Pensions: what’s new this week 14 March 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: CDC schemes: final regulations; Increased Fraud Compensation Levy ceiling; Latest GMP revaluation order; High Court: fraud victims can enforce rights against pension scheme; Tribunal: financial difficulties no excuse for contribution failures.
- CDC schemes: final regulations
- Increased Fraud Compensation Levy ceiling
- Latest GMP revaluation order
- High Court: fraud victims can enforce rights against pension scheme
- Tribunal: financial difficulties no excuse for contribution failures
Regulations setting out the framework for collective DC schemes (CDC schemes, also labelled CMP or collective money purchase schemes) have been made and will come into force on 1 August 2022. The regulations cover the requirements for authorisation of a CDC scheme; details of the supervisory framework; how benefits will be calculated and adjusted; and what the trustees of these schemes will need to do if something goes wrong with the scheme, including when a scheme might need to be wound up.
For the moment, CDC schemes will only be an option for single or connected employers, although discussions are ongoing about extending the framework to include unconnected multi-employer schemes. The Pensions Regulator (TPR) is consulting on its code of practice for the authorisation and supervision of CDC schemes. The consultation closes on 22 March 2022.
Regulations have been made increasing the Fraud Compensation Levy (FCL) ceiling to GBP0.65 per member for authorised master trusts and to GBP1.80 per member in the case of other occupational pension schemes. The regulations will come into force on 1 April 2022.
The FCL is used to finance the Fraud Compensation Fund (FCF), which pays compensation in respect of occupational pension schemes where certain conditions are met (including that the PPF considers that there are reasonable grounds for believing that scheme assets have been reduced due to an offence involving dishonesty, plus conditions relating to the financial status of the employer and the issue of a scheme failure notice). The FCL ceiling is being raised following an increase in claims after PPF v Dalriada Trustees Ltd clarified that compensation would be provided, in certain circumstances, for losses due to pension liberation scams.
Guaranteed minimum pension (GMP) rights that are not yet in payment must be revalued in line with statutory requirements. The latest section 148 order sets out revaluation rates for the tax years 1978/79 to 2021/22 to be applied to a deferred member’s earnings factors for each year in which the member accrued GMP rights. This order will also be relevant to schemes using fixed rate revaluation, as section 148 orders govern revaluation for periods before fixed rate revaluation is triggered.
The High Court has granted orders to allow victims to use the rights in a registered money purchase occupational pension scheme to satisfy a judgment against a defendant who had defrauded them: Bacci v Green. The claimants had previously tried to enforce their rights by obtaining a charging order over the pension scheme assets, but this had been rejected because of the protections over charging pension interests under s.91 of the Pensions Act 1995. In the new case, the Court approved what is essentially a workaround to those protections. It ordered that the defendant’s power to revoke his enhanced protection (which allows a higher amount of pension to be saved tax efficiently over a person’s lifetime) and rights to take a lump sum and pension would be delegated, to allow pension benefits to be transferred to an account which could then be accessed in order to pay the claimants’ judgment debts.
The First Tier Tribunal has upheld an escalating penalty notice issued by TPR following an employer’s failure to comply with contribution requirements under the auto-enrolment regime. The employer argued that it had been forced to close due to government lockdowns and had been in financial difficulty, so could not afford to pay pension contributions. The Tribunal found there was no reasonable excuse for non-compliance, noting that ‘an employer is not permitted to miss or delay making compulsory pension contributions in order to prioritise other aspects of its business, even during difficult times. This may mean employers have to make difficult decisions about whether they can afford to retain all of their employees. Nevertheless, pension contributions are not an optional duty that can be ignored during times of financial difficulty’.
The Tribunal also noted that ‘compliance means both making the missing contributions and providing satisfactory evidence to the Regulator to show that it has done so. Late compliance does not prevent penalties from being enforced’.