As part of the Year in Review, Year to Come series, our UK Pensions team has contributed a UK Pensions Year in Review and Year to Come publication. In this publication we have summarised the key legal developments in the Pensions space for 2018 and looked forward in predicting likely themes for 2019.
Find out more about our Pensions advice, or read below for the top developments last year and what we expect to see in the year ahead.
UK Pensions in 2018
The world of pensions continues to be fast-moving, with 2018 seeing a range of legal developments affecting pension scheme trustees and sponsoring employers. The snapshots below provide a summary of the most important developments in UK pensions law over the year, with links to further information where available.
The High Court handed down its judgment in the landmark case of Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank PLC and others, which finally clarified (28 years after the Barber case) that trustees are under a duty to equalise for GMPs. Read more here, here and here.
The much-anticipated White Paper on protecting defined benefit (DB) pension schemes was published in March. While recognising that most schemes are well-managed and will be able to meet their liabilities, the White Paper included several proposals which aim to maintain confidence in DB pensions by increasing the protection of members’ benefits. Read more here.
In June, the government consulted on the first group of proposals in the White Paper around strengthening the Pensions Regulator's powers. These included proposals to introduce punitive fines and criminal sanctions, and changes to the existing anti-avoidance regime. Read more here. In relation to the Regulator’s existing powers, the Upper Tribunal handed down its judgment in the long-running Box Clever case. This was the first anti-avoidance case to be heard in full by the Upper Tribunal and provided important clarification of the scope of the Regulator’s anti-avoidance powers. Read more here.
The Court of Appeal handed down judgment in the British Airways case on discretionary increases. The Court, allowing BA’s appeal, found by a two-one majority that the trustees of the Airways Pension Scheme acted for an improper purpose in unilaterally amending the scheme rules to give themselves the power to grant discretionary increases. Read more here.
The General Data Protection Regulation applied across the EU as of May 2018, marking the biggest shake-up for European privacy laws for 20 years, with new obligations for employers and trustees, new rights for scheme members and new enforcement powers for regulators. Read more here.
Switching from RPI to CPI
2018 saw several Court decisions about whether the wording of the relevant scheme rules allowed a switch from RPI to CPI as the index by reference to which pension increases are calculated. In each case, the Courts have thwarted attempts by employers to switch from RPI to CPI. Read more here, here and here.
A new “deferred debt arrangement” for managing employer debts was introduced from 6 April 2018. Read more here. Also relating to employer debts, the High Court confirmed in G4S plc v G4S Trustees Ltd that employers of closed schemes where the members retain a final salary link will not trigger an employer debt when they cease to employ those members. Read more here.
Disclosure of costs, charges and investments
New disclosure obligations for defined contribution (DC) schemes came into force on 6 April 2018, including a requirement to publish some of the information from the chair’s statement on a publicly available website. Read more here.
The Employment Appeal Tribunal handed down its judgment in two age discrimination cases. These highlighted the need for employers and trustees considering benefit changes to consider carefully before putting in place transitional protections which exempt particular groups of members from the changes. Read more here. At the end of 2018, the Court of Appeal handed down its judgment in these two cases, concluding that there was discrimination in both cases.
The High Court handed down its judgment in a case (Wedgwood Pension Plan Trustee Limited v Salt) which serves as a useful reminder to trustees and employers of the need to carefully examine the amendment power when amending scheme rules. Read more here.
The Pensions Ombudsman published revised guidance on redress for non-financial injustice (i.e. distress and inconvenience) caused by maladministration. The guidance sets out fixed amounts for non-financial injustice awards, with the aim of enhancing transparency, creating consistency and managing expectations for all parties. Read more here.
UK Pensions in 2019
More change is expected in 2019, with new powers for the Pensions Regulator, a revised scheme funding code of practice, a new authorisation and supervision regime for DB consolidators, a legislative framework for collective defined contribution (CDC) schemes and the development of a pensions dashboard all on the horizon.
A response to the consultation on strengthening the Regulator's powers is expected in 2019. More broadly, the Regulator has recently trailed a new regulatory approach, with an emphasis on significantly more intervention for all schemes and one-to-one supervision for the largest schemes. One-to-one supervision is expected to be rolled out to more than 60 schemes in 2019.
Regulations to bring into force the cross-border and scheme governance provisions of the EU pensions directive (known as IORP II) will come into force on 13 January 2019. Schemes will need to comply with the new duty to establish an effective system of governance. They will also need to carry out and document an own risk assessment. Read more here.
The new authorisation and supervision regime for DC master trusts came into force on 1 October 2018. Existing master trusts have until 31 March 2019 to apply to the Regulator for authorisation, or to wind up and exit the market. Read more here.
Minimum contributions for auto-enrolment purposes must be increased from a total of 5% of qualifying earnings to a total of 8% of qualifying earnings (with the employer contribution increasing from a minimum of 2% of qualifying earnings to a minimum of 3% of qualifying earnings) from 6 April 2019. Read more here.
A consultation on a new scheme funding code of practice is expected in 2019. This is likely to focus on how prudence is demonstrated when assessing scheme liabilities, what factors are appropriate when considering recovery plans and ensuring a long-term view is considered when setting the statutory funding objective.
Subject to Parliamentary time allowing, we are expecting a Pensions Bill in 2019. This is likely to cover a host of significant developments, including the Regulator’s new powers, scheme funding, DB consolidation, CDC schemes and the pensions dashboard.
Investment consultancy and fiduciary management
Following an investigation into the investment consultancy and fiduciary management markets, the Competition and Markets Authority published its final report in December 2018. The CMA found that there is an adverse effect on competition in the investment consultancy and fiduciary management markets from which substantial customer detriment may be expected to result. It has therefore proposed a package of remedies to address these issues, which are expected to be implemented in 2019. Read more here.
From 1 October 2019, trustees will be required to consider the impact on their investments of environment, social and governance (ESG) factors, explain the extent to which they take account of members’ views and set out their policies on stewardship. In addition, trustees of DC schemes will be subject to new reporting and disclosure obligations. Read more here.
The circumstances in which DC benefits can be transferred without members’ consent were simplified from 6 April 2018. The current process (involving actuarial certification and the scheme relationship test) will no longer be available for transfers between DC schemes without guarantees after 1 October 2019. Read more here.