In this insight we provide an update on the Retained EU Law (Revocation and Reform) Bill, the Pensions Regulator’s blog on ESG directed towards trustees and the latest from the FCA on the British Steel Pension Scheme redress scheme.
Retained EU Law (Revocation and Reform) Bill – progress update
In our last Insight we provided an update on the Retained EU Law (Revocation and Reform) Bill. Since then the House of Lords has been busy considering the Bill. During the report stage it has agreed some significant amendments relating to both the Government’s proposed changes and others it believes should be included. Of note for our readers are the following:
- Clause 1 sunset provision: the Lords agreed the Government’s proposed change to the way certain retained EU law will be revoked at the end of 2023. Instead of automatically revoking all law within scope, this provision will revoke just the legislation that is contained in a schedule.
The Government has explained that a lot of the law being removed is “defunct and unnecessary now we have left the EU”. There does not appear to be any pensions legislation on this list as it currently stands. However, this might not be the final position as the Government is still reviewing remaining retained EU law and further legislation may be added before the schedule is finalised.
The Lords have added a parliamentary oversight provision which provides that the approval of both Houses of Parliament is needed where Parliament’s sifting committee believes that the revocation of a particular piece of legislation would substantially change UK law.
- Clause 4 sunset provision: the Government wishes for retained EU law derived from directly effective EU treaties and EU directives (which mean that a private party can rely on the EU provision directly in a UK court and the court must enforce the directly effective right or obligation) to be automatically repealed under another sunset provision at the end of 2023. The Lords have added in an amendment that will require the Government to provide details of the laws within scope by the end of October 2023 and give Parliament the power to decide whether it should be revoked. Without this oversight “There could be a great deal of law hidden behind the clause which we cannot understand or see.”
- Clause 8 role of courts: this clause in the Bill amends the way in which courts must interpret and apply retained case law and the test that should be applied when deciding whether to depart from it. It includes a reference procedure under which a lower court which must apply retained EU case law can refer a point of law to a higher court. To protect against ‘abuse’, the Lords wish to give applicable courts the discretion to decide not to accept a reference and have included a relevant amendment to this effect.
The third reading of the Bill was scheduled for 22 May 2023. We will include an update on this in our next Insight.
Employment law consultation
Separately, the Government has confirmed in its 12 May 2023 consultation that having reviewed retained EU employment law, it intends to retain EU-derived employment law rights (which are also relevant in certain respects to pensions) in “areas where we are not either consulting on reforms or revoking legislation that is now irrelevant”. This will include the retention of employment law relating to working time (providing, amongst other things, a maximum average working week of 48 hours for applicable workers) maternity, parental, paternity and adoption leave, annual leave, part-time and fixed-term worker rights, and employment protection in a transfer of undertakings (TUPE).
It also wishes to introduce ‘improvements’ to the regulations relating to working time in respect of record keeping, annual leave and holiday pay and the consultation requirements on TUPE. The consultation closes on 7 July 2023.
TPR blog on why ignoring ESG is no longer an option for trustees
The Pensions Regulator’s (TPR) latest blog provides more detail on the environmental, social and governance (ESG) campaign that the Regulator recently announced it would be carrying out.
It explains that the campaign will take place in two phases:
- checking that trustees who are required to have a statement of investment principles (SIP) and implementation statement (IS) have published them; and
- in autumn 2023, reviewing a sample of these documents to check on quality, and sharing the results with the industry.
In particular, as part of the review, the Regulator will check the SIPs and the ISs against DWP guidance (see our Insight). The SIP part of the guidance is non-statutory so is intended to encourage good practice but is not obligatory, whilst the IS guidance is largely statutory which means that trustees must have regard to these parts in respect of ISs for scheme years ending on or after 1 October 2022. The non-statutory parts of the guidance were effective from 17 June 2022.
The Regulator is concerned that some schemes use vague, generic disclosures and boilerplate wording – this must improve. It also wants to see trustees “improve their understanding of climate, ESG and wider sustainability issues”. They can “no longer ignore the elephant in the room”.
Action: Trustees that are required to produce a SIP and IS should check that these contain all necessary ESG and stewardship matters, they have been published in accordance with relevant requirements and that they understand how ESG matters affect their scheme and its investments. They should also be satisfied that, where applicable, they have had regard to the statutory parts of the DWP guidance as regards the IS and that they liaise with their investment advisers as necessary (if they have not done so already) in relation to the impact of the non-statutory parts of the guidance on the SIP and IS and what action might be required.
Auto-enrolment: DWP’s triennial review of the alternative quality requirements
The Department for Work and Pensions (DWP) is consulting on its statutory triennial review on the alternative quality requirements that defined benefit (DB) and hybrid pension schemes use for automatic enrolment. These requirements allow a scheme to show that it meets relevant automatic enrolment requirements through satisfaction of alternative quality tests which are designed to be simpler than the test scheme standards that would otherwise apply and which were found to be ‘unnecessarily complex’.
The call for evidence looks at whether the Government’s policy intentions are being achieved, how the simplifications and flexibilities work, and whether there have been any issues since the 2020 triennial review. The consultation closes on 19 June 2023.
TPR updates the work and pensions committee on campaign to counter pension scams
On 17 May 2023, correspondence from the Pensions Regulator relating to pension scams was published by the Work and Pensions Committee of the House of Commons. The letter dated 9 May 2023, from Nicola Parish, the Regulator’s Executive Director of Frontline Regulation, addressed the Regulator’s commitment to update the committee on the progress of their pledge to combat pension scams campaign that was launched in November 2020.
The campaign involves a two-step process in which pension schemes are encouraged to take action to protect members and adhere to the Pension Scams Industry Group (PSIG) code of good practice. Subsequently, schemes are prompted to self-certify their adherence to the pledge principles. The Regulator reported that over 600 schemes, including nearly 60% of Pension Scams Industry Forum (PSIF) members and master trusts, have taken the pledge since 2020/21. Additionally, 324 schemes have already completed the self-certification process. The Regulator intends to continue encouraging more schemes to follow suit.
The Regulator’s letter also refers to its contribution to the Department for Work and Pensions (DWP) review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (SI 2021/1237), which imposed additional transfer restrictions. It also expresses its commitment to collaborating with the DWP and the industry to prevent pension scams without unreasonably limiting legitimate transfers. As the legislation progresses, the Regulator will monitor and update the guidance and educational materials it has published.
You can read more about the Pensions Regulator’s pledge initiative to combat pension scams from our original insight in November 2020 here or the PSIG interim practitioner guidance in our insight from March 2023 here.
FCA sets out concerns relating to third-party actuarial providers in advance of BSPS redress scheme
The Financial Conduct Authority (FCA) has set out its concerns surrounding the use of third-party actuarial providers for redress calculations ahead of the British Steel Pension Scheme (BSPS) redress scheme in a ‘Dear CEO’ letter dated 19 May 2023.
The letter noted that there has been no actuarial oversight of the input into using third-party actuarial provider portals and this appeared to have been “a contributing factor to the misleading redress offers made by financial advisory firms to former BSPS members before the redress scheme started”. It highlighted how many firms that it had concerns over were associated with the British Steel Adviser Group which made a legal challenge against the FCA’s decision to launch the redress scheme for BSPS members which has since been withdrawn.
The letter discussed some other key concerns held by the FCA on this, which include firms:
- not using the first day of the quarter to value benefits for assumptions and instead using variable valuation dates which could benefit the financial advisory firm making the redress;
- using the revised methodology set out in PS22/13 for offers, despite that methodology not being in force at the relevant time; and
- making technical errors, wilfully or otherwise, that the FCA would not expect persons competent in the calculation of redress to make.
The letter stated that use of incorrect methodologies has caused confusion for consumers and undermines public confidence. It also makes clear its expectation for calculations to be reviewed where a firm has used the online portal of a third party where there has been no actuarial insight or where a firm has used variable valuation dates instead of the first day of the quarter.
ClientEarth refused permission for derivative claim
As we reported in our insight from February, ClientEarth has been attempting to make a derivative claim as a shareholder against Shell’s directors under section 261(1) of the Companies Act 2006 (CA 2006) for alleged breaches of their duties. It was claimed that the directors had failed to align the company with carbon emissions targets set by the Paris Agreement and as ordered to by the Dutch Hague Court. In doing so, the directors were alleged to have breached the duty to promote the success of the company (section 172 CA 2006) and the duty to exercise reasonable care, skill and diligence (section 174 CA 2006).
The High Court has now concluded that ClientEarth failed to make out a prima facie case to enable the grant of permission to continue the derivative action. In this context, a prima facie case means one that is more than ‘seriously arguable’, and it was not found that this high bar had been met by ClientEarth in relation to the substantive allegations of breach of duty.
Section 263(2)(a) CA 2006 also imposes a further requirement, being that a derivative claim must be refused if a person acting in accordance with the duty to promote the success of the company would not continue the claim. The court found that this test was met and that it was bound to refuse the application in any event.
ClientEarth has therefore been prevented from pursuing its derivative claim at this stage but does have the option to request an oral hearing to reconsider the High Court’s decision. It is unknown at the time of writing whether ClientEarth will continue with its action.
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