Your weekly update from the Allen & Overy Pensions team, bringing you up to speed on the latest legal and regulatory developments in the world of occupational pensions.
Latest revaluation order | Latest HMRC newsletters | Pension liberation: transfer to void trust: Clark | GMP indexation: BT judicial review unsuccessful | Reminder: data protection fee
Latest revaluation order
The latest annual revaluation Order has been published, and will take effect from 1 January 2019. The annual Orders set out the statutory minimum level of revaluation for pension benefits (excluding guaranteed minimum pensions) for individuals who became deferred members of a final salary occupational pension scheme on or after 1 January 1986 (and at least one year before normal pension age). Both the higher revaluation percentage and the lower revaluation percentage have been set at 2.4% for the revaluation period 1 January 2018 to 31 December 2018.
For service up to 6 April 2009, the minimum increase was based on retail prices subject to a 5% cap. For service from 6 April 2009, schemes had the option to provide revaluation based on retail prices subject to a cap of 2.5%. Statutory minimum revaluation is now based on CPI rather than RPI, so the revaluation percentages for the periods in the last nine years shown in the Order are based exclusively on CPI, and the percentages for longer periods are based on RPI for all but the last nine years of the relevant period.
Latest HMRC newsletters
HMRC has published Pension Schemes Newsletter no.105 – the bulletin includes a joint article from HMRC and the Pensions Regulator (TPR) on issues with tax relief on pension contributions. Apparently in some cases tax relief has not been operated properly (under either relief at source or net pay arrangements), resulting in members not receiving the correct tax relief. Schemes where this may apply are requested to get in touch with HMRC to correct the tax position – this will also involve working with TPR to ensure that the scheme’s systems and processes meet the relevant standards. The bulletin also contains further guidance on the information to enter when reporting non-taxable death benefits (long-awaited guidance was published in the previous edition of the newsletter).
HMRC has also published issue 39 of its Countdown bulletin for administrators dealing with reconciliation processes following the end of DB contracting-out. The bulletin contains updates on issues relating to Contributions Equivalent Premiums.
The bulletin also confirms that the deadline for scheme cessation queries will remain as 31 December 2018; and notes that HMRC is currently unable to respond to Scheme Reconciliation Service queries within the agreed turnaround time, but will respond by 31 March 2019.
Pension liberation: transfer to void trust: Clark
The Upper Tribunal has upheld the view that a transfer to a trust that is void for uncertainty is an unauthorised member payment under the Finance Act 2004: Clark v HMRC.
The case was an appeal by Mr C from a 2016 decision of the First-tier Tribunal. Mr C had transferred over GBP2 million to the LML Pension arrangement from a SIPP, ultimately accessing a series of loans. The First-tier Tribunal held that the trusts of the LML Pension arrangement were void for uncertainty so it was not a pension scheme under the Finance Act and therefore the transfer to LML Pension was an unauthorised member payment under section 160 of the Finance Act (to read more, see WNTW, 3 October 2016). Mr C appealed the decision, arguing that the transfer was not a ‘payment’ for the purposes of section 160 because beneficial title to the sums in question had not been transferred.
The Upper Tribunal agreed with HMRC that Mr C’s construction of the definition of unauthorised member payment undermined the purpose of the legislation (to preserve pension funds by discouraging unauthorised transfers-out).
The events in this case occurred a number of years ago, and the issue of a potentially void trust is likely to be relevant only in relatively rare cases. However, the decision is a reminder of the need to apply appropriate due diligence to transfer requests, which may include carefully assessing the status of a receiving arrangement. Further guidance on due diligence checks for transfer requests can be found in the updated industry Code on combating pension scams (WNTW, 25 June 2018).
GMP indexation: BT judicial review unsuccessful
The High Court has dismissed an application for a judicial review brought by BT, in relation to the government’s decision to extend full indexation of GMPs payable to members of public service pension schemes: R (on the application of BT plc) v HMT.
Before the introduction of the new state pension in 2016, the government effectively paid increases in respect of pre-April 1988 GMPs, plus ‘top up’ increases for post-1988 GMPs. However, this treatment changed when DB contracting-out was abolished and the new state pension was introduced, leading to a gap in indexation which is not otherwise covered. In response to concern about ‘missing’ increases, in 2016 the government announced that it would continue to index the GMP benefits of public sector workers reaching state pension age before 6 December 2018, and earlier this year announced that it would continue this ‘interim solution’ for those reaching state pension age on or before 5 April 2021 (the 2018 decision).
BT applied for a judicial review of the 2018 decision (and of a subsequent decision maintaining that decision). The application was unsuccessful: the High Court either refused permission or rejected all of the grounds.
BT’s complaint arose because it would be obliged under the rules of the BT Pension Scheme to mirror the decision for certain members, leading to increased costs (estimated at GBP120 million) which would not be faced by its competitors. Essentially this is because the government implemented its policy on GMP indexation using a direction under section 59A of the Social Security Pensions Act 1975. BT alleged that HMT had refused to adopt, or properly consider, an alternative mechanism which could have avoided or alleviated the impact on BT. However, in a lengthy and detailed judgment, the High Court has refused permission to apply for judicial review on most of the grounds raised; it granted permission to apply on two specific grounds but, on consideration of those grounds, refused the application.
The decision is likely to be of limited relevance to private sector occupational schemes, unless a specific mirroring obligation applies. Whether or not other private sector ‘mirror’ schemes for former public sector employees will be required to provide these increases will depend on the wording of those scheme rules. Private sector occupational schemes may see some queries about GMP indexation following the decision.
Reminder: data protection fee
The Information Commissioner’s Office (ICO) has issued hundreds of notices of intent to fine, and over 100 penalty notices, to organisations that have not paid the new data protection fee. Data controllers that have a current registration or notification under the Data Protection Act 1998 do not have to pay the new fee until that registration has expired. ICO guidance on the fee is available here.
Trustees and sponsors should check which fee banding is applicable and identify when the fee is due – registration expiry dates can be checked here. The ICO will issue written reminders to currentlyregistered data controllers, but it may allocate most pension schemes to the highest band, and it may be necessary to correct this. To read more, see WNTW of 23 April 2018.