up £100 million if it is required to level up benefits during the period in question. As to the wider significance of the case, the final CJEU decision will be of primary relevance to schemes that have the ability to amend retrospectively and purported to do so in similar circumstances to the Safeway case - where the scheme equalisation was purportedly carried out by means of an announcement in December 1991 with a formal deed of amendment being entered into on 2 May 1996. Scope of trustees powers: British Airways settles pensions litigation British Airways PLC and the trustees of the Airways Pension Scheme have announced that they have agreed to settle their long-running pensions dispute, which was due to be heard by the Supreme Court later this year. The original dispute related to the trustees' powers to amend the pension scheme's rules to provide themselves with the power to award discretionary increases in line with the Retail Prices Index (RPI), following the Government's decision in 2010 to alter the inflationary increase basis for various pensions-related statutory purposes from RPI to the Consumer Prices Index (CPI). For more information, please see our Updates from May 2017 and July 2018. The Trustees of the Airways Pension Scheme confirmed in their announcement to members that the settlement would bring to an end litigation that commenced in 2013. The settlement will allow them, subject to certain affordability tests, to award discretionary increases up to the annual change in the RPI from 2021 with interim "catch-up" increases also being paid. In return, BA will not be required to make deficit reduction contributions until the pension scheme's funding falls below the 100% level. The parties are waiting for court approval for the settlement, although it is understood that this may not be received until later this year. Recouping pension overpayments: Pensions Ombudsman publishes factsheet defending its position as a "competent court" for the purposes of Section 91 of the Pensions Act 1995 The Pensions Ombudsman (the "Ombudsman") has published a factsheet which sets out its view that the Ombudsman is, contrary to Mr Justice Arnold's comments in the Burgess v BIC UK High Court case last year, a "competent court" for the purposes of Section 91(6) of the Pensions Act 1995 when making determinations in relation to the recoupment of pension overpayments. (For more information on the Burgess v BIC UK judgment, please see our May 2018 Update). The factsheet provides background to Section 91(6) of the Pensions Act 1995, and notes that, where there is a dispute regarding the amount to be repaid to the pension scheme by a member, following an overpayment, the set-off against existing pension payments cannot be exercised under the Pensions Act 1995 provisions unless the obligation to repay has become enforceable under an order of a "competent court" or in consequence of an award of an © 2019 Baker McKenzie arbitrator. In the Burgess v BIC UK judgment, the judge suggested that a determination from the Pensions Ombudsman was not an order of a "competent court" because the Ombudsman is not a court, meaning that a county court judgment would be needed before trustees could offset overpaid benefits where there was a dispute. The Ombudsman's view is that the judge's comments made in this case were merely his provisional view on the matter and did not form part of the judgment itself. The Ombudsman goes on to set out his reasons why he should, in fact, be considered as a "competent court". Given the current lack of clarity in this area, we recommend that trustees seek professional advice before implementing any pension offsets following the discovery of an overpayment, particularly if the relevant member's consent has not clearly been provided or there is any dispute in relation to the offset process. Contact us If you wish to discuss any of these issues further, please contact your usual Baker McKenzie lawyer. Jeanette Holland Robert West Arron Slocombe Chantal Thompson Jonathan Sharp Editor: Tracey Perrett Disclaimer - This newsletter is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. Baker & McKenzie International is a global law firm with member law firms around the world. 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