Top of the agenda

1. PPF Levy Determination 2016/17

On 17 December the Pension Protection Fund published its final determination and policy statement in relation to rules governing the levy for 2016/17. Very few changes have been made since the initial consultation in September. It is the PPF’s policy not to make year on year changes unless necessary; with the next triennium review not until 2018/19 few changes to policy in 2015/16 have been made. By way of a summary:

  • Some schemes incorrectly identified themselves as Last Man Standing schemes in 2015 and therefore benefited from a reduction in the levy. The PPF has confirmed it will re-invoice such schemes for levy arrears “where it is economic to do so”.
  • The PPF is adopting a lighter touch to recertification of asset-backed contribution arrangements and mortgage exclusions. For the former this means, for example, the use of previously obtained legal advice (provided the underlying legal position has not changed) and a ‘prudent estimation’ of the amount being certified rather than a specific figure.
  • In relation to contingent assets, a minor change will be made to the PPF’s standard form Type C(i) to allow an insurer as the provider. Otherwise the standard documents remain the same.
  • Fewer contingent assets were rejected in 2015/16 than in the previous year. However the PPF will reissue its guide to assessing guarantor strength and the onus remains on the trustees to question the financial information provided by guarantors in this regard.

The PPF has also confirmed that the date by which contingent asset certificates for the new levy year must be submitted on Exchange (and hard copy documents with the PPF) is midnight on 31 March 2016.

2. DWP has announced they will create a secondary annuities market

On 15th December the DWP announced that they will create a secondary annuities market in April 2017. The announcement was contained within a published response to the March 2015 call for evidence on creating a secondary annuity market.

From April 2017 tax restrictions for people looking to sell their annuity will be removed providing the 5 million people with an existing annuity with the freedom to sell their right to future income streams for an upfront cash sum.

The announcement is part of the Government’s intention to provide individuals with the freedom to make their own decisions about what they do with their annuity income.

In terms of the mechanics of introducing such a change, it is intended that the FCA will consult on the drafting of the rules during 2016. Broadly, the Government will legislate to create a new specific regulated activity for purchasing rights under an annuity on the secondary market.

Economic Secretary to the Treasury, Harriet Baldwin, provided the following details on how the secondary annuity market will work:

  • Pension annuities belonging to an individual and held in their own name will be eligible for the new freedoms.
  • All UK-based annuity purchasers and intermediaries (such as IFAs) will be required to be regulated by the FCA.
  • Annuity providers will be allowed the choice to buy back low value annuities, subject to robust safeguards.
  • The Government believes that individuals who want to sell an annuity income stream above a certain value should be required to seek advice before proceeding with the sale.
  • A comprehensive consumer protection package will be introduced to ensure people make informed decisions about their savings.

The Bank of England and Financial Services Bill contains a provision requiring mandatory advice for individuals with high value annuities considering using the secondary market.


3. R (on the application of FLEET Maritime Services (Bermuda) Ltd) v Pensions Regulator [2015] EWHC 3744

The High Court has clarified the rules relating to when workers are “ordinarily working” in Great Britain (and therefore satisfy one of the criteria for being a jobholder under the automatic enrolment legislation). Seafarers would be based, and thus ordinarily working under their contracts, in Great Britain if they lived in Great Britain and worked on ships which routinely started and finished their voyages in Britain. This would be the case even for those seafarers who mainly worked outside of British waters. However, seafarers whose tours of duty began from foreign ports did not qualify for automatic enrolment even if the time they spent travelling to and from those ports was treated as days of work for the purposes of entitlement to pay and leave.

The case concerned a company that was an employer that was incorporated in Bermuda and had no place of business in the United Kingdom, but was a wholly owned subsidiary of an English company. The crew lived on board the cruise ships to which they were assigned during any particular tour of duty and spent a significant majority of their time outside UK territorial waters. Some members of the crew resided within the UK whilst others did not.

The Regulator issued a compliance notice to the employer requiring it to enrol workers who lived in the UK if they joined and left their ships from ports within the UK or, if not, the days they spent travelling to and from ports outside the UK were treated as days of work for the purposes of entitlement to pay and leave. After the employer requested a review of the notice, the Regulator affirmed it and the employer sought judicial review of that affirmation.

The High Court held:

  • An employee’s base was the place where he should be regarded as ordinarily working, even though he might spend time working overseas.
  • As applied to a peripatetic worker, the concept of a base was that of a place from which the worker set off at the start and to which the worker returned at the end of a period when the worker was travelling in the course of his work. A ship on which a seafarer worked is not such a place as a ship is a means of transport.
  • The Regulator had been correct in the view that a seafarer who lived in the UK but spent several weeks away working in foreign waters and joined and left that vessel from a port within the UK should be assessed as ordinarily working in the UK, even though most of his tour of duty might be spent outside the UK.
  • The Regulator had been incorrect to conclude that a seafarer who began and ended his tour of duty at ports outside the UK was also ordinarily working in the UK if travelling to and from those foreign ports was treated as days of work.

4. Alexander and others as trustees of the Scottish Solicitors Staff Pension Fund v Pattinson & Sim and others [2015] CSIH 96

Partners in a Scottish firm of solicitors have had their appeal dismissed by the Scottish equivalent of the Court of Appeal. The partners alleged that the Scottish Solicitors Staff Pension Fund were in arrears in regards to pensions contributions owed to the firm. The partners denied responsibility for the arrears. The partners claimed that several invalid amendments were made to the Fund’s governing deed since 1980; prior to 1991 such amendments needed to be approved by a two-third majority of each constituency involved in the Fund at three general meetings.

Although the trustees were unable to provide evidence of full compliance with this “triple lock” amendment mechanism for every change to the Deed, Lord Drummond Young stated that the maxim ‘all things are presumed to have been done in due form’ applied to the present case. Accordingly it was for the partners to prove that the triple lock system had not been followed. The partners were unable to do so and as such it was held that the amendments had been correctly effected.

5. Ascham Homes Ltd v Auguste [2015] EWHC 3517 (Ch)

The Court of Appeal has allowed an appeal against a decision of the deputy pension’s ombudsman. The defendant company appealed against the deputy ombudsman’s ruling that its refusal to grant a former employee an unreduced pension was perverse and amounted to maladministration.

The Court of Appeal held that the deputy ombudsman was mistaken in finding that the defendant had decided to dispense with the services of the claimant in the defendant’s own interest and on the grounds of business efficiency, entitling him to an early payment of an unreduced pension under Reg 19 of the Local Government Pension Scheme. On the evidence, the primary ground for the claimant’s dismissal could not reasonably be said to have been for business efficiency.

6. BCA Pension Trustees Ltd [2015] EWHC 3492 (CH)

An application for an order under section 48 Administration of Justice Act 1985 was made following the omission of wording relating to a pension increase rule in the trust deed and rules during a consolidation exercise. The order, which was granted, authorised the trustee to administer the plan as if the omitted words had not been mistakenly deleted.

Mr Justice Snowden held that the nature of the mistake in the drafting of the pension increase rule in the consolidated trust deed and rules was so obvious as to make the corrective construction of the rules self-evidently necessary. Snowden J stated that reading the omitted words into the increase pension rule did not create a new contractual provision in Rules that would otherwise have worked without such an addition, rather “its inclusion is necessary to make the existing Rules work”.

The order protects the trustees against complaints that it was wrongly administering the plan by administering it in this way. Members of the plan, however, remain free to contend that a different construction of the relevant rule should apply as the order under section 48 does not bind members or potential beneficiaries.


7. DWP’s response on member-borne commission ban

The Department for Work and Pensions has published its response to the consultation on proposals to implement a ban on member-borne commission in DC auto enrolment schemes from April 2016. The ban will be implemented by the provisions contained in the draft Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2016, which was published for consultation as part of the response.

The regulations banning member-borne commission will apply to occupational pension schemes that provide money purchase benefits and which are used as qualifying schemes for automatic enrolment in relation to at least one jobholder. Once a scheme becomes subject to the ban, the ban will continue to apply whether or not the scheme continues to be used as a qualifying scheme for automatic enrolment. Self-administered schemes, executive pension schemes and single-member schemes will all be exempted from the ban.

The ban will be implemented in two stages. The regulations will be effective on 6 April 2016. The ban will not apply to charges under commission arrangements entered into before this date, unless the agreement is varied or renewed on or after 6 April 2016.

The DWP has decided that the duty to comply will be imposed on service providers. Trustees will however be required to inform service providers whether their scheme is a qualifying schemed used for automatic enrolment.

8. Consultation on further exceptions to employer duties re: auto-enrolment

On 26 January 2016 the DWP published ‘Technical changes to Automatic Enrolment: consultation on draft regulations’ in an attempt to further simplify the auto-enrolment process. Published alongside the consultation was the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendment) Regulations 2016.In addition to simplifying the auto-enrolment process the regulations make it easier for employers to bring their staging dates forward.

An example of a key technical change to the auto-enrolment process contained within the draft regulations is the creation of two new exceptions to the employer duty to auto-enrol (and re-enrol) workers:

  • Company directors

An exception for workers who hold office as a director of the company that employs them is being introduced in response to representations from small businesses. The proposed extension is drafted widely so as to include directors of companies who employ workers as well as director only companies.

  • Limited Liability Partnerships (LLPs)

An exemption for individuals who are “genuine partners” of LLPs (rather than “actual employees”).

The consultation closes on 16 February 2016 and a response to the consultation is intended to be published in early March.

9. New regulations in relation to tapered annual allowance

The HMRC has published draft regulations in relation to the tapered reduction of the annual allowance for individuals earning over £150,000, beginning 6 April 2016. The draft imposes the following requirements:

  • If the scheme is an occupational or public service pension scheme and the member’s pensionable earnings were in excess £110,000 for that tax year, the scheme administrators will need to provide a pensions savings statement.
  • For Individuals who earn £150,000 a year or more (including the value of pension contributions), the taper will apply subject to an income floor of £110,000 (excluding the value of pension contributions) from the start of the 2016/17 tax year
  • For those affected, the annual allowance will be gradually reduced so that individuals with an adjusted income of £210,000 or more will be entitled to an annual allowance of £10,000

10. DC pension flexibility: DWP guidance on pensions with a guarantee and safeguarded benefits

The DWP has issued a factsheet to assist pension scheme providers in determining the scope of “safeguarded benefits”. These have an “advice requirement” for trustees to check that a member has received independent financial advice before making a transfer to take advantage of pension flexibility options. The advice requirement does not apply if the value of the member’s safeguarded benefits is £30,000 or less.

The DWP notes that uncertainty has arisen regarding pension benefits with guarantees and whether they come within the definition of safeguarded benefits. Among other points, the factsheet indicates that to qualify as safeguarded, the benefits must include “some form of guarantee about the rate of secure pension income to be provided”. Policies with a guaranteed annuity rate (GAR) would normally qualify because a member has a right to convert their pot into income.

The DWP highlights that the status of certain types of guarantees are more likely to depend on their specific terms, including retirement annuity contracts, buyout policies and AVCs.