Top of the Agenda

1. Pension Protection Fund - 2013/ 2014 Levy Year

Certifying Type A Contingent Assets

The PPF last year introduced a new requirement for trustees of schemes submitting Type A contingent assets (group company guarantees) to certify that they have no reason to believe that each guarantor, as at the date of the certificate, could not meet its full commitment under the guarantee. The certification must be renewed each year if a guarantee is to continue to be taken into account for levy purposes. The deadline for submitting the documentation for the 2013/ 2014 levy year is 5pm on 28 March 2013.

The PPF has acknowledged that certifying Type A contingent assets has been one of the trickiest issues it has had to deal with, and in its updated Guidance on contingent assets, issued in December 2012 (summarised below), has highlighted a number of issues.

The PPF's position on contingent assets has also been affected by the new framework for the risk based levy introduced from 2012/13. As part of the new framework, the PPF has introduced certain new elements into the levy calculation, including smoothing of values, stress factors and investment risk. This has meant that in some cases Type A guarantees have been rejected due to the PPF assessing the guarantor's ability to meet the guarantee against a higher "stressed and smoothed" deficit calculation than the section 179 valuation used by the trustees.

The following is a summary of key points from the Guidance:

  • The Guidance confirms that the form of the certificate (namely that the trustees "have no reason to believe" etc.) means that trustees need to be reasonably comfortable (rather than absolutely certain) as to the ability of each guarantor to meet its commitments as at the date of certification. 
  • The PPF has identified an issue with the way in which the requirement to certify the position "as at the date of the certificate" has been interpreted in some cases. The purpose of this wording, the PPF points out, is simply to limit the requirement to consider the guarantor's position to information that could reasonably be available at the point of certification. It does not mean that the certification can ignore the effect of possible future events to the extent the risk of such events occurring can be reasonably foreseen. In particular, the guidance now makes clear that the trustees' consideration should take into account the "reasonably foreseeable" impact on the guarantor of the insolvency of the employer whose liabilities are being guaranteed. 
  • The Guidance suggests that the risk of the PPF applying a higher deficit calculation can be managed by trustees in one of two ways. They could either:
    • Certify the contingent asset for a fixed sum which they are confident is within the guarantor's ability to meet (even where the guarantee itself is not limited to a fixed sum); or 
    • Carry out their own analysis using a value based on an estimate of the value that will be used by the PPF (as further detailed in the Guidance). 
  • While a formal covenant assessment is not necessarily required when certifying Type A contingent assets, the Guidance points out that trustees may be required to provide evidence to demonstrate that the guarantor could pay if called upon to do, so trustees should take care to ensure that their consideration process is documented. 
  • Where there are multiple guarantors, each guarantor must be jointly and severally liable for the whole obligation. This could cause difficulty if one of the guarantors was individually unable to meet the full guarantee. It could lead to the contingent asset being rejected even though other guarantors had sufficient capacity to meet the entire liability. The guidance points out that trustees can choose to certify some but not all of the guarantors, and exclude any guarantors that are weak.


Trustees and employers wishing to rely on a group company guarantee to reduce the PPF levy will need to consider the new Guidance and the terms of the 2013/14 PPF Determination and assess whether the trustees will be in a position to give the necessary certificate in sufficient time to be able to meet the 28th March deadline. It should be borne in mind that if, for any reason, it is decided not to recertify an existing guarantee, a full new certification process (including legal opinion) will be required if a decision is made to rely again on the guarantee in any future year.

Banking reform

2. Banking Reform Bill published

The Financial Services (Banking Reform) Bill 2012-13 was introduced on 4 February 2013 in Parliament. The Bill contains provisions requiring banks to ring-fence retail banking services.

In relation to pensions, the Bill contains clauses giving the Treasury the power to make regulations requiring UK banks to make arrangements to separate their pension scheme liabilities under a multi-employer scheme such that a ring-fenced part of the bank is not liable for the pension liabilities of other members of its banking group.

In particular, the Treasury may make regulations requiring a ring-fenced body to:

  • Stop participating in the scheme;
  • Establish a new occupational pension scheme in certain circumstances;
  • Make provisions allowing the trustees or managers of a pension scheme to modify the scheme by resolution to enable a ring-fenced body to make such arrangements (with the consent of the participating employers);
  • Require a ring-fenced body to make an application for clearance to the Pensions Regulator when making such an arrangement.

The regulations cannot require the ring-fenced bodies to achieve the above results before 1 January 2026; however, this does not prevent the regulations from requiring steps to be taken at any time after the regulations have come into force.

The Treasury has published a paper to accompany the Bill. In relation to pensions, the two main ways that the Treasury considers that banks' pension schemes may be restructured to achieve the ring-fencing are by either:

  • splitting up a scheme i.e. transferring the assets and liabilities relating to the ring-fenced body to another/brand new scheme; or
  • segregating the scheme i.e. dividing the existing scheme into two or more separate sections which cannot then be used to cross-subsidise each other.

Although the Treasury paper does not consider in detail all of the difficulties and ramifications of such a split, there is some discussion of the risk of employer debts being triggered and the impact of the proposals generally on the strength of the employer covenant and future contribution levels.

Department for Work and Pensions

3. Consultation on proposals to amend TUPE Regulations

The DWP has published a consultation on proposals to amend the pension related provisions of the Transfer of Undertakings Protection of Employment Regulations. The amendments cover two issues:

  • Confirmation of DWP's policy intention in relation to the requirement for a receiving employer to match the rate of contributions paid by a transferring employee up to an upper limit of 6% of basic pay.

DWP are concerned that the existing TUPE regulations do not explicitly give transferring employees the right to choose their rate of contributions, which would be contrary to the policy intention behind the legislation. The amendments will make it clear that, where this method is used to satisfy the TUPE requirements, the employees do have the right to choose their contributions up to a maximum of 6%, which the employer must then match.

  • Addressing the interaction between TUPE and auto-enrolment requirements.

DWP have recognised that the introduction of auto-enrolment could have unintended consequences in relation to the interaction with the TUPE requirement for an employer to match employee contributions up to a maximum of 6%. The concern is that whenever the level of employee contribution under auto-enrolment reaches 3% and then 5% (in 2017 and 2018 respectively), the employer would have to match these contributions for employees who had transferred under TUPE, which could mean that the employer would be required to pay more than the minimum employer contribution required under auto-enrolment.

The DWP propose that, with effect from 1 October 2013, employers will be able to satisfy their TUPE obligation by either:

  1. Making contributions which are not less than the contributions made by the transferring employer in respect of the employee immediately before the transfer; or
  2. Making contributions which match employee contributions up to a maximum of 6% (the existing requirement).  

4. Consultation on proposals to simplify disclosure of information regime

The DWP has published a consultation document setting out proposals for changes to the disclosure of information regulations together with draft amending regulations.

The document addresses issues such as the use of electronic communications and sets out proposed new provisions relating to lifestyling under defined contribution arrangements. The draft regulations also include simplifications to the requirements relating to annual benefit statements and statutory money purchase illustrations.

The DWP state that their overall aim is to ensure that the disclosure regulations

  • provide clarity for schemes on their regulatory requirements;
  • provide consistency of requirements across the different types of scheme;
  • ensure information is accessible to individuals in order for them to understand and manage their pension provision;
  • fit with the changing pension landscape and overall workplace pension reform agenda.

The consultation period runs from 18 February 2013 to 14 April 2013 and the new regulations are expected to come into force in October 2013.   

5. Plans to consult on simplification of the auto-enrolment regime

The DWP in February announced plans to consult "next month" on several changes to the auto-enrolment regime. The consultation comes a good deal earlier than recent comments by Pensions Minister Steve Webb had seemed to indicate.

Three specific areas have been singled out by the DWP:

  • Simplifying assessment of the workforce. No details are available of what changes are planned, but the existing rules for assessing whether workers are eligible for auto-enrolment are highly complex.
  • Making it easier for money purchase schemes to show they satisfy the statutory quality requirements. There are currently several different bases on which money purchase schemes can satisfy the quality test, increasing the scope for confusion.
  • Removing the duty to enrol particular groups such as those who have registered for protection from a lifetime allowance charge. At the moment, auto-enrolling these individuals puts in jeopardy the status of their tax protection.


6. Employer's duty of good faith – High Court begins hearing IBM "Project Waltz" case

The case of IBM United Kingdom Holdings Limited & anr v Dalgleish & ors is currently being heard in the Chancery Division of the High Court by Mr Justice Warren. The hearing relates to changes made in 2009 to IBM's UK pension plan (known as 'Project Waltz'). The case should not be confused with the two IBM decisions in October and December last year which related to the "C Plan" section of the IBM Pension Plan.

The case has been brought by scheme members who claim that the 'Project Waltz' changes breached the employer's duty of good faith. The amendments were introduced for the purpose of reducing liabilities under the IBM scheme in order to address a deficit in the scheme of £890 million. IBM's pension plans were estimated to have a total deficit of approximately $10.4 billion at the end of 2011. It has been reported that the changes reduced retirement benefits for about 4500 workers and closed the defined benefit section of the plan to future accrual for most employees.

The hearing is expected to last between 4 and 6 weeks.

7. Supreme Court considers application of Part-Time Workers Directive to part-time fee-paid judges

In O'Brien v Ministry of Justice (formerly the Department for Constitutional Affairs) [2013] UKSC 6, the Supreme Court considered whether recorders (who are part-time judges paid on a fee basis) are "workers", and, if so, whether their exclusion from entitlement to judicial pensions was objectively justified, for the purposes of EU and UK laws on equal treatment of part-time workers.


Mr O'Brien, who had sat as a recorder from 1978 to 2005, claimed to be entitled to a pension in respect of part-time non-salaried judicial work as a recorder on the same basis, pro rata, as that paid to former full-time judges doing similar work.

The law on equal treatment of part-time workers has its origins in an EU Framework Agreement on part-time work which was concluded in 1997 and implemented by an EU Directive of the same year. Clause 2(1) of the Framework Agreement provides that it applies to part-time workers who have an "employment contract or employment relationship as defined by the law, collective agreement or practice in force in each member state". The Directive was transposed into UK law by the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (the "2000 Regulations").

Mr O'Brien's claim was initially successful in the Employment Tribunal but, on appeal, both the Employment Appeal Tribunal and the Court of Appeal found that judges were not "workers" under the 2000 Regulations, largely on the basis that judges were considered to be "office-holders" rather than "workers".

Mr O'Brien then appealed to the Supreme Court which decided in 2010 that, since it was not clear whether there was relevant EU law on the issue, a reference should be made to the Court of Justice of the European Union ("CJEU") for a preliminary ruling on (1) whether it was for national law to determine the question whether judges are "workers who have an employment contract or employment relationship" within the meaning of the Framework Agreement; and (2) if judges were to be regarded as "workers" for this purpose, whether it was permissible for national law to discriminate between full-time and part-time judges.

On the first question, the CJEU ruled that the issue was a matter for national law, provided that the relevant decision under national law did not conflict with the spirit and purpose of the Framework Agreement. The CJEU also set out a number of factors to be taken into account, including that the term "worker" in the Framework Agreement is used to draw a distinction between employed and self-employed persons. Accordingly, this was a key distinction and judges could not be excluded if their relationship was not substantially different from an employment relationship.

On the second question, the CJEU ruled that, if judges were workers, then national law could not discriminate between full-time and part-time judges in the provision of pensions without objective justification.


Following the guidance from the CJEU, the Supreme Court considered whether judges fell on the employed or self-employed side of the line taking into account a number of factors including the character of the work done by recorders, their terms of appointment and organisation of the work. The Court concluded that it was clear recorders were in an employment relationship as distinct from being self-employed, particularly as they lacked the independent control over their work that was a hall-mark of self-employed status. Accordingly, recorders must be treated as "workers" for the purposes of the 2000 Regulations.

On the question of objective justification, the only substantial reason the Ministry of Justice could put forward to justify the difference in treatment was that, if pensions had to be provided for part-time judges, cuts would have to be made elsewhere as additional funding was not be available. The Court rejected this argument on the basis that the fundamental principles of equal treatment cannot depend on budgetary constraints.

Accordingly, Mr O'Brien's appeal was allowed

Ombudsman Determinations

8. PPF directed to reconsider its decision to refuse to allow corrections to be made to a deficit reduction certificate

The Pension Protection Fund Ombudsman has ruled that the PPF Board must reconsider the 2011/12 levy calculation for the Ibstock Pension Scheme, following an appeal by the trustees of the Scheme against a decision by the PPF's Reconsideration Committee not to allow corrections to be made to a deficit reduction certificate submitted in respect of a £54.1m deficit contribution to the Scheme.


The PPF rejected the certificate on the grounds that the actuary had incorrectly certified the contribution by reference to the s179 valuation as at 31 March 2008 whereas the valuation applying to the 2011/12 levy year was that effective as at 31 March 2009. As a result, the Scheme's levy was £140,000 higher than it would have been had the certificate been taken into account.

The trustees applied to the PPF for the decision to reject the certificate to be reviewed. Their application was supported by a statement from the actuary that although the certificate related to an earlier valuation, the amount stated in the certificate of £54.1m was a "legitimate, prudent statement of the deficit reduction contributions based on the valuation date used by the PPF".

The PPF issued a review decision which referred to the PPF's Levy Practice Guidance setting out the matters the PPF would take into account in considering whether to exercise discretion to allow corrections (e.g. the reason for submitting of erroneous data). It concluded that the discretion would not be exercised, noting:

  • the stated policy that corrections would only be allowed in exceptional cases;
  • trustees and their advisers were on notice of the need to submit correct data;
  • it was reasonable to expect an actuary to carry out his calculations in relation to the correct valuation.

The trustees then applied for the matter to be reviewed by the PPF's Reconsideration Committee, noting (amongst other things) that there was no disadvantage to the PPF in allowing the correction – in fact not to allow the correction would result in a windfall to the PPF.

The Committee in considering their decision noted that the trustees had not provided an explanation of why the erroneous valuation information had been provided. The Committee further referred to the Board's general policy not to accept corrections, noting that the three main reasons were:

  • the higher risk of the PPF under collecting against the levy estimate if corrections were accepted;
  • building a margin for errors into the levy scaling factor would disadvantage all schemes;
  • it was reasonable to expect schemes to provide the correct data at the right time.

The Committee then concluded that there was not anything sufficiently unusual in the circumstances of the case to justify a departure from the published policy.

The Determination

The Ombudsman took the view that, of the above policy reasons referred to by the Reconsideration Committee, the first two (referring to the risk of under collection against the levy estimate) were irrelevant to the case in hand. The third reason (that it was reasonable to expect schemes to provide the correct data) was potentially relevant. However, as the penalty for failing to provide a correct certificate fell on the scheme and was not connected to the consequence of the inaccuracy for the PPF, it was an unusually blunt instrument. It was not clear from the reasons given by the Reconsideration Committee that this point was recognised.

Moreover, the principal reason given by the Committee for not departing from the general practice (that there had been no explanation for the error) did not make it clear whether the Committee had concluded that a penalty should be imposed for failing to offer an explanation or that in the absence of an explanation it should be presumed that there must be no acceptable explanation. If it was the former, then, again, it would be applying a blunt – and perhaps disproportionate – punishment.

The Committee also did not address Ibstock's point about there being a windfall to the PPF.

The Ombudsman finally noted that the PPF's initial Review Decision had referred to the more detailed matters set out in the Levy Practice Guidance. However, the Reconsideration Committee's decision had not relied for its reasoning on the Review Decision and therefore stood on its own. Even if the Review Decision had been relied on, it was not clear from that decision which factors had been regarded as relevant and what weight had been attached to each.


The Ombudsman directed the PPF Board to reconsider the Scheme's 2011/12 levy calculation expressly taking into account the contents of the Levy Practice Guidance and only the relevant policy reasons for not exercising discretion.


The Ombudsman has previously reviewed other cases where claimants have sought to correct information that has been provided on an erroneous basis with a view to obtaining a reduction in the levy calculation. This case is unusual in that it arose from a decision by the PPF to reject a certificate for an apparently technical reason, resulting in a higher levy being paid than would otherwise have been expected. In this context, it is interesting that the Ombudsman's conclusions refer to the possibility of the PPF's decision being viewed as "disproportionate". However, the main focus of the Ombudsman's decision was on the procedural flaws in the Reconsideration Committee's review, in particular the fact some of the policy reasons taken into account by the Committee had been irrelevant and the Committee's failure to set out more specific reasons for their decision. It is quite possible that when the Committee reconsider their decision on the basis directed by the Ombudsman they will still reach the same conclusion.

9. Member unsuccessfully challenges decision to cap pension increases

The Pensions Ombudsman has rejected a complaint by an individual member of the Prudential Staff Pension Scheme ('the Scheme') concerning Prudential's decision to cap future pension increases under the Plan.

This complaint follows on from the case of Prudential Staff Pensions Limited v The Prudential Assurance Company Limited & Ors [2011] Pens. L.R. 239 heard in April 2011. (A summary of this case in a previous bulletin can be found here. In brief, the court determined that there was no breach of the employer's implied duty of good faith in deciding to cap future increases.)

The individual, a Mr Metcalfe, complained that Prudential were not entitled to cap discretionary increases to his pension, relying on an "estoppel" argument (i.e. that Prudential should be prevented from going back on a previously established practice or understanding). Mr Metcalfe had been made redundant and as part of his redundancy package received an immediate early pension along with a redundancy payment. He received increases on his pension each year in line with RPI until 2006, when Prudential announced a restriction on future increases with a cap of 2.5%. The complainant claimed that the cap to discretionary increases was contrary to past practice, which he had relied upon when deciding to take his redundancy payment as an additional pension rather than a taxable lump sum and also when paying his AVCs into the Scheme. He sought, relying on estoppel, for increases to continue in line with RPI.

The Ombudsman pointed out that he was unable to consider matters already addressed by the court in the Prudential decision. However, the court had considered issues as they affected classes of members and left open the possibility of claims, based in estoppel, being brought by individuals. Therefore Mr Metcalfe needed to demonstrate a specific promise or representation individually made to him.

Mr Metcalfe claimed that in a telephone call it was confirmed that if he put the sum into his pension fund it would increase in line with RPI, and that a director of the Trustee told him, in the context of AVC payments, the value of the RPI linked pension that would be payable under the Scheme. Mr Metcalfe also relied upon a comparison he had carried out between annuity rates offered by Prudential against publicly available rates. He conceded, however, that he would have taken the same action even if he had been told that increases were discretionary rather than guaranteed.

The Ombudsman held that none of the events mentioned amounted to a clear statement or promise which Mr Metcalfe could, or did, rely upon. The telephone call was "a mere statement that there were increases in line with RPI". As regards the AVC pension, the comments made by the director of the Trustee did not amount to a guarantee that increases in line with RPI would always continue in the future. Further he had acknowledged that his decisions were based on his own assumptions that increases would continue in line with RPI. An assumption or expectation was not sufficient to show reliance, and there were materials made available to members which showed that there was no promise regarding the future increases being made in line with RPI. As the Ombudsman found that the complainant did not act in reliance on a promise, representation or shared understanding, it was not necessary to address whether any detriment was suffered by Mr Metcalfe.  

10. Limits on Ombudsman's ability to rule on complex equalisation cases

In Cormack (81498/1),Mr Cormack, a member of the Scotch Whisky Association Pension Scheme, claimed a right to retire on an unreduced pension at age 60 on a number of grounds, including (a) that he had such a right under special terms notified to members when his employer purported to equalise normal retirement age (NRA) for males and females in 1994; (b) that the attempt to equalise in 1994 had been ineffective, with the result that males and females continued to accrue pension on the basis of an NRA of age 60 until the Scheme was formally amended in 2000 (the "Barber Window" issue); (c) that the benefit statements issued to him every year until 2009 assumed retirement on an unreduced pension at 60 and he had bought property in reliance on these statements; and (d) that he had a right to be compensated under his employment contract.


In a memo issued in 1994, Mr Cormack and others were notified that NRA would be equalised at 65 for service after 1 January 1995, but that special terms would be offered "entirely at the Association's discretion" under which the Association would pay additional contributions with the aim that employees retiring between 60 and 65 might, subject to the Association's consent, be given an unreduced pension. Replacement Rules for the Scheme were not adopted until 2000 but purported to take effect from April 1997. These Rules provided for an NRA of age 65 and also provided that an unreduced pension could be paid from age 60 if requested by the employer or, in cases where special terms applied, if the employer paid the necessary additional contributions.

In 2009, revised benefit statements were issued with an explanation that early retirement before NRA required the consent of the Association and that early retirement pensions would be subject to actuarial reduction.


  1. Reference to special terms in 1994 memo

In the Ombudsman's view, it was clear that payment of an unreduced pension on retirement between 60 and 65 was discretionary, requiring the Association's consent in each case.

  1. The Barber Window

The question that arose was whether the 1994 memo was effective to change the NRA under the Scheme with effect from 1 January 1995, either because it constituted an effective amendment to the Rules or because it created a new category of members with special terms. The power of amendment under the Scheme required any amendments to be made "by deed". Under Scots law, which applied to the Scheme, the term "deed" does not have the same technical meaning as under English law. In the Scottish case of Low & Bonar, it was held that an amendment introduced by Board resolution was a sufficiently formal record of an amendment to constitute a "deed" for this purpose. The Ombudsman concluded that the 1994 memo lacked the requisite formality to constitute a deed, even applying the less stringent requirements of Scots law.

For similar reasons, the memo could not be construed as a formal decision to create a category of members with special terms.

Accordingly, the Barber Window had not been effectively closed and male and female members were entitled to continue to accrue pension on the basis of an NRA of 60 for service after 1 January 1995.

The Ombudsman felt unable to decide, however, at what later date the Barber Window was in fact closed. This was because he had not heard evidence from female members who might wish to support the change in NRA to age 65 from the earliest possible date, because they personally stood to benefit from the extra five years' accrual. The Ombudsman referred to the case of Marsh & McLennan v Pensions Ombudsman (2001) in which the judge had criticised the Ombudsman for proceeding on the basis that the interests of all members coincided with those of the complainant.

Accordingly, the Ombudsman concluded that he could only partially uphold Mr Cormack's complaint on this aspect, by ruling that he was entitled to have his benefits calculated on the basis of an NRA of 60 for the period between 17 May 1990 (the date of the Barber judgment) and 5 April 1997 "at the earliest".

  1. The benefit statements

The Ombudsman upheld this part of Mr Cormack's complaint, but only to the extent that he had suffered distress and inconvenience as a result of the misleading benefit statements issued between 1995 and 2009. It was unreasonable, in the Ombudsman's view, for Mr Cormack to rely on an assumption that his pension at age 60 would be sufficient to fund his property purchase, as there was no guarantee in any case that he would be employed by the Association until age 60 or that the Scheme would remain un-amended.

  1. The contract point

Claims based on the terms of members' contracts of employment fell outside the Ombudsman's jurisdiction.


This case illustrates the difficulties for the Ombudsman in dealing with claims involving complex equalisation issues where the interests of other members may differ from those of the complainant, and where the Ombudsman has no power to give rulings binding on those who are not parties to the complaint. The Ombudsman left open the possibility of Mr Cormack bringing a new claim if he wished to argue the case for an NRA of age 60 for service after April 1997. But, as the Ombudsman pointed out, any such claim would run the risk of it being argued that it was not within the Ombudsman's jurisdiction, in the absence of a direct referral by one or more of the female members affected.