The Pensions Regulator issues updated auto-enrolment guidance

The Regulator has recently published updated step-by-step guidance on the auto-enrolment regime following recent regulations and DWP guidance. The most important changes are as follows:

  • The guidance now reflects the revised staging date timetable for all employers. Our bulletin regarding the amended timetable can be viewed here.
  • The guidance has been updated to reflect the new regulations that permit defined contribution schemes to self-certify that they meet the qualifying requirements of an auto-enrolment scheme. Our bulletin regarding the self-certification regime can be viewed here.
  • New guidance on salary sacrifice arrangements has been included to reflect the recent statement from HMRC that confirms the compatibility of salary sacrifice and auto-enrolment. Our bulletin regarding the interaction between salary sacrifice arrangements and auto-enrolment can be viewed here.
  • The guidance regarding whether overseas workers must be auto-enrolled has been updated to reflect the new regulations that state "dual status" workers, i.e. those who spend part of their time working or living overseas who also satisfy the criteria to be auto-enrolled, are exempt from the auto-enrolment regime. Our bulletin regarding overseas workers and auto-enrolment can be viewed here.
  • The guidance in relation to the interaction between auto-enrolment and TUPE transfers has been expanded. Broadly, it states that a new employer receiving transferring employees must make an assessment of their auto-enrolment eligibility at the point of transfer, and that employer obligations under auto-enrolment operate in conjunction with any TUPE requirements – employers must comply with both. The guidance also clarifies that employers can use postponement for any eligible jobholders who are not members of a pension scheme at the date of a TUPE transfer, provided that the worker can still opt-in to a TUPE compliant qualifying scheme during postponement.  

A number of changes have been made to the auto-enrolment regime to help mitigate the administrative burdens on employers.  Nevertheless in many areas the requirements remain highly prescriptive, and it is no easy task for employers to ensure that their pension arrangements are fully compliant and their administration processes will be adequate to cope with the extra demands.  There are also significant advantages for schemes that can achieve economies of scale, and one of the areas on which we are currently advising is the introduction of auto-enrolment compliant sections into industry wide and other similar schemes.  If you have any queries regarding the introduction of auto-enrolment, please speak to your usual contact in the pensions team.  


Privy Council finds that scheme administrator's representations can bind the Trustees

In Jacinth Kelly & Others v Fraser, the Privy Council held that representations made by the scheme administrators of the Island Life Pension Fund, stating that a transfer of the member's pension funds from his previous employer's pension fund to the scheme had been approved, could be relied upon by the member.

Mr Fraser became a member of Island Life Insurance Company pension scheme one month after joining the company in February 2000. On joining the scheme Mr Fraser elected to transfer benefits from his previous employer's pension scheme. Administration of the Island Life pension scheme was delegated to the employee benefits division of Island Life and as such it was the benefits division that provided Mr Fraser with confirmation of the transfer. The Island life pension scheme was then later wound up as part of a corporate restructuring process and the scheme surplus was distributed to members in proportion to their benefit entitlements. The Trustees told Mr Fraser that his transfer of benefits had not been approved and as a result he would only receive his share of the surplus based on the contributions he had made since joining the Island Life scheme.

Mr Fraser argued that he had relied on the representations from the scheme administrator and that the Trustees were now estopped (prevented) from denying that the transfer had taken place. The Trustees argued that the scheme administrator's representations could not bind the pension scheme and that Mr Fraser had not shown detrimental reliance on the representations, which would be necessary to establish estoppel.

The Privy Council stated that "The Trustees of a pension fund are the ultimate source of authority for the conduct of its affairs" but that where certain functions of the scheme had been delegated, the delegate would be authorised to communicate that decisions had been approved even if they did not have the authority to make that decision themselves. Here, the decision whether to accept a transfer lay with the Trustees but the benefit division did have authority to communicate that such a decision had been made. Later communications with Mr Fraser also acknowledged that the transfer had taken place.

With regard to reliance, the Privy Council held that whilst detrimental reliance must be proved, this could be done by establishing facts from which it can be inferred. In this case it was held that Mr Fraser would have taken steps to ensure that his pension benefits had been transferred had he not received confirmation from the scheme administrators and the Trustees would have had no reason to deny such a transfer. Sufficient detrimental reliance was therefore established as Mr Fraser would have been, without knowing it, at risk of having no entitlement to his share of the surplus. As a result the Trustees were estopped from denying that a transfer had taken place and must pay Mr Fraser his share of the surplus based on both his contributions to the scheme and the transferred funds.


This case demonstrates the risk of trustees becoming bound to give effect to a purported decision which has been wrongly communicated by a scheme administrator, even where the administrator had no authority to make such a decision on the trustees' behalf.  The fact that the administrator had authority to communicate information on behalf of the trustees was sufficient to form the basis for an estoppel argument against the trustees based on the administrator's misrepresentation.  

Members of a Singaporean pension scheme to seek judicial review regarding HMRC's tax assessment

In our March 2012 bulletin (click here), we reported on the Court of Appeal's ruling that upheld HMRC's decision to withdraw a Singaporean scheme's QROPS status. This was on the grounds that the scheme did not qualify as an "overseas pension scheme" under the QROPS regulations. Following the Court of Appeal's decision, HMRC requested that members of the scheme pay both a 40% unauthorised member payment charge and a 15% unauthorised payment surcharge on assets transferred to the scheme. In response, HMRC has confirmed that the scheme members have now applied for judicial review of the tax assessments. The application for judicial review has been made on the grounds that the members had a legitimate expectation that transfers to the scheme would not attract a tax liability because the scheme was included on HMRC's list of approved QROPS. As the claims of the different scheme members are "broadly similar", the High Court has granted a group litigation order, which allows claims which pose similar questions of fact or law to be managed collectively. HMRC has confirmed that it will actively resist the claims.  

Pensions Ombudsman determinations

Ombudsman holds that representations to two members that payments were pensionable are not binding

In the cases of Harris and Hancock (27510/4 and 72932/3), the Pension Ombudsman held, having had the question remitted back to him by the High Court, that there was not a legally binding agreement to treat daily subsistence payments paid to two members as pensionable earnings. 

Mr Harris and Mr Hancock were members of the Calder Group Pension Scheme. In April 2003 the two members met with their employer to discuss changing their place of work and, ultimately, their redundancy. It was negotiated that the members would receive a flat-rate daily payment of £20 to cover living expenses at the new location. The parties disputed some of the content of this meeting but the Ombudsman found that the Personnel Officer of the Employer suggested paying the allowance as taxed income through the payroll system. It was thought, mistakenly, by the Personnel Officer that this made the payments automatically pensionable and this view was shared at the meeting. Following the two members' redundancy the Employer told the members that their subsistence payments in fact had been wrongly treated as pensionable earnings and would not count towards their final pensionable earnings.

Mr Harris and Mr Hancock argued that the Employer had entered into a legally binding agreement to treat the payments as pensionable. Even if there was no legally binding agreement, the members argued that the Employer was estopped (prevented) from denying that such payments were pensionable.

The Ombudsman held that whilst there was an agreement to provide subsistence payments, "the offer did not include a discrete or distinct promise that they would be pensionable, or a commitment to procure that they were". The Ombudsman held that such an offer could only have been made if it was understood that the subsistence payments would not otherwise be pensionable, which was not the case here. Even if such an agreement had been made it would not have fallen within the definition of "earnings" under the scheme rules, as interpreted in the preceding High Court decision.

The Ombudsman went on to hold that the Employer had clearly misrepresented the position and that this was "undoubtedly" maladministration. The Ombudsman found that realising that such subsistence payments were not pensionable would not have been sufficient for the members to decline working on the project. What the two members had in fact lost was the opportunity to negotiate for a higher level of subsistence payment, to the value of an extra £5 per day. Therefore the Ombudsman found that to determine that the Employer must treat the income as pensionable would be excessive in relation to the detriment actually suffered by the two members.

The Ombudsman directed the Employer to pay the two members £5 net per day for each day that they worked on the project (together with interest) and £250 each in recognition of the distress and inconvenience caused by the maladministration.


The Trust Deed and Rules will ultimately be determinative of what constitutes pensionable income for the scheme. This case will however serve as a warning to employers to be careful when declaring what they believe constitutes pensionable earnings as it could form the basis of a claim for estoppel or maladministration.

Member awarded £1,500 as compensation for inaccurate benefit statements

In a recent determination, Bore (86345/1), the Deputy Pension Ombudsman partially upheld a complaint by a member that he had suffered financial loss as he had relied on inaccurate benefit statements when deciding to take voluntary redundancy and move to a different area.

Mr D Bore was a member of the Electricity Supply Pension Scheme and as a result of his divorce in 2006, his pension benefits were subject to a pension sharing order. Mr Bore then later received inconsistent annual benefit statements, some correctly reflecting his position as subject to a pension debit whilst others stated that he was still married and did not take the pension sharing order into account. In 2009 Mr Bore submitted an application for voluntary redundancy and was sent a retirement estimate that did not take into account the pension sharing order. After further communication between Mr Bore and the administrators of the Scheme, the administrators confirmed that their figures had been inaccurate (quotations varied from £18,159.58 per annum to £26,535.56) and offered their apologies. The Trustees agreed that mistakes had been made and offered Mr Bore £1,500 as compensation for any distress and inconvenience caused.

Mr Bore claimed that had he known his true pension figures from the outset he would still have probably retired and moved, but would not have purchased such an expensive property, perhaps purchasing one £50,000 cheaper.

The Pension Ombudsman held that Mr Bore would have, on the balance of probabilities, sought redundancy in the same way regardless of the incorrect information. The Ombudsman also found that Mr Bore had not suffered financially as a result of the house sale and purchase nor had he suffered any financial loss from the maladministration that occurred. In the circumstances, the Ombudsman found that the £1,500 offered by the Trustees to be suitable redress for Mr Bore's non-financial loss.


The amount awarded by the Ombudsman is at the higher end of the scale for awards for distress and inconvenience, but reflected the amount offered as compensation by the Trustees.  This determination highlights the care that must be taken when providing non-standard benefit statements to members, in particular to draw the member's attention to the effect of any non-standard deductions.  

Purchaser liable to pay death lump sum following TUPE transfer

Mr McCurdy was a member of the Calmac Pension Fund and was employed by Calmac.  In June 2008, Calmac confirmed to him that his employment would transfer to Rathlin and pension arrangements would be in place and he would be offered to join the scheme by his new employer.  Rathlin took over his employment on 1 July 2008 and Mr McCurdy became a deferred member of the Calmac Pension Fund.  Mr McCurdy died on 19 July 2008.

Had Mr McCurdy died as an active member of the Calmac Pension Fund, a lump sum of four times his final pensionable salary would have been payable.  As a deferred member, a lump sum was payable equal to his final pensionable salary.  Rathlin did not establish a scheme for the provision of lump sum death benefits until some months after Mr McCurdy's death.

Mrs McCurdy's solicitors wrote to the solicitors for Rathlin several times from November 2008 (without receiving a response) seeking information on the arrangements put in place regarding Mr McCurdy's pension entitlement.  Rathlin's solicitors finally told the Pensions Ombudsman's office in June 2012 that there had been no scheme in place at the time of his death, and they accepted that Rathlin were liable to pay a lump sum of four times Mr McCurdy's final pensionable salary.  However, they said that Rathlin were not in a position to pay the sum.

The Pensions Ombudsman in McCurdy (83725/2) directed that Rathlin pay the sum of four times Mr McCurdy's final pensionable salary to Mrs McCurdy plus interest from the date of Mr McCurdy's death.  Further, Mrs McCurdy was to be compensated for any tax (as the lump sum should have been paid tax free).  In addition, a sum of £750 was payable as compensation for distress and inconvenience.


It is generally understood that death benefits do not transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).  TUPE specifically excludes occupational pension schemes, although those elements that do not "relate to benefits for old age, invalidity or survivors" are not treated as being part of the scheme.  Death benefits relating to survivors are therefore treated as part of an occupational scheme and are excluded from TUPE.

It is not clear why the Ombudsman thought that the death benefit did transfer in this case, although presumably this was due to the agreement reached between the parties (i.e. either the commercial agreement between Calmac and Rathlin or Mr McCurdy's employment contract).  The fact Rathlin's solicitors accepted that Rathlin had liability to pay the benefit of four times final pensionable salary before the Ombudsman made his determination might have had some bearing on this aspect of the decision.

It is also interesting to note that the Ombudsman did not direct that the sum payable to Mrs McCurdy would be four times final pensionable salary less the sum already paid by the Calmac Pension Fund (the deferred member lump sum).  In effect, Mrs McCurdy would receive both sums (subject to Rathlin's financial position).  


HMRC updates RPSM guidance on scheme pays and transfers from UK pension schemes to QROPS

HMRC has recently published updated guidance in the RPSM. The majority of the changes concern technical amendments to the guidance regarding the removal of the age-75 restrictions and the reduction in the annual allowance for 2011/2012. The additions include changes to the guidance regarding the "Scheme Pays" facility and transfers from UK schemes to QROPS:

  • The Scheme Pays facility allows members facing a prospective annual allowance charge to require their scheme to pay the charge on their behalf and reduce their benefit entitlement accordingly.  New guidance has been added for valuing pension input amounts for schemes which still use pre-6April 2006 Inland Revenue maximum limits.
  • The recent changes to the criteria for QROPS to receive transfers from UK pension schemes and the associated HMRC guidance following the publication of new regulations has been reflected in the RPSM. Our previous bulletins regarding the changes to the QROPS regime can be viewed here.

HMRC publishes draft guidance on partial short-service refunds

HMRC has recently published new guidance regarding partial short-service refund lump sums (SSRLS). This follows the publication of new regulations permitting the payment of SSRLS for schemes that have not removed their protected rights rules, following HMRC's recognition in March 2012 of a potential problem for schemes paying SSRLS after the abolition of contracting-out for defined contribution schemes.

Broadly, under the Finance Act 2004, for a lump sum to count as a SSRLS and therefore be an authorised payment, the lump sum must fully extinguish a member's rights under the scheme. However, an exemption existed for any protected rights retained by a contracted out defined contribution scheme. Following the abolition of contracting-out for defined contribution schemes, the exemption allowing protected rights to be held back will no longer apply from the date of abolition. Schemes that had not removed provisions in their rules relating to protected rights and were therefore obliged to hold back any protected rights from a SSRLS under their rules ran the risk of the SSRLS becoming an unauthorised payment. New regulations that came into force on 8 August 2012 permit the payment of SSRLS in these circumstances, and ensure that they will not be considered unauthorised payments if the payment is made pursuant to the regulations.

The key points clarified by the new HMRC guidance are as follows:

  • The rules of the scheme that prohibit a payment from extinguishing a member's rights must have been made and must have been in force pursuant to an enactment that prohibited a member's benefits from being extinguished by the payment of a lump sum.
  • The SSRLS payment made under the regulations must not exceed the aggregate of all the "member's contributions" under the pension scheme. "Member's contributions" include employer minimum payments made to the scheme that can be recovered from the employee (the flat rate national insurance rebate) and the age-related rebate paid by HMRC to the scheme. If the SSRLS paid exceeds the aggregate of the member's contributions, the entire payment will be considered an unauthorised payment and taxed accordingly.
  • The rules that prohibit a payment from extinguishing a member's rights must be in force at the time that the SSRLS is paid for the regulations to apply. If the rules have been subsequently amended by the date of payment, the payment will be made pursuant to the existing legislation. This means that, if the SSRLS exceeds the aggregate of the member's contributions, only that part of the SSRLS that exceeds the aggregate will be considered an unauthorised payment and taxed accordingly, which is in contrast to SSRLS paid pursuant to the regulations.

Pension Protection Fund

New PPF Booklet on the 2012/13 Pension Protection Levy

The PPF has issued a booklet "Introduction to the new Pension Protection Levy for 2012/13" to remind Levy payers of the changes that have been introduced to the PPF Levy from 2012/13 under the new Levy framework.  The key changes are:

  • More stable Levy bills - the PPF is taking a "bottom-up" approach to the Levy and fixing the risk-based Levy scaling factor and scheme-based multiplier for three years so that a scheme's risk-based Levy should only change if the risk it poses to the PPF changes.
  • Investment Risk taken into account - the PPF will for the first time be taking account of investment risk to adjust each scheme's underfunding risk (which affects the risk-based Levy).  For most schemes this will be calculated from the information that has been entered into the Pensions Regulator's Exchange scheme return system regarding the scheme's assets, however larger schemes will be required to carry out bespoke assessments of their investment risk.
  • Averaging Funding Levels  - the PPF will smooth the value of assets and liabilities reported by schemes using five year financial market averages up to 30 March 2012.
  • Averaging Insolvency Risk - the method of calculating an employer's insolvency risk is changing, and the PPF will look at an average D&B score over the Levy year instead of the failure score at the end of the Levy year.

It is important that the information that is entered into Exchange is checked for accuracy, as this will impact a scheme's PPF Levy.  The PPF will start to issue the 2012/13 PPF Levy invoices this Autumn.  


HMRC introduces gender-neutral drawdown tables as part of the implementation of Test-Achats compliant legislation

Following the Test-Achats decision in March 2011 (see our bulletin here), the Government is in the process of introducing legislation that gives effect to the requirement that insurance premiums and benefits must be gender-neutral by 21 December 2012. As part of the implementation of this principle, HMRC has now published updated guidance on drawdown pensions that introduces gender-neutral drawdown tables.

Drawdown pensions involve members withdrawing money from their pension arrangements in the form of lump sums throughout their retirement. Members with income from other sources of at least £20,000 can participate in flexible drawdown, which has no limits on the amount that a member can withdraw in a year. If members receive less than £20,000 each year, they can participate in capped drawdown, which limits annual withdrawals to the value of a "comparable annuity". "Comparable annuities" are determined partly by reference to tables produced by the Government Actuary Department and provided by HMRC.

The new HMRC guidance (effective from 21 December 2012) will replace the previous tables used to determine comparable annuities, which took into account various gender factors, with gender-neutral tables based on the current male rates. This will affect the maximum drawdown pension that those participating in capped drawdown arrangements can withdraw each year, and will mean that women will be able to take a higher drawdown pension than at present.  More generally, the full impact of the move to gender-neutral tables will only be felt when market practice regarding the impact on annuity prices becomes clear.  

DWP to repeal the stakeholder pension regime from 1 October 2012

The DWP has recently confirmed that it intends to repeal the requirement for UK employers to provide employees with access to a stakeholder pension scheme. Under the current legislation, an employer of more than five people who doesn't offer certain types of pension arrangement is usually required to designate a stakeholder pension scheme for its employees. Unlike auto-enrolment, there is no requirement for an employer to contribute to its designated scheme. Recognising that auto-enrolment would render stakeholder schemes largely redundant, the Government introduced provisions in 2008 to repeal the stakeholder regime.

The DWP has now confirmed that it intends to abolish stakeholder pensions with effect from 1 October 2012. Although those who are already members of their employer's designated scheme will be protected, employers will not need to give new employees access to a stakeholder scheme.

For employers with staging dates later than 1 October 2012, there will therefore be a period during which there will not be any statutory requirement to provide access to a pension arrangement for their employees.   It is also unclear at this stage how the DWP intend to remove the requirement for employers to provide stakeholder schemes to employees following certain types of TUPE transfer, as the powers to repeal the stakeholder regime do not apply to this requirement.

ABI publishes letter to TPR and FSA regarding transparency in defined contribution pension costs and charges

The Association of British Insurers (ABI) on 23 August published a letter it has sent to the Pensions Regulator (TPR) and the Financial Conduct Unit of the FSA in relation to disclosure of pension charges and costs.  The letter notes that contract-based defined contribution (DC) schemes currently disclose the charges paid by employees and employers (although the format of this information can vary between companies).  Transaction costs, however, (i.e. those incurred in the course of investment trading) are not disclosed.  Trust-based DC schemes are not currently required to disclose either charges or transaction costs.  The ABI has asked the FSA and TPR to work with the insurance industry to develop a regime, based on a four point plan the ABI has put forward, for disclosure of all these charges and costs on a consistent basis.  The ABI's objective is to reach agreement on a draft disclosure protocol by the end of the year.  The letter comes following comments made by Pensions Minister Steve Webb in July that the Government would crackdown on charges that were too high and hidden fees.  The ABI said its proposals aimed to give savers confidence that they are being treated in a fair and transparent way.  This, it said, is particularly important given the imminence of auto-enrolment, when millions more people could be enrolled into a pension scheme.

Transparency of costs and charges has to be welcomed provided that compliance is manageable.  It is not clear whether the ABI wishes the proposals to apply to occupational pension schemes as well as personal pension schemes, but this is presumably why they wrote to TPR (TPR governs both occupational and personal pension schemes).  Many occupational DC pension schemes are operated by the employer, which in many cases pay scheme costs but not investment management fees on behalf of employees.  If the proposals do apply to occupational pension schemes then this could add a further administrative burden to these schemes in terms of obtaining detailed information on charges and disseminating it to members for potentially little benefit.

We will monitor TPR's response to the letter.