Pensions: what's new this week - 12 December 2022
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Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.
This week we cover topics including: TPR/FCA joint strategy update; TPR: annual report on DB and hybrid schemes; High Court: Ombudsman should have considered redeployment in ill health case.
- TPR/FCA joint strategy update
- TPR: annual report on DB and hybrid schemes
- High Court: Ombudsman should have considered redeployment in ill health case
The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) have published an update to their 2018 joint regulatory strategy, setting out how the two bodies work together to regulate the pensions and retirement income sector.
The update includes discussion of recent issues around Liability Driven Investments (LDI). Echoing statements made by both regulators earlier this month, they set out that they will consider longer term implications and wider lessons learnt, aiming to ensure that market participants understand the risks and take action to achieve an appropriate level of resilience in LDI arrangements. From 2023, TPR will request more information from schemes on asset allocations, to better understand exposure to market risks and ensure schemes are well funded and invested appropriately in light of the risks. This was planned before the recent market turbulence, but may now receive more scrutiny.
The following are highlighted as upcoming areas of focus:
- removing undue regulatory barriers to DC pension schemes investing in long-term illiquid assets;
- continuing to develop a consistent framework for assessing value for money across DC schemes;
- assessment of the stewardship regulatory framework next year;
- continuing to work with the PPF and Money and Pension Service to identify DB schemes at risk of transfer activity;
- working with the DWP on supporting savers to make informed decisions, including through the FCA’s new consumer duty and considering how to address concerns by schemes and providers around accidentally straying into giving regulated financial advice; and
- continuing to support the pensions dashboards initiative.
TPR has published its annual statistical report on DB and hybrid schemes. The number of schemes covered by the report has reduced to 5,378, from 5,522 last year, reflecting a general decline in the number of DB schemes. The figures also reflect a general improvement in funding levels since last year.
Only around 9% of private sector DB and hybrid schemes remain fully open in respect of defined benefits; a further 37% are closed to new DB members. These schemes represent 21% and 44% of memberships respectively.
Schemes with more than 5,000 members make up around 7% of the total number of schemes, but account for around 75% of the total of each of assets, liabilities and members. For schemes with fewer than 1,000 members, the comparable percentages are 80% and 10% respectively. These ratios are consistent with last year’s data.
The High Court has overturned a decision by the Pensions Ombudsman (TPO), finding that TPO erred in not considering the possibility that a member suffering ill health would have remained in employment with reasonable adjustments, rather than taking ill health early retirement, if their ill health retirement benefits had not been misstated.
Mr A took ill health retirement after being provided with a benefit quotation, but on retirement was informed that his benefits would be lower than had been quoted, as the earlier figures had been based on an overstated amount of pensionable pay. Mr A complained that he retired in reliance on the figures he had been quoted; if he had been provided with a correct estimate he would have continued working until age 68, though his employer may have needed to find a different job for him under the requirement to make reasonable adjustments.
TPO awarded Mr A £1,000 for distress and inconvenience, but found that his claim for financial loss failed for lack of reliance. TPO referred to the test for the ill health retirement pension that Mr A had been awarded: the member must have ceased employment because they are ‘permanently incapable of efficiently discharging the duties of that employment’. He found that Mr A could not claim to satisfy this test while also saying that he would have carried on in work; by applying for ill health early retirement he acknowledged that he was incapable of continuing. TPO also found that the employer would have been likely to take action to dismiss Mr A on grounds of capability ‘at some point, certainly before he reached 68’; and that reasonable adjustments did not need to be considered, but it was still open to Mr A to apply for another job with his employer.
Mr A appealed TPO’s decision on two grounds, broadly that: (i) TPO had erred in not considering whether Mr A would or could have retired at a later date than he did, if he had been given the correct figures; and (ii) TPO erred in not considering the possibility of Mr A being redeployed to another job with his employer, in line with the duty of an employer to make reasonable adjustments.
The appeal judge found that TPO had a sufficient evidential basis for his conclusion that if Mr A had been presented with a correct figures, he would nevertheless not have remained in his current employment beyond the date that he did in fact retire. However, the appeal on the second ground was successful: TPO had erred in law by rejecting the relevance of redeployment. The appeal judge found that there is a material difference between the possibility of an employee with a disability being offered another role, pursuant to the employer’s duty to make reasonable adjustments, and the possibility of such an employee obtaining another role through a process of competitive applications (as referred to by TPO). The fact that TPO dismissed the relevance of redeployment on the basis that he did, meant that he did not take the necessary steps to investigate and seek further evidence as appropriate in relation to whether Mr A could have been redeployed.
The matter has been remitted to TPO for reconsideration.