Top of the agenda
1. HM Treasury responds to consultation on pension transfers and early exit charges
HM Treasury has published its response to the summer 2015 consultation on pension transfers and early exit charges.
The original consultation revealed that, whilst the majority of people have been able to access their pension under the new freedoms, for a significant number the high exit charges and long transfer times involved have effectively amounted to a barrier to access. Data from the Pensions Regulator also showed that the average transfer time for trust-based pensions was almost 40 days, with some respondents waiting significantly longer.
HM Treasury’s response, dated 10 February 2016, details plans to introduce legislation placing a duty on the Financial Conduct Authority (FCA) to cap excessive early exit charges in relation to contract-based schemes for customers eligible to access the pension freedoms. The FCA will consult on the level of the cap in due course.
The response also contained a commitment to consider how existing powers to limit pension charges can be used to replicate these new requirements for trust-based pension schemes. Further, the Pensions Regulator will introduce new guidance for scheme trustees to ensure that transfers can be completed as quickly and as accurately as possible.
To read more about pension freedoms, please click here.
2. Revised industry code of practice drawn up by IEMB
The Incentive Exercises Monitoring Board (IEMB), a group that comprises members from a variety of pension industry bodies, published an updated version of its incentive exercises code of practice on 1 February 2016. The updated code is, in the main, very similar to the original document which was published three years ago. The updated code still consists of its seven largely unchanged core principles and most of the alterations have been minor.
The most significant update is the introduction of a new “proportionality threshold”. Under this new threshold, where an incentive offer relates to a defined benefit pension with a value of £10,000 or less, neither the employer nor the trustees will be required to offer financial advice in relation to the offer.
The revised code also makes it clear that it covers “full commutation exercise” where cash compensation is being offered in place of a pension.
The updated code applies to all incentive offers made on or after 1 February 2016; if an offer has been made in writing before that date then the previous version of the code will continue to apply.
3. The imminent abolition of DB contracting-out
The 14th edition of HMRC’s Countdown bulletin, published at the beginning of February, served to remind its readers about the abolition of defined benefit contracting-out.
The bulletin highlights that pension schemes have until 5 April 2016 to register for HMRC’s Scheme Reconciliation Service (SRS) to assist with Guaranteed Minimum Pension (GMP) reconciliation. The SRS enables schemes to compare HMRC’s GMP records against their own records; after contracting-out is abolished HMRC will no longer track and record contracted-out rights.
If schemes fail to register to use the SRS before 5 April 2016 they will only be able to use the service in “exceptional circumstances…taking into account the circumstances leading to the late submission”.
Further, from 6 April members’ consent will be required to make any bulk transfers of contracted-out schemes that have been established after that date. It will still be possible, however, to transfer to formerly contracted-out schemes if they were established before 6 April 2015. Whilst the Government has confirmed that it is considering relaxing the restrictions on transfers of contracted-out rights to formerly contracted-out schemes, this will not take place before 2017.
HMRC will continue to provide support to trustees and administrators in relation to GMPs up until December 2018. In December 2016 HMRC will close all active member records and will provide schemes with details held in relation to active members.
4. DWP issues new guidance on the sharing of State pension after the termination of marriage
The Department for Work and Pensions (DWP) has issued guidance on changes to sharing a State pension on the termination of a marriage or civil partnership.
This guidance explains the new arrangements for administering and implementing the State pension sharing in the event of divorce or dissolution of a civil partnership; it also aims to help manage the transition from the existing system to the new system from 6 April 2016.
The primary focus of the guidance is in relation to parties to a divorce or dissolution who reach State pension age on or after 6 April 2016; the rules on sharing a State pension on divorce are not changing for transferors who reach State pension age before 6 April 2016.
5. New modification powers in relation to GMP Changes
From 6 April 2016, a new statutory modification power will be introduced regarding GMP revaluation in formerly contracted-out schemes. The new regulations will enable trustees of schemes to amend their rules so as to provide a fixed-rate GMP on the date a member has left pensionable service as opposed to when a member leaves their contracted-out service.
The legislation provides that a member who was in contracted-out employment prior to 6 April 2016, but who then proceeds to no longer be in pensionable service before the last tax year of their working life, will only be subject to an effective fixed-rate revaluation from the final year of their pensionable service.
Whilst the new overriding scheme-modification power has been designed to aid those schemes with restricted amendment powers, any scheme may make the change. Trustees that seek to make such alterations to their scheme’s rules will not be required to consult with the employees affected before doing so.
6. Safeway Limited v (1) Andrew Newton (2) Safeway Pension Trustees  EWHC 377 (Ch)
On 29th February the High Court handed down a decision regarding pension scheme equalisation. The High Court rejected the claim of Safeway (the employer) for a declaration confirming that the normal pension age (NPA) was equalised at 65 in respect of men and women with effect from 1 December 1991.
The question for the Court was whether the NPA of the Safeway Pension Scheme had been equalised for male and female members at age 65 with effect from 1 December 1991 or only from 2 May 1996. This raised two issues:
1. Whether the power of amendment allowed amendments to be effective from the date of announcement;
2. To the extent that it did not, whether an amendment could later be made to equalise retirement ages by “levelling down” (i.e. amending the NPA from 60 to 65) retrospectively, where this would have been possible as a matter of domestic law.
The High Court’s decision
On the first issue, the Court held that the power of amendment did not permit amendments by announcement only. The 1991 Notices by themselves were insufficient to amend the definition of NPA from 1 December 1991; Warren J held that scheme’s power of amendment required a deed to implement the amendments. In regards to the second issue, the Court concluded that whilst the 1996 Deed was effective to equalise NPA at 65 prospectively, a purported attempt to exercise it retrospectively (as would have been consistent with domestic law) was insufficient to give effect to the equal treatment requirements of EU law.
Permission to appeal has been granted.
7. Hughes v Royal London Mutual Insurance Society Ltd  EWHC 319 (Ch)
The High Court has overturned a determination made by the Pensions Ombudsman by ruling that, as a member of a personal pension scheme, Ms Hughes had a statutory right to a cash equivalent transfer value (CETV). The administrator of the scheme was therefore required to transfer the CETV of her accrued rights to her designated pension scheme.
Ms Hughes had acquired the right to the cash equivalent of her accrued benefits under a personal pension scheme; she asked for this in order to acquire transfer credits under an occupational pension scheme. Royal London declined this request, citing concerns about the possibility of pensions liberation and argued that she was not an ‘earner’ for the purposes of acquiring the right to transfer credits under s181(1) Pension Schemes Act 1993 as Ms Hughes was not being paid by the employer sponsoring the occupational pension scheme.
The High Court’s decision
The High Court ruled that Royal London had been wrong to refuse this transfer and that the Pensions Ombudsman was wrong to have dismissed Ms Hughes’ complaint; she did not have to derive her earnings from an employer sponsoring the receiving pension scheme in order to have a statutory transfer right.
Pension Ombudsman’s comment
The Pension Ombudsman has said that it will not appeal this ruling and commented that trustees and administrators should be aware that they cannot refuse a transfer on such grounds, assuming the other requirements for statutory transfer rights are made out and the relevant member has earnings from another source – beyond verification of earnings and the provisions of risk warnings – even if they have “significant concerns” that the transfer may lead to pension liberation.
8. Hogg Robinson v Harvey & others  EWHC 129 (Ch)
The High Court has granted an application on summary judgement for the rectification of a deed of amendment relating to a defined benefit scheme. The Court granted this on the basis that the evidence presented to it clearly established that a mistake has been made in drafting the deed and that it did not reflect the intention of the parties to the deed.
The company and trustees had resolved to amend the rules of the pension scheme to reduce the rate at which annual increases were made to benefits both in payment and in deferment. In error, the administrators of the scheme drafted the deed so that it only applied to benefits in payment. When communications with members were made to inform them of the claim, two members raised objections on the grounds of prejudice, but every possible defence was investigated and rejected.
In the absence of any arguable defence and with it being in all parties’ interests not to incur the cost of a full trial, summary judgment was handed down granting the rectification.