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Pensions Insight: 18 to 25 June 2024

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This insight covers the pensions aspects of the Green Party’s and Reform UK’s manifestos, a case on how TPR should impose a penalty notice for failure to prepare a DC chair’s statement, TPO’s latest blog on its operational changes and a TPO determination on the application of unreduced early retirement rules following a TUPE transfer.

Green Party and Reform UK manifestos published

The Green Party’s manifesto references the following pensions policies.

Climate change

Unsurprisingly, there are several climate change/ ESG policies that are relevant to pensions including:

  • Make railways, water utilities and Big 5 retail energy companies publicly owned.
  • Those with banking licence required to have investment strategy with clear pathway to divesting from fossil fuels by 2030.
  • Non-bank financial institutions including pension funds, investment funds to remove fossil fuel assets by 2030.
  • The Financial Conduct Authority to have an objective to remove all equities regarding fossil fuel exploitation from UK stock market. 

Uprating pensions

Uprate pensions (not specified but presumably a reference to the state pension) in line with inflation and make sure they ‘keep pace’ with wage growth.

Pension tax

The Green Party would “equate the rate of pension tax relief with the basic rate of income tax to help fund the social care that will allow elderly and disabled people on low incomes to live in dignity.”

The Reform UK Party’s Our Contract with You manifesto references the following pensions-related policies.

A pension review

Because the existing pension system is “riddled with complexity, huge cost and poor returns leading to less uptake. Countries like Australia do savings and pensions much better and cheaper than we do and from a much younger age.”

Increase UK pension scheme infrastructure investment

There are plans to increase UK pension scheme infrastructure investment – these include utilities being brought into 50% public ownership and 50% owned by UK pension funds.

Climate change (net zero)

Reform UK would ‘scrap energy levies and Net Zero’ because they are ‘crippling our economy’.

First-tier Tribunal clarifies how TPR should approach mandatory penalty notices for failing to prepare DC chair’s statement

Background

In a decision to dismiss an appeal by a trustee of a defined contribution (DC) pension scheme against a penalty notice imposed for failing to prepare an annual chair’s statement, the First-tier Tribunal has clarified how the Pensions Regulator’s (TPR) powers operate under the mandatory penalty notice regime.

Trustees of DC pension schemes are statutorily required to produce an annual chair’s statement within seven months of the end of each scheme year. TPR ‘must’ issue a penalty notice (between £500 to £2,000) for failing to prepare a statement. TPR may review the notice if asked to do so by the trustees or if it believes it is appropriate to do so. When reviewing, TPR can confirm, vary or revoke the notice or replace it with a different notice. Up to December 2023, 965 mandatory penalty notices have been issued for failure to complete a chair’s statement.

TPR’s arguments – it had to impose a penalty which it could then review and revoke in three limited cases

TPR argued that the word ‘must’ in the Occupational Pension Schemes (Charges and Governance) Regulations 2015 should have its clear and natural meaning leaving no discretion and no room for it to consider the reason for a breach, no matter how ‘compelling’. However, it did have limited scope to review and revoke a penalty notice in three circumstances: (1) where, after making enquiries, it could be ascertained that no breach had occurred; (2) due to TPR’s action, keeping the penalty would be unfair; and (3) there were “some other specific, extenuating circumstance” that would “make it manifestly unfair to maintain the penalty”.

Judge’s decision – TPR can decide not to impose a penalty notice rather than having to wait until the review stage

Using the example of a trustee who could not complete a chair’s statement because they had been bound and gagged for seven months, the Judge found that it could not have been Parliament’s intention that, in an exceptional case, TPR would be forced to impose a penalty notice which it would then have to review and revoke straightaway.

“The bewildered onlooker could only wonder how it could possibly have been right to impose the PN in the first place. I do not accept that Parliament can have intended the Tribunal to sanction such Janus-like antics.”

Although in this case there were no grounds for revocation of the penalty notice, the Tribunal’s decision confirms that, where there are ‘wholly exceptional circumstances’ for failure to produce a statement, TPR may decide not to impose a penalty notice rather than imposing one and then immediately revoking it.

Caution against policy of increasing penalty by reference to member numbers

The Judge also issued a notice of caution against TPR’s policy of increasing the amount of the penalty notice by 10p per scheme member noting that this approach was open to challenge for various reasons including general principle and the specifics of the case.

TPR’s approach to encouraging compliance criticised

The Judge concluded by expressing sympathy for the trustee who felt that TPR had not drawn sufficient attention to the chair’s statement requirements noting that he could see no reason why TPR appeared to have deliberately not drawn attention to the chair’s statement statutory duties especially compared to its approach to other matters such as auto-enrolment.

TPO round-up

TPO blog on new requirement that complainants go through IDRP before being able to use early resolution service

In the first of a series of blogs regarding the changes that will be made to the Pensions Ombudsman’s (TPO) operations (see here), Dominic Harris discusses the decision to require future complainants to have been through a scheme’s internal dispute resolution procedure (IDRP) before being able to use TPO’s service. This is not currently a requirement for use of TPO’s informal dispute resolution function, although it is for the formal complaint handling service. TPO hopes that requiring complainants to have exhausted the IDRP before using TPO’s informal services will help reduce the current delays.

TPO notes that volunteer advisers will still be available to provide impartial support to individuals before and during the IDRP, but this support will concentrate on vulnerable individuals and cases such as time-critical ones.

The change is currently being piloted and will be fully implemented by this autumn.

TPO determination that unreduced early retirement benefits payable at the employer’s request do not include leaving employment because of a TUPE transfer

TPO has determined that a requirement in scheme rules to leave “…actual employment with the Employers at the request of his Employer…” to be entitled to unreduced early retirement benefits does not include leaving employment because of a TUPE transfer – this could not be regarded as having left employment because of the employer’s request.

TPO took assistance from the Court of Appeal’s decision in AGCO Limited v Massey Ferguson Works Pension Trust Limited & Ors [2003] on the meaning of an employer’s request and the distinction made in that case between voluntary redundancy which is a ‘matter of choice’ and compulsory redundancy which involves more than a request (enforcement) (with both involving dismissal of the employee). He decided that a TUPE transfer could not be regarded as voluntary because, although the member could ‘object’ to it, their employment would still end on the transfer date by operation of law.

Furthermore, TPO found that the complainant member did not have a separate right to unreduced early retirement under documents that the transferor employer had produced in relation to changes that were being made to defined benefit accrual. This was because the enhancements provided by the transferor to early retirement benefits on redundancy were connected to a requirement to have left employment with the transferor rather than because of redundancy from the new employer after the TUPE transfer.

TPO did note that the member might potentially have been able to take unreduced early retirement benefits following the TUPE transfer if they had opted to become a different category of member following the accrual changes because these members were provided with such rights if they left employment at the transferor’s request “and for reasons beyond your control”. However, there was no formal finding on this point because it was not directly relevant to the member.

(The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees’ rights following a relevant transfer of an undertaking or business with an exception for pensions aside from minimum pension provision that must be made by the transferee under the Pensions Act 2004 and a carve-out for scheme benefits that do not relate to old age, invalidity or survivors meaning that certain rights relating to enhanced early retirement may transfer.)

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