Closed scheme with retained final salary link is "frozen scheme" under employer debt regulations

In the case of G4S Plc v G4S Trustees Ltd, the High Court has held that a scheme that has been closed to future benefit accrual, but in which the value of accrued benefits continues to be linked to salary after the closure date, is a "frozen scheme" for the purposes of the employer debt regulations, which provide that a debt can be triggered on an employer that ceases to employ active members at a time when other employers continue to do so.  The court held that members who stopped accruing additional periods of pensionable service on closure, but whose accrued benefits continued to be uplifted in line with future salary increases were not "active members" for the purposes of the legislation.

Our thoughts

This is an important judgment for many closed schemes, as restrictions in a scheme's amendment power can often result in accrued benefits having to be increased in line with future salary increases notwithstanding the scheme's closure to future benefit accrual.  Had the judgment gone the other way, many such schemes might have found that significant debts had been triggered inadvertently on an employer ceasing to employ members who had been regarded as deferred rather than active members.

Court of Appeal holds trustees could not unilaterally amend scheme to increase pensions

In British Airways plc v Airways Pension Scheme Trustee Ltd, the Court of Appeal (in a 2:1 majority judgment) has allowed BA's appeal, holding that the trustees were not entitled to use the scheme's amendment power to increase pensions against the employer's wishes.

The background to the case was the government's decision in 2010 to change the statutory basis for calculating pension increases from RPI to CPI. The wording of the BA scheme rules meant that this would result in future increases under the BA scheme being based on CPI rather than RPI. Unusually, the Scheme's amendment power, which was exercisable by the Trustees, did not stipulate that employer consent was to an amendment was required. The Trustees amended the Scheme to give themselves a discretion to grant additional increases to those already provided by the Scheme rules. They subsequently exercised that power to award an additional increase.  BA challenged the trustees' actions in court.

The High Court rejected BA's challenge, but the Court of Appeal allowed BA's appeal, holding that the amendment which the trustees had purported to make went beyond the proper purpose of the scheme's amendment power.  Although the amendment power was drafted in broad terms, it had to be read in the light of the "constitutional functions" given to the trustees under the trust deed, namely to manage and administer the scheme.  By purporting to amend the scheme in the way they had done, the trustees had attempted to assume responsibility for designing the scheme rather than managing and administering it.  That was not the function of the trustees under the terms of the trust deed.

The scheme trustee has been granted permission to appeal and has said it will be meeting with its advisers in the first two weeks of September 2018 to decide whether to pursue an appeal.

Our thoughts

This judgment illustrates that the scope of a broadly worded amendment power can be more limited than an initial reading of the words might suggest, as the courts will consider the broader context of a power in a trust deed, not just the wording of an individual clause in isolation.


Government consults on amending law in relation to statement of investment principles

On 18 June 2018 the Government published its final response to the Law Commission's report on pension funds and social investment together with a consultation on changing the law in relation to statements of investment principles.  Currently, the law requires a statement of investment principles to include details of the extent, if at all, to which social, environmental or ethical considerations are taken into account in the scheme's investment policy.  The Law Commission report considered that this is confusing as the law conflates such factors being taken into account (a) because of their potential impact on financial performance, and (b) for non-financial reasons such as ethical concerns.  The Law Commission recommended a change to the law to require the statement to address these two issues separately.

The Government is proposing that from 1 October 2019:

  • schemes that are currently required to produce a statement of investment principles (SIP) will be required to update the SIP to set out:

    • how they take account of financially material considerations, including those arising from environmental, social and governance (ESG) considerations, including climate change;

    • their policies in relation to "stewardship" of the investments, including engagement with investee firms and the exercise of the voting rights associated with the investment;

  • schemes that provide money purchase benefits (other than just for AVCs) will be required to:

    • publish their SIP on a website and inform members of its availability via the annual benefit statement;

    • update their default strategy to set out how they take account of financially material considerations including those arising from ESG risks including climate change;

  • schemes that are required to produce a SIP will also be required to prepare a separate "statement on member views" setting out how they will take account of the views which, in their opinion, members hold, in relation to the matters covered in the SIP.

The Government is also proposing that from 1 October 2020, schemes that provide money purchase benefits (other than just for AVCs) will be required to:

  • produce a report setting out how they acted on the SIP principles and "statement on member views"; and

  • publish the report online and inform members of its availability via the annual benefit statement.

The consultation says that the above dates are based on the assumption that the relevant regulations will be laid in Parliament in September or October 2018, but that if demands on Parliament's time mean that the regulations are not laid until early 2019, most provisions will instead have a coming into force date of 6 April 2020.

The consultation states that none of the proposals seek to direct trustees to invest in line with scheme members' wishes.  It flags that, as the Law Commission emphasised, taking members' non-financial concerns into account is only permissible if:

  • trustees have good reason to think that members hold a concern; and

  • adopting an investment strategy that takes account of that concern will not involve significant financial detriment.

Pensions Ombudsman

Ombudsman increases awards limit for non-financial injustice

The Pensions Ombudsman's annual report for 2017/18 says that the Ombudsman has decided to increase the normal limit for awards for non-financial injustice to £2000.  This means that the range for awards for non-financial injustice is now £500 to £2000, save that the Ombudsman may award more in exceptional circumstances.  The report also says, "We are drafting guidance outlining fixed levels of awards (including those falling within the £500 to £2,000 range) and in which circumstances these are likely to be made.  However, every case will be considered individually on its facts."

Ombudsman corporate plan encourages one stage IDRPs

On 20 August 2018, the Pensions Ombudsman published his corporate plan for 2018-2021.  This includes a commitment to "communicating with a view to influencing industry to adopt a one stage IDRP" and considering earlier intervention in disputes, "For example, reaching out to providers and schemes to either avoid complaints arising in the first place or to assist in resolution."

Trustees ordered to give reasons for death benefit decision

In his determination in the case of Dr G (PO-18953), the Ombudsman has ordered a scheme's administrator to give reasons for its decision regarding the distribution of death benefits held on discretionary trusts.  

The scheme rules gave the scheme's administrator broad discretion regarding how the deceased member's fund was distributed.  The member was survived by his partner of 5 years as well as his children (who appear to have been adults at the date of the member's death, though the determination is not clear on this point).  The member and his partner had jointly owned their house (the member owning 10% and the partner 90%).  In his will, the member provided for his partner to be able to continue to live in the house rent free for the rest of her life, and to inherit "all domestic and associated assets, including vehicles".  However, his residual estate passed to his children in equal shares.  A few months before purchasing the house, the member had completed an expression of wish form which named only himself.

The scheme administrator decided to pay the whole of the death benefit to the member's estate, with the result that none would go to the member's partner.  The partner complained to the Pensions Ombudsman.  The scheme administrator provided a list of the factors it had considered.  However, it was not clear from these why the administrator had made the decision that it had.  

The Ombudsman's determination says, "[The scheme administrators] say that the factors which were taken into consideration in reaching its decision were clearly set out in the minutes. No reasons were given for its decision though. I consider the absence of any documented reasons to support a decision as indicating that there were in fact no supportable reasons for the decision. Documented reasons need not themselves be lengthy but should be sufficient to convey to the reader an understanding of the factors which have been given some weight. It may also be appropriate to record why some factors have been discounted. The reasons should be sufficient to enable an aggrieved party to know whether there are grounds to challenge the decision."  The Ombudsman ordered the scheme administrator to reconsider the distribution of the lump sum death benefit, fully document the rationale for its decision and communicate this to the complainant.

Our thoughts

The question of whether it is a good idea to record reasons for a decision is not clear cut, and we think the issue needs to be considered on a case by case basis.  If it will in practice be obvious how the information considered has led to a particular decision, we think there can still be a strong case for recording the information considered, but not a separate set of reasons for the decision.  If reasons are not recorded with great care, there is the risk that the recorded reasons will themselves end up becoming the basis for a legal challenge.  However, if it would not be obvious how the decision relates to the information considered, it may be sensible to consider whether to record reasons, although great care needs to be taken with this as this can then provide a relatively easy legal basis for challenging the trustees' decision.  

This case suggests that if the Ombudsman is faced with a case where trustees have decided to pay nothing to a member's cohabiting financially interdependent partner of several years, the Ombudsman is likely to expect the trustees to provide at least some indication of why that decision was reached, and may direct the trustees to provide reasons if no such indication is provided.

Ombudsman upholds complaint against scheme for allowing transfer out without adequate checks

In the case of Mr N (PO-12763) the Ombudsman has upheld a complaint against Northumbria Police Authority for not undertaking adequate checks before processing a member's request to transfer out of the Police Pension Scheme. The member said that it was only following the transfer that he realised with concern that he had signed up to a high risk investment as a "sophisticated investor".  The Ombudsman has ordered the Authority to reinstate the member's accrued benefits in the Police Pension Scheme or provide equivalent benefits, though on the basis that the Authority will be entitled to recover from the member any amount which the trustee of the receiving scheme recovers in respect of the member's benefit.  

The Authority had sought to rely on legislation which provides that trustees of the transferring scheme are discharged from any obligation to provide benefits to which the transfer value related where "the trustees or managers of the scheme have done what is needed to carry out what the member requires" following the exercise by the member of his statutory right to a transfer value.  However, the Ombudsman held that "what is needed" includes appropriate review of the transfer application, taking into account the law and regulatory guidance, and that "what the member requires" could only be established by ensuring that the appropriate due diligence was carried out, and any warnings or concerns identified and brought to the attention of the member.  Applying these tests, the Ombudsman held that the Authority was not entitled to rely on the statutory discharge.  In particular, the Ombudsman criticised the Authority for:

  • not sending the member a copy of the Pensions Regulator's "scorpion" leaflet warning about the dangers of pensions liberation.  It was not sufficient that the Authority had simply made the leaflet available to all members via a link on its newsfeed;

  • not querying with the member the fact that the receiving scheme's sponsoring employer was a dormant company registered at an address far from that of the scheme member.  This was particularly significant given that the Authority knew that the member was still employed as a policeman in Northumberland, and that there were only limited circumstances in which a serving police officer would be allowed to have a second employment;

  • not acquiring a copy of the receiving scheme's trust deed and rules to check that it was indeed an occupational pension scheme able to accept the transfer value.  The Ombudsman said that "where there are areas for concern" he would expect these to be obtained.

Our thoughts

Transfer values can be a minefield for scheme trustees.  This case illustrates that the Ombudsman may hold the transferring scheme liable if a member transfers to an unsuitable scheme and the Ombudsman considers that the transferring scheme trustees should have made more checks.  However, if trustees unnecessarily delay a transfer, they risk being held liable if the member misses out on investment returns as a result.  

Trustees should ensure that they have robust processes in place for transfers, both in terms of identifying "red flags" that a receiving scheme may be a pensions liberation vehicle, and in terms of ensuring legitimate transfers are dealt with promptly. Ombudsman determinations show that he attaches considerable importance to sending members a copy of the Pensions Regulator's "scorpion" leaflet when transfer information is requested, though he does not regard that alone as sufficient for the transferring trustees to satisfy their duties.

Since the transfer in this case, legislation has introduced a requirement for trustees to satisfy themselves that the member has received "appropriate independent advice" if the member is transferring from a defined benefit to a money purchase arrangement and the value of the benefits exceeds £30,000.

Ombudsman holds trustees should have done more to explain options to terminally ill member

In the case of the Estate of the late Mr R (PO-17639), the Ombudsman has held that scheme trustees should have done more to explain benefit options to a terminally ill member and has ordered the trustees to increase the widow's pension to the amount which the widow would have received had the member brought his pension into payment before death, and to pay the member's estate the lump sum which the member would have received had he brought benefits into payment before death.

The member had been diagnosed as terminally ill in November 2012.  At that time he was a deferred member of the scheme.  In April 2016 the member contacted the scheme administrator by telephone to discuss his options under the scheme.  He informed the administrator that he was terminally ill.  Shortly afterwards, the scheme administrator wrote to the member setting out two options: 1. a cash lump sum of about £19,000, an annual pension of about £12,000 pa and a widow's pension of about £7000 pa; or 2. a cash lump sum of about £61,000, a pension of about £9,000pa and a widow's pension of about £7,000.  The letter also flagged the possibility of taking all benefits as a tax free lump sum if the member could provide medical evidence that his life expectancy was less than one year.

The member died in August 2016 without having exercised any of the options outlined in the administrator's letter.  His widow was informed that she would receive a widow's pension of approximately £5500 pa.  She queried why this was less than the figure previously quoted and why there was no lump sum.  The scheme administrator explained that the figures previously quoted were benefits available to Mr R during his lifetime as a pensioner member of the scheme.  As the member had remained a deferred member, the benefits would be calculated accordingly, meaning that the widow's pension was lower and there was no lump sum.  The widow complained that the trustees had failed to make clear to the member that his estate and his widow would be severely disadvantaged if benefits were not taken during his lifetime.

The Ombudsman upheld the complaint.  He held that the trustees had a duty to provide Mr R with the relevant information to enable him to make a fully informed decision about his options under the scheme.  The trustees had breached this duty because the way in which the options were presented meant that it would not have been clear to Mr R that the two options presented would not remain available on his death, particularly as the letter did not mention what benefits would be payable on death in deferment.  Given that the trustees knew that the member was terminally ill and that benefits payable to his widow and estate would be considerably lower if no action was taken during his lifetime, the Ombudsman found that the trustees should have satisfied themselves that Mr R had actually received the letter and that he understood the significance of the information it contained.

The Ombudsman ordered the trustees to pay to the member's estate the lump sum which would have been payable had the member chosen option 2 during his lifetime, and to pay to the member's widow the widow's pension which would have been payable had the member chosen option 2 during his lifetime.

Our thoughts

This determination highlights that member communications may need to spell out points that might seem obvious to someone more familiar with pension schemes, for example that a benefit option available to a member during his lifetime may not be available to his spouse following the member's death.

If trustees are on notice that a member's request for benefit options has been prompted by the fact that a member is terminally ill, this determination suggests that the Ombudsman will expect the trustees to check that information sent has actually been received.  In such cases, communications should explain not just the benefit options available to the member during his lifetime, but also what benefits will be provided if the member dies without having exercised any of them.

Ombudsman holds expression of wish form invalid and substitutes own decision on death benefits

In the case of Miss A (PO-12332), the Ombudsman has held an expression of wish form to be invalid and taken the unusual step of substituting his own decision for that made by the trustees.  The Ombudsman also ordered the scheme's administrator to pay three beneficiaries £2000 each for the distress and inconvenience caused by its maladministration.  The case carries important lessons, particularly around:

the importance of ensuring that expression of wish forms are completed properly; and

the need for robust death benefit decision-making processes that are not overly reliant on expression of wish forms.

The member died in November 2013 while an active member of a small self-administered scheme (SSAS), the rules of which provided for payment of a death benefit held on discretionary trusts.  At the time of the scheme's establishment in March 2004, the member had signed an expression of wish form, but not filled in details of his chosen beneficiary himself.  The member's brother, also a member trustee of the SSAS, added his own name as nominated beneficiary on the member's form and placed his initials next to his amendment.   He gave evidence to the Ombudsman that he would not have amended the form in this way had it not reflected his brother's wishes at the time. 

In August 2013, the member had made a will which provided for the residue of his estate to be divided between his three adult daughters in equal shares.  It was not clear from the evidence whether the member (wrongly) believed that his pension fund would pass under his will.

Following the member's death, the SSAS trustees, comprising the member's brother, the member's brother's ex-wife and a professional trustee decided to pay the whole of the death benefit to the member's brother in accordance with the expression of wish form.  One of the member's daughters, Miss A, complained to the Pensions Ombudsman.

The Ombudsman held that the circumstances of the manner in which the expression of wish was completed and relied upon rendered the expression of wish form invalid and that the trustees should not have relied on it when making their decision.  Normally, if the Ombudsman finds that a trustee decision has been improperly made, he directs the trustees to make their decision afresh.  However, citing case law, the Ombudsman said that he was entitled to make the decision instead if the trustees had had access to all the necessary information and yet reached a perverse decision.  In the present case, the Ombudsman noted that the trustees had failed to request other evidence and had instead given maximum weight to an invalid expression of wish form.  Having reviewed their decision following representations by Miss A, they had adopted a similarly inappropriate reconsideration process.  

In the circumstances, the Ombudsman decided to assess the distribution that a reasonable trustee would make.  He ordered the death benefit to be divided equally between the member's brother and the three adult daughters.  Although the brother had improperly amended the expression of wish form, the Ombudsman found him to be an otherwise credible witness who had provided help and support to the member over the years.

The Ombudsman ordered the scheme's administrator to pay the member's three daughters £2000 each to compensate them for the "exceptional inconvenience and distress" caused by its maladministration.  The Ombudsman was critical of the professional trustee and administrator's processes for dealing with death benefit decisions which, due to costs concerns, did not involve a meeting or even a conference call to discuss the circumstances of the deceased and whether the trustees had all relevant information to enable them to make a decision.  

Ombudsman upholds trustee's approach to reducing transfer values

In the case of Mr N (PO-18320) the Ombudsman has upheld the trustee's approach to applying reductions to cash equivalent transfer values where the scheme was underfunded.  The trustee's approach was to calculate a transfer value based on the benefits the member would receive if the scheme were to go into the PPF and then to apply a proportionate reduction to the transfer value calculated on that basis (the same proportion being applied in all cases).  The Ombudsman held that there was no maladministration in the trustee's approach which was motivated by, and consistent with, the trustee's duty to protect the security position of remaining members and to treat members equitably.


Manage and Register Pension Schemes service

On 4 June 2018, HMRC published a newsletter detailing progress on its Manage and Register Pension Schemes service.  The newsletter states that the service is already in operation for the purposes of registering new schemes.  Ultimately, HMRC intends to migrate existing schemes using the current Pension Schemes Online on to the new service and for the service to be used for making reports to HMRC

End of contracting-out – HMRC publishes Countdown Bulletin 36

On 14 August 2018, HMRC published its Countdown Bulletin 36 on administrative issues arising from the end of contracting-out.  The bulletin says that the deadline for submitting Scheme Reconciliation Service queries which require clerical action is 31 October 2018 and that HMRC will respond to all queries received by that date.

Pension Protection Fund

Consultation on valuation assumptions

The PPF has published a consultation on the assumptions to be used for valuations under section 143 and section 179 of the Pensions Act 2004.  The changes relate to mortality assumptions and to the discount rates for certain tranches of benefit.  The PPF proposes to introduce the changes for valuations with an effective date on or after 1 November 2018.  The consultation, which closes on 21 September 2018, can be found on the Document Library section of the PPF website.

Requirement to re-execute contingent asset documentation where fixed cap applies

For the levy year 2019/20, the PPF intends that schemes which benefit from a "Type A" contingent asset (guarantee) or "Type B" contingent asset (security over cash, real estate or securities) in their levy calcuations and wish to continue to do so will need to provide a fresh certification based on the new standard form documentation (published in January 2018) if the current contingent asset is subject to a fixed cap.  The deadline for providing the necessary documentation to the PPF will be 5pm on 29 March 2019.  The PPF plans to address this point when it publishes its levy documentation for the 2019/20 levy year.  However, we understand that in advance of that, the PPF is sending an e-mail flagging the point to all schemes that certified a Type A or Type B contingent asset for levy year 2017/18.

Pensions Regulator

Updated guidance on chair's statements

On 27 June 2018 the Pensions Regulator published an updated version of "A quick guide to the chair's statement".  The obligation to produce a chair's statement broadly applies to occupational schemes that provide money purchase benefits (other than those where the only money purchase benefits are from AVCs).  The guide includes a checklist for trustees, including notes on the Regulator's expectations and common misunderstandings and omissions.

The Regulator is legally obliged to fine trustees who fail to produce a chair's statement in accordance with statutory requirements.  However the Regulator's quarterly compliance and enforcement bulletin for April to June 2018 says that the Regulator recently carried out a review its mandatory fines issued in response to non-compliant chair's statements and revoked 74 penalties in the quarter as a result.  The Regulator says it did this "due to a time delay on our part in explaining to schemes why their statement was not compliant with the regulations".

Trustee fined £25,000 for failure to submit actuarial valuations

The Pensions Regulator has fined a corporate trustee £25,000 for failure to comply with its duties to submit actuarial valuations to the Pensions Regulator in accordance with the statutory deadlines.  An actuarial valuation as at 6 April 2012 had been due for submission by 6 July 2013, but still remained outstanding as at 14 May 2018, the date when the Regulator's Determinations Panel decided to impose the penalty.  By this point the due date for the scheme's 2015 valuation had also passed without a valuation being submitted.  As at 31 March 2015, the scheme had 141 members.  The scheme's trustee had informed the Regulator in 2012 that the scheme was imminently expected to merge with a much larger scheme.  However, the Regulator had made clear that it did not regard this as an adequate reason not to produce an actuarial valuation, and at the date of the Determination Panel's decision, no merger had occurred.

Our thoughts

The determination notice in this case states that the scheme's actuarial valuations for 2006 and 2009 had also been submitted late, as well as scheme accounts in 2010 and the scheme return in 2016.  Perhaps what is most striking about this case is the time it took the Regulator to impose the penalty – almost 5 years after the 2012 valuation was due for submission.  Since the Regulator was criticised by a parliamentary select committee in the wake of BHS's insolvency for being slow to act, the Regulator has been keen to show that it is a quicker, tougher Regulator.  In the future, we consider it highly unlikely that a late actuarial valuation will escape regulatory action for so long.

New guides on managing conflicts and meetings and decision-making

As part of its "21st Century Trusteeship" initiative to raise the standards of scheme governance, the Regulator has published guides on managing conflicts of interest and on meetings and decision-making to clarify the Regulator's expectations in these areas.  The guidance on meetings and decision-making says that meeting agendas should be circulated at least two weeks before the meeting and that trustees should arrive prepared to discuss each item on the agenda.  The guidance says, "Trustee boards should meet often enough to maintain effective oversight and control, which in most cases will be at least quarterly".

Master trust developments

We have previously reported on the introduction of legislation which will prohibit the operation of a master trust unless the scheme is authorised by the Pensions Regulator.  Broadly, a master trust scheme is an occupational pension scheme which provides money purchase benefits and is intended for use by two or more unconnected employers.  On 2 July 2018, the Pensions Regulator published its response to its consultation on its code of practice "Authorisation and supervision of master trusts" and laid the final code before Parliament.

The Regulator has also consulted on its draft policy for the supervision of master trusts.


Government proposes much tougher powers for Pensions Regulator

In a consultation published on 26 June 2018, the Government has proposed a major overhaul of the Pensions Regulator's powers.  The proposed changes could have a significant impact, particularly on the way in which pensions are dealt with on corporate transactions.  The consultation, which has now closed, fleshes out the proposals contained in the White Paper on Defined Benefit Pension Schemes published in March.  For more detail, see our e-bulletin.

Competition and Markets Authority proposals for pension investment reforms

The Competition and Markets Authority (CMA) has published proposals that pension scheme trustees selecting a first fiduciary manager should be required to run a competitive tender, and that trustees who have already appointed a fiduciary manager without a competitive tender should be required to put the role out to tender within the first five years.  A particular concern of the CMA is that around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy, and that this stems in part from investment consultancies steering trustees in favour of their own firm's fiduciary manager.  This puts firms that offer fiduciary management but not investment consultancy at a competitive disadvantage.

At these stage, what the CMA has announced are proposals on which it has sought feedback before issuing its final report by 13 March 2019.

Excepted group life schemes: proposals to amend beneficiary definition

On 6 July 2018, the government announced plans to amend the law in relation to excepted group life schemes (EGLSs) so that benefits can be paid to a wider class of persons without the premiums being taxable as a benefit in kind. An EGLS is a type of life assurance scheme which is not a registered pension scheme, but which benefits from favourable tax treatment in some respects.  Because an EGLS is not a registered scheme, benefits paid from it do not count towards a member's lifetime allowance. 

Under existing legislation, premiums under an EGLS will not be taxable as a benefit in kind if a death benefit will be paid to "a member of the employee's family or household".  The definition of "family" for this purpose is quite narrow.  The proposed changes would allow schemes to provide that a benefit may be paid to any individual (other than the deceased employee's estate) or to a charity without the premiums being taxable as a benefit in kind.  The Government proposes that the changes will take effect from tax year 2019/20 onwards.

Code of practice on combating pension scams updated

The Pension Scams Industry Group (formerly the Pension Liberation Industry Group) has updated its code of good practice on combating pension scams.  The Code is not legally binding, but has the backing of a number of stakeholders in the pension industry including the PLSA.

Changes to the revised Code include:

  • a checklist of risk indicators for small self-administered schemes (SSASs) and additional examples of information which transferring schemes can consider when conducting due diligence on a SSAS, eg whether there is an employment link between the member and SSAS employer and, if not, why the member wants to transfer to the SSAS;

  • information on the use of "international SIPPs" as scam vehicles;

  • the suggestion of contacting the member by telephone as part of the due diligence process and /or referring the member to TPAS if the proposed transfer raises concerns;

  • information on applying to the Pensions Regulator for an extension of the usual six month time limit for the payment of a transfer;

  • detailed guidance on reporting potential scams to Action Fraud; and

  • expanded example letters.

LGIM reported to FCA

In July 2018, the FT reported that at least three employees in Legal & General's investment management arm (LGIM) had reported LGIM to the Financial Conduct Authority (FCA) accusing the asset manager of compliance and risk failures that potentially cost its clients millions of pounds.  We have no further information beyond that published in the FT, so do not know the detail of the allegations or whether they are well founded.  However, given the seriousness of the allegations reported in the FT, we suggest that trustees whose schemes have investments with LGIM should contact their investment advisers to seek the adviser's views on the implications for the scheme's investments.  If advisers are themselves unclear on the position at this stage, trustees should make sure they understand what steps the advisers are taking to obtain information, and should make sure the adviser commits to updating the trustees promptly and within an agreed timescale.

Consultation on cold calling ban

The Government has consulted on draft regulations to ban "cold calling" in relation to pensions, ie unsolicited calls for the purposes of direct marketing.  The Government says it intends to lay the regulations in autumn 2018 "Subject to Parliamentary timetabling".

ESMA and FCA clarification on clearing obligation under EMIR 

We have previously reported on the transitional exemption for pension schemes from the requirement that would otherwise apply to them under EMIR (the European Market Infrastructure Regulation) for over-the-counter derivative transactions to be centrally cleared.  That exemption expired on 16 August 2018 and there is no power under the existing provisions of EMIR to extend it.  However, EMIR is currently being reviewed and it is expected that it will be amended to extend the temporary exemption.  On 3 July 2018, the European Securities and Markets Authority (ESMA) issued a statement that it expects "national competent authorities" (the FCA in the UK) not to prioritise taking supervisory action against entities that are expected to be exempted again in a relatively short space of time.  The FCA has confirmed that it will not require pension schemes and their counterparties to start putting processes in place to clear derivatives for which they were exempt until the exemption expired on 16 August. The FCA says that this approach is subject to any further statements that may be issued by ESMA or the FCA.

PASA publishes administration governance trustee checklist

The Pensions Administration Standards Association (PASA) has published an administration governance trustee checklist, intended for use by trustees to evidence and action appropriate levels of governance over their pensions administration service provider, whether administration services are provided in-house or by a third party.

Select committee launches costs and transparency enquiry into workplace pensions

Parliament's Work and Pensions select committee is holding an enquiry into whether the pensions industry provides sufficient transparency around charges, investment strategy and performance.  The inquiry will examine whether enough is being done to ensure individuals:

  • get value for money for their pension savings;

  • understand what they are being charged and why;

  • understand the short- and long-term impact of costs on retirement outcomes;

  • can see how their money is being invested and how their investments are performing;

  • are engaged enough to use information about costs and investments to make informed choices about their pension savings; and

  • get good-value, impartial service from financial advisers.