In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for pensions.
Key developments in 2021
Claims against self invested personal pension scheme (SIPP) operators have been centre stage for a number of years now. In last year's Annual Insurance Review we highlighted the High Court's decision in Adams v Carey, which considered the duties and obligations of SIPP operators around due diligence in the context of a civil claim. The decision represented a rare win for SIPP operators as the Court found that the starting point for assessing a SIPP operator's compliance with the Financial Conduct Authority's (FCA) Conduct of Business Rules (COBS) required consideration of its contractual arrangements with its clients. This more restricted view of SIPP operator liabilities contrasted sharply with the view taken by the Financial Ombudsman Service (FOS).
The High Court's decision in Adams v Carey was appealed and the Court of Appeal handed down its decision in April 2021. The Court upheld the High Court's findings in respect of the SIPP operator's alleged breach of COBS, but departed from the High Court in respect of the other issue appealed: the operator's alleged breach of s.27 of the Financial Services and Markets Act 2000. The Court held, in essence, that this technical provision rendered the SIPP unenforceable, on the basis that it had been put in place by the operator as a consequence of things said and done by the unregulated introducer involved, in breach of the FCA's 'general prohibition' on providing financial advice without authorisation. The Court of Appeal's decision will therefore be unhelpful to SIPP operators looking to defend claims in circumstances where an unregulated party, such as an introducer, has played a role in the transaction. To some degree the decision represents the Court pushing the risk of clients dealing with unregulated introducers onto the regulated SIPP operators, an approach more in line with that taken by the FOS to date.
The Court of Appeal's decision in Adams v Carey is certainly not the end of the road for the current trend of SIPP claims and complaints, and indeed we understand that the decision has been further appealed. The latest published data on FOS complaints also reveals that SIPPs remain the most complained about product in the investment and pensions category for 2020/21. Despite the number of total annual SIPP complaints having fallen somewhat from a peak around 2018/19, new SIPP complaints being referred to the FOS remain significant in number and have increased over the last 12 months. In addition, none of the SIPP operator cases in the civil courts to date, including Adams v Carey, has addressed the important issue of a SIPP operator’s common law duty of care, and the standards to be expected of a reasonably competent SIPP operator. There therefore remains scope for further litigation, and expert evidence, to address this issue in the future, and there will no doubt be further claims against SIPP operators to come.
What to look out for in 2022
The Pensions Schemes Act 2021 (the PSA) received Royal Assent in February 2021. Many of its provisions came into force in October / November 2021 with further provisions anticipated to come into effect over the course of 2022. The anticipated impact on the UK pensions industry of this new legislation is likely to be a significant and developing news story over the next 12 months, with many changes requiring secondary legislation and likely to result in updated guidance. In addition to trustees themselves, this will have a significant impact for all professionals involved with pension schemes, including lawyers, actuaries and administrators.
The PSA has already introduced new criminal offences, most significantly in relation to avoidance of employer debt and conduct risking accrued scheme benefits. These offences are punishable by up to seven years' imprisonment and/or an unlimited fine, so will no doubt weigh heavily on trustees' minds when they make significant scheme decisions in future. The PSA also expands the scope of the Pension Regulator's (tPR) anti-avoidance power to issue Contribution Notices, which require third parties to make contributions to scheme assets. The expanded scope of these powers, allowing tPR to use them in additional circumstances, will potentially result in these powers being used more frequently in future. Other changes introduced by the parts of the PSA newly in force include requirements for trustees to ensure certain conditions are met before allowing scheme transfers to take place. While this will allow trustees greater scope to refuse transfers suspected to be linked with scams, it also places onerous new duties on them, and we may see claims and complaints against trustees who allow transfers to proceed in breach of these obligations.
Further provisions of the PSA implemented in 2022 are likely to see changes to the notifiable events regime coming into force, with schemes required to alert tPR at an earlier stage in relation to significant transactions. The Government is also consulting on new regulations setting out the detail of a new scheme funding regime under the PSA, which is likely to result in a significant shake-up of the current regime. Similarly, the Government is expected to consult on draft regulations relating to the implementation of pensions dashboards.
Overall, there will be a lot for scheme trustees to keep track of over the next twelve months, and a raft of new duties and obligations for trustees to ensure they keep in mind if they wish to avoid potential claims and regulatory action.