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Pensions: what’s new this week - 29 June 2020

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29 June 2020

Each week the Allen & Overy Pensions team rounds up the latest legal and regulatory developments in the world of occupational pensions. Contact us if you would like to receive our podcast summary, or our full briefing by email, at the start of each week. Listen to our latest podcast or read the full version of 'What's new this week' below to find out more information on the stories that matter to you.

Corporate Insolvency and Governance Act

The Corporate Insolvency and Governance Act received Royal Assent on 25 June and several key changes designed to assist struggling corporates came into effect the following day. 

A number of late-stage amendments were made in the House of Lords in the final few days of the Bill’s passage. These include changes to deal with concerns about the impact that some of the new measures could have on any associated defined benefit pension schemes. To read more about the key implications of the Act for pension schemes, click here. You can also read more about changes made by the Act in this detailed Q&A briefing by our Restructuring colleagues.

You can find out more about how the new processes are likely to affect pension schemes in practice in our 6 July webinar ‘Tough times for corporate sponsors: how does the pension scheme fit in?’ – see below for full details and information on how to register.

Pension Schemes Bill update

The Pension Schemes Bill will move to Report stage in the House of Lords on 30 June. A number of proposed amendments to the Bill have been tabled, including powers to impose new trustee governance and disclosure duties in relation to climate change risk. To read more about these proposals, click here. Other amendments propose the introduction of a requirement for members to have received information or guidance before transferring their pension rights.

You can find out more about the Bill and its implications for schemes and sponsors in our 8 July webinar ‘Pension Schemes Bill: hazard warning?’ (see below for full details).

Cash defaults: caution required when gating ends

Where self-select funds have been suspended (or ʽgatedʼ) due to the effects of the pandemic and contributions are redirected into an alternative fund (commonly a cash fund), this is likely to mean that the alternative fund is now categorised as a default arrangement and is subject to additional legal and governance requirements – for more on this see TPR’s Covid-19 DC investment guidance. 

Trustees should also be cautious about actions once the suspension of the original fund ends. Default status affects all contributions made to a fund while it is a default arrangement; and in many cases it may not be possible to redirect contributions for relevant members back to the original (previously gated) fund without their consent. TPR has confirmed to us this week that it considers that an automatic redirection of funds may trigger default status for the receiving fund (even though that fund was previously expressly chosen by the member). This may depend to some extent on the content of member communications; please contact your usual A&O adviser for further advice.

Call for evidence: charge cap, cost disclosure

The government has published a call for evidence seeking views and evidence on:

  • the level and scope of the charge cap for default funds in auto-enrolment schemes – the government is considering whether to bring charges associated with non-optional life assurance products into the scope of the cap, and potentially including transaction costs within the cap. It is also considering whether to lower the cap from 0.75%;
  • whether to restrict or impose conditions on flat fee charging structures; and
  • options to assess take-up, and widen the use, of standardised cost disclosure templates (including whether to require trustees to report, via the scheme return, on their use of the templates produced by the Cost Transparency Initiative).

The call for evidence closes on 20 August 2020.

RPI/CPI: rectification of increase rules: Univar 

The High Court has ordered rectification of increase rules for pensions in payment and in deferment, where a consolidation exercise had mistakenly changed the position from statutory minimum indexation to hardwired capped RPI increases: Univar UK Ltd v Smith. 

Mr Justice Trower was satisfied that neither the company nor the trustees actually intended the new pension increase rules to have the legal effect that they did – the collective intent was to produce a new deed and rules that consolidated the scheme’s governing documentation, making only specific changes. The judge dismissed a number of arguments by the representative beneficiary that rectification should not be granted (based on acts done in connection with the subsequent closure of the scheme to future accrual, and also in relation to announcements made to certain members on joining the scheme). The decision also contains commentary on establishing the collective intent of a body of trustees. You can read more about rectification claims at www.allenovery.com/rectification.

PPF compensation cap: Hughes v PPF  

The High Court has ruled that the PPF compensation cap is discriminatory on the grounds of age contrary to EU law, and that the relevant provisions in the Pensions Act 2004 must be disapplied: Hughes v Board of the PPF. Mr Justice Lewis also ruled on the following points:

  • The Insolvency Directive does not require the PPF to assess whether the compensation payable in each pension year is equivalent to 50% of the pension benefits that would have been payable under the relevant scheme in that year – the PPF is entitled to adopt a scheme that ensures that the overall compensation payable during retirement (or the lifetime of a survivor) will equal 50%. The mechanism for achieving this is a matter for the PPF.
  • Claims against the PPF for arrears of compensation (due to the application of the compensation cap) are subject to a six-year statutory limitation period.
  • During the PPF assessment period, pension scheme trustees must ensure that benefits paid under the pension scheme do not exceed the compensation that would be payable by the PPF (plus any sums the PPF must pay by reason of the Insolvency Directive).

The PPF has issued a press release following the decision stating that it is considering the implications of the decision, and will continue to pay benefits at current levels in the meantime.

TPR: the importance of administration

The Pensions Regulator’s latest blog post looks at how the pandemic has illustrated the importance of good administration. The blog post also discusses the importance of business continuity planning, and asks trustees to continue to be pragmatic and supportive of administrators in the current circumstances. 

Latest HMRC newsletter

HMRC’s latest newsletter (no. 121) contains an update on the extension of temporary changes to processes as a result of Covid-19, plus additional guidance on using electronic signatures for relief at source repayment claims and declarations.

The newsletter also contains an update on delays relating to Accounting for Tax returns, and a reminder to update correspondence addresses. There is also a reminder for administrators to update systems and processes in the light of upcoming changes to Real Time Information processes.

Auto-enrolment: offshore workers

Two new statutory instruments (here and here) preserve auto-enrolment treatment for offshore workers and persons working on vessels. The instruments are needed to remove ‘sunset clauses’ in the existing legislation, and will enter into force on 30 June.

Pensions Academy Online: week commencing 6 July

Our next Pensions Academy sessions will take place online at 8.30 - 9.30am on the following dates:

  • 6 July – Tough times for corporate sponsors: how does the pension scheme fit in?

The new Corporate Insolvency and Governance Act provides new flexibilities for stressed corporates – what are the implications for pension schemes, and what other issues should sponsors and trustees watch out for when the going gets tough?

  • 8 July – Pension Schemes Bill: hazard warning?

The Pension Schemes Bill contains significant changes to moral hazard rules (including the introduction of new criminal offences) and defined benefit scheme funding. We look at the implications for schemes, the people that run them and the sponsors that support them.

  • 10 July – Legal update

Some legal and regulatory developments have gone on hold during the global health crisis, but for others the clock is still ticking. From SIP updates and implementation statements to wider governance issues, what needs to be on your agenda?

Please click here to sign up for any of the sessions.