This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:
- DWP issues guidance about the use of conversion legislation to address unequal GMPs
- Government gives the green light to pensions dashboards
- Advocate General suggests retrospective equalisation is not possible
- Pensions Ombudsman declares itself to be a ‘competent court’
DWP issues guidance about the use of conversion legislation to address unequal GMPs
Last month, the Department for Work and Pensions (DWP) issued guidance about how occupational pension schemes could use existing guaranteed minimum pension (GMP) conversion legislation to address unequal GMPs.
The conversion legislation is not new but past uncertainty about how to address unequal GMPs meant that there was little incentive to adopt it. However, the spotlight is now back on conversion following last autumn's Lloyds Banking Group judgment, which confirmed that schemes must equalise pensions for the effect of GMPs and that one way of achieving this was GMP conversion.
At first glance, there are clear benefits to GMP conversion since it could involve a one-off process which enables schemes to convert and therefore rid themselves of GMPs once and for all. This may be more appealing than other GMP equalisation methods which have administratively burdensome consequences (such as requiring dual member records and annual equalisation exercises). As a result, conversion may result in a scheme that is simpler to operate and more attractive to an insurer in the context of a buy-out.
However, we may be some way off a stampede toward GMP conversion. Although the DWP guidance sets out a helpful tenfold path towards achieving conversion, it also presents a number of challenging practical issues for any conversion process. The guidance does not provide much in the way of solutions to these issues and instead, suggests that trustees need to address them with their professional advisers.
For more information please see our briefing on the DWPs guidance.
Government gives the green light to pensions dashboards
On 4 April the Government published its response to the December 2018 consultation "Pensions Dashboards: working together for the consumer". For the uninitiated, pensions dashboards are intended to revolutionise retirement planning by enabling people to access all their pension information in a single place online, in a clear and simple form and from their own home. Ultimately, dashboards should help people make more educated decisions about their retirement savings.
The Government’s response to the consultation was informed by 125 responses and confirms the following:
- The Government will facilitate the delivery of pensions dashboards as a key priority and expects to see initial industry dashboards developed and tested later this year.
- The Government will bring forward legislation at the earliest opportunity to compel all pension providers to make consumers’ data available through a dashboard. The majority of pension providers will be expected to be ready to ‘go live’ with their data within a three to four year window.
- Pension providers will be allowed to create their own dashboards. However, a non-commercial dashboard will be hosted by the new Single Financial Guidance Body (SFGB).
- All consumer-facing dashboards, whether commercial or non-commercial, will be supported by the same digital architecture and governed by the same governance system. The dashboards will also be required to display the same basic information from the same number of schemes.
- State Pension information will be included in dashboards as soon as possible.
Whilst the Government recognises it has a role to play in facilitating dashboards, it is the pensions industry that is ultimately tasked with developing and delivering them. The response therefore also confirms that the SFGB will host the non-commercial dashboard and will create an industry delivery group to oversee and deliver the project. The group will be made up of stakeholders from across the industry, consumer groups, regulators and Government. Its priorities in 2019 will be to create a clear strategy for delivering the digital architecture, to design a robust governance and security framework and to work with industry on their readiness to provide data via dashboards. The delivery group should be operational by the end of the summer.
The Government has also suggested that pension providers and schemes "start getting ready now" by preparing the necessary data ahead of the anticipated legislation.
Advocate General suggests retrospective equalisation is not possible
In the case of Safeway v Newton the Advocate General has given its opinion that retrospective equalisation is, as many already suspected, not permissible.
The Safeway Pension Scheme (the Scheme) had unequal normal retirement dates (NRDs) of 65 for male members and 60 for female members. Following the European Barber decision in May 1990, this practice was considered unlawful discrimination. As a result, NRDs were automatically equalised at the lower retirement age until the scheme rules provided otherwise. In the case of the Scheme, NRDs were automatically equalised at age 60 from 17 May 1990 for both male and female members. The Scheme purportedly amended NRDs to 65 for male and female members from December 1991 by announcement. The Scheme’s governing documentation was subsequently amended to reflect this change on 2 May 1996.
The High Court and the Court of Appeal held that, under the Scheme's power of amendment, an amendment to the Scheme's governing documentation could only be made by deed. The announcements could not, therefore, have amended NRDs under the Scheme with effect on and from 1 December 1991.
The amendment power did, however, allow for amendments to be made with retrospective effect. The question was, therefore, whether the 2 May 1996 amendment was valid retrospectively so as to change NRDs to 65 with effect on and from 1 December 1991 or whether the amendment could only have prospective effect on and from 2 May 1996. The Court of Appeal determined that this was a matter of EU law and therefore referred the question to the Court of Justice of the European Union (CJEU).
The Advocate General has proposed that the CJEU responds to the referral by stating that the EU prohibition on levelling down of benefits during the Barber window applies whether or not the domestic rules of the pension scheme allow NRDs to be amended retrospectively. The Advocate General noted that "the defeasible (amendable retrospectively) or indefeasible (fixed) nature of the right…is immaterial to the application of the prohibition…on levelling down, which lasts so long as the Barber window remains open".
On this reasoning, the amendment could only have been effective when the amendment was made on 2 May 1996.
Whilst the Advocate General's opinion is not binding on the CJEU, it is expected that the Court will follow it. For more background on equalisation and further detail on the Safeway v Newton case, please see out briefing on the topic.
Pensions Ombudsman declares itself to be a ‘competent court’
The Pensions Ombudsman has issued a fact sheet in light of the High Court case of Burgess & Ors v Bic.
The recovery of overpaid pension is usually limited by a statutory six-year limitation period. However, in the decision of Burgess v BIC UK Ltd the court commented that, if overpayments were to be recovered by equitable recoupment, this six year limitation period would not apply. Under recoupment, trustees recover overpayments by making deductions from future pension payments.
However, the court considered that, if the amount of the set-off is in dispute, recoupment can only be exercised if the obligation to repay had become enforceable under an order of a competent court. In the Bic case, Arnold J took the view that the Pensions Ombudsman would not constitute a competent court for these purposes and any determination of the Ombudsman would have to be registered with the County Court before the Trustees could validly implement recoupment.
The Ombudsman fact sheet rejects Arnold J’s analysis. It firstly notes that Arnold J’s view was given on an obiter basis (i.e. it was made in passing). It also notes the following points which, in its view, mean that the Ombudsman should be deemed a ‘competent court’:
- a determination from the Ombudsman brings the dispute to an end, with the Ombudsman’s direction being final and binding and subject only to an appeal on a point of law to the High Court;
- the Ombudsman is a judicial tribunal with the characteristics of a court of law;
- the Ombudsman is a lower court for the purposes of the Civil Procedure Rules;
- the Ombudsman can refer questions of law to the High Court; and
- determinations of the Ombudsman are enforceable in the County Court as if they were a judgment of the County Court.
Perhaps unsurprisingly, the Ombudsman is clearly taking a very pro-active stance in clarifying what it considers to be the ambit of its jurisdiction. It will be interesting to see in time whether the Ombudsman seizes an opportunity to have this point formally decided in its favour, by a court of law.