This insight covers a recent Supreme Court decision on rectification, the appointment of Camilla Barry as the new Deputy Pensions Ombudsman, TPR’s publication of the final Fast Track submission tests and conditions under the revised DB funding regime and its new CDC scheme compliance and enforcement policy.
Supreme Court rectification judgment and statutory tribunals power to apply equitable rectification
The Supreme Court has issued a significant judgment on rectification which although primarily on employment matters, has potential relevance for the Pensions Ombudsman (TPO). (National Union of Rail, Maritime and Transport Workers v Tyne and Wear Passenger Transport Executive T/A Nexus [2024]).
Rectification of legally unenforceable document: The Supreme Court determined that a collective bargaining agreement (the letter agreement) between an employer and a recognised trade union which was incorporated into employees’ legally enforceable contracts of employment was able to be rectified despite not being legally enforceable itself.
Rectification of a legally unenforceable document is not usually granted because rectification alters ‘legal rights’, and rectifying a document that is legally unenforceable is ‘futile’ if it would not change any legal rights (equity will not act in vain). Although the letter agreement was not legally enforceable, it did establish legal rights because it was incorporated into employment contracts and the Court noted that there was “no legal dogma which prevents a court from making an order for rectification which will have that legal effect, if the ordinary requirements for granting the remedy are satisfied”.
Statutory tribunals including TPO and rectification: Although the case is an employment one, it does have potential implications for pensions. This is because the Supreme Court clarified that, although Employment Tribunals cannot order rectification being ‘creatures of statute’ with statutory limitations, they can treat a document as having been rectified based on the equitable principle applicable to civil courts and equally applicable to Employment Tribunals that “equity can treat as done that which ought to have been done”. In applying this principle, they can treat a document as rectified to correctly reflect the parties’ intention without having to make a formal rectification order. As well as impacting Employment Tribunals, this decision could have implications for other statutory tribunals, including the Pensions Ombudsman which is a statutory tribunal of the Department for Work and Pensions.
Camilla Barry appointed as new Deputy Pensions Ombudsman (DPO)
Camilla Barry has been appointed as the new DPO (and Deputy Pension Protection Fund Ombudsman) as from 9 December 2024 for a four-year period. Camilla comes directly from TPO having worked in the TPO legal team ‘for the last year’. The appointment means that Anthony Arter will step down as the current DPO – the former PO stayed on as the interim DPO after his TPO term ended.
The Pensions Regulator (TPR) round-up
Revised funding and investment regime: final Fast Track submission tests and conditions
On 20 November 2024, TPR published the final Fast Track submission tests and conditions (see here and here for details of the new funding regime and TPR’s Fast Track consultation and response).
TPR notes that:
“Fast Track is not risk free. Fast Track is a regulatory tool which represents our view of tolerated risk where we are unlikely to engage with a scheme in respect of their valuation. It does not represent minimum compliance. In some instances, the Fast Track parameters are set above the minimum level of compliance, whilst in other instances, adopting Fast Track may not be the appropriate route.
Trustees should think carefully about whether Fast Track is right for their scheme and, in order to meet legislative compliance, whether a more prudent funding and investment approach is appropriate, particularly where there is very limited employer covenant support.”
Under Fast Track:
Discount rate and inflation assumptions must use a yield curve approach (with an exception for smaller schemes).
Technical provisions must be at a minimum level based on a percentage of scheme liabilities calculated on the low dependency funding basis.
Prescribed funding and investment stress test: Fast Track schemes must be able to meet a set funding and investment stress test – the funding level must not decrease by more than a set percentage when the test is applied.
Recovery plans must be no longer than six years before the relevant date and three years afterwards.
Increases to deficit repair contributions must not exceed set amounts.
No future outperformance in recovery plan and schedule of contributions is permitted.
Low dependency funding basis must follow the principles in the funding code of practice and certain assumptions must be at least as strong as those specified for Fast Track. It must be “calculated using the ‘risk-free plus’ approach, using the gilt yield curve for the risk-free element, extrapolated appropriately”. A summary of the code principles and minimum Fast Track low dependency requirements is provided in the tests and conditions document.
Submission/ confirmation by scheme actuary: The scheme actuary will have to confirm that the Fast Track parameters are satisfied when submitting a valuation under this approach. This is not confirmation that Fast Track is appropriate or that the legislative requirements and code principles are satisfied.
Action: Defined Benefit (DB) schemes should continue with their preparations for their first valuation under the new regime. This will include deciding whether it would be appropriate to submit the valuation under the Fast Track or bespoke regulatory approach. Sufficient preparation time will need to be built into the valuation process to account for lead-in time, to allow for employer liaison and negotiation, and to prepare the new documentation.
TPR’s supervision and enforcement policy for CDC schemes
TPR has also published its collective defined contribution (CDC) schemes supervision and enforcement policy setting out how it will supervise CDC schemes under five key principles and its expectations for those operating such schemes. Supervision includes annual evaluations, monitoring, review of data submissions, liaison and review of event notifications. As well as other enforcement powers, TPR also has use of specific CDC ones – pause orders and risk notices.
The Government is currently consulting on extending the whole-life CDC scheme regime to unconnected multi-employer schemes and intends to legislate for the new framework as soon as it can. TPR will produce an updated CDC code of practice in conjunction with the expanded regime.
PDP updated draft standards and code of connection
On 20 November 2024, the Pensions Dashboards Programme issued updated reporting standards. These contain the obligations on generating, recording and reporting operational information. It has also made small changes to the data standards which cover data interoperability and the code of connection.