In this Insight we cover the Pensions Regulator’s thoughts on investing and consolidation and its regulatory intervention report on the Norton Motorcycles case, together with a report on a PPF blog on consolidation and the Online Safety Act 2023.
Pensions Ombudsman v CMG Pension Trustees Limited
On 1 November 2023, the Court of Appeal handed down its judgment in the appeal hearing regarding whether the Pensions Ombudsman (PO) is a ‘competent’ court for the purposes of section 91(6), Pensions Act 1995 (the 1995 Act) in the context of recovering overpayments.
Trustees are permitted to recoup mistaken overpayments from a member or beneficiary provided they comply with section 91(6) which requires that an enforceable court order is obtained in the event of a dispute over the amount.
The Court of Appeal has confirmed that the PO does not have the power to authorise trustees to make deductions to member’s pensions to recover past pension overpayment. Therefore, a PO determination does not constitute an order of the court for the purposes of section 91(6) where a member disputes the amount to be paid back to the scheme by way of equitable recoupment.
In practice, this means that going forward, trustees will have to follow a different procedure where a member disputes the amount to be paid back to the scheme by way of equitable recoupment. Following a PO determination on the amount of overpayment, before the Trustee can deduct any amount from the member’s future pension, they must first make an application to the County Court to get an order permitting deduction.
The Court of Appeal has confirmed that this is purely an administrative task given that absent a successful appeal, PO decisions are final and binding. Therefore, there would be no requirement to commence an action in the County Court or for that court to consider the merits of the matter.
If the member does not dispute the amount of overpayment, an order of the County Court will not be needed. This is likely to be the position in the majority of cases.
Pensions Regulator round-up
Speech on delivering investment returns for pension savers
The Pensions Regulator’s (TPR) Chief Executive, Nausicaa Delfas, recently gave a speech to the Mansion House Pensions Summit, in which she set out the Regulator’s current thinking on pension scheme investment and value for savers and how this fits in with the Regulator’s aspiration to see “fewer, larger well-run schemes that are capable of investing in a diverse range of assets”. In short, the Regulator expects schemes to adopt “sophisticated investment governance practices” and to consolidate where necessary.
The speech covers three specific areas.
- Value for money (DC): The Regulator believes that the pension industry is presently choosing schemes primarily based on cost. This does not represent the whole picture on value and a more holistic consideration of all the elements of value for money is required – having standardised and comparable data disclosures in all areas of value for money will help (see our Insight).
- Diversification: The Regulator recognises that decisions on investments are for trustees to make acting in the interests of members – it will not mandate how trustees should invest. However, it does reiterate that acting in best interests includes trustees properly considering the full range of investment options (regulations require trustees of schemes with 100 or more members to ensure proper diversification and trustees of schemes with fewer than 100 members to have regard to the need for diversification as appropriate). The Regulator supports innovation that is in members’ interests and notes that private market investments can have a role to play in diversification – with this in mind it will be providing new guidance on private markets and will also update its DB (defined benefit) and DC (defined contribution) investment guidance. The new DB funding code will reference there being no restrictions on what comprises suitable assets and that all schemes can invest in growth assets.
- Evolution of regulatory approach: to help drive the shift towards consolidation, the Regulator will move away from pure compliance to an influencing role with greater disclosure requirements on the way for schemes. To assist with monitoring and compliance, the Regulator will shortly be releasing a new digital and data strategy and have added to their investment team.
The Regulator’s key message from the speech is that schemes that are insufficiently equipped from a “scale, expertise or appetite” perspective must consolidate.
Norton Motorcycles case: Regulatory intervention report published
On 27 October 2023, the Regulator published its regulatory intervention report on the regulatory and criminal action that was taken against Mr Stuart Garner, the former pensions trustee of the Norton Motorcycles pension schemes, who invested nearly 100% of the assets of the three DC schemes in preference shares in his motorcycle company in breach of the employer-related investment statutory provisions. Mr Garner received a suspended prison sentence in March 2022 for these breaches (see our Insight). He has also been banned from acting as a pension trustee ever again.
A number of other agencies were involved in the case – the Pensions Ombudsman that issued a payment order against Mr Garner of £15.7m in June 2020, the independent trustees of the schemes that pursued Mr Garner for this payment order, insolvency practitioners that are still looking at recovery for the scheme following the liquidation of the relevant companies and the Fraud Compensation Fund (FCF) that has decided ‘in principle’ on eligibility to assist the claim that is being made for compensation (given Mr Garner is bankrupt and his companies are insolvent, the members’ main recourse for their lost scheme monies will be to the FCF for compensation).
TPR outlines five principles for good decumulation ahead of guidance next year
TPR has announced plans to publish interim guidance on decumulation. TPR chief executive Nausicaa Delfas outlined five principles that could help “shape the conversation” around the future decumulation framework.
The five principles are:
- All savers deserve value for money;
- All savers should be helped with decision making;
- Schemes should put the saver at the heart of decumulation;
- The market must innovate to provide genuine choice for savers; and
- Schemes should provide wrap around and personalised support in the lead up to and during decumulation and in post-retirement.
Delfas also confirmed the TPR are looking to host a series of roundtables early next year to engage the sector on the development of the five principles.
Pension Protection Fund blog on its potential role as a public consolidator
Following its response to the Department for Work and Pensions Options for Defined Benefit schemes: call for evidence (see our Insight), the Pension Protection Fund (PPF) has published a blog ‘Finding the solution for onboarding schemes into a public sector consolidator’.
The blog sets out some further thoughts on why the PPF is well suited to a role as public consolidator including “a track record of making new approaches work” – the success of its present assessment period for insolvent employer schemes could be scaled up and adapted where needs be to account for the differences inherent in a consolidator vehicle, for example, there being a solvent employer.
Success will be dependent on how the vehicle is set up. In particular, there will need to be a “separate and independent legal entity” to the PPF to allow for new systems to be set up for the transfer process where necessary.
The blog concludes by noting that there is still a lot of work to be done before any public consolidator model can be launched and this will require input from others in the industry as well as the PPF.
We may find out more about the Government’s current thinking on this and other key elements of the Chancellor’s Mansion House pension reforms shortly when the Chancellor delivers his autumn statement on 22 November 2023.
Online Safety Bill receives Royal Assent
The Online Safety Bill received Royal Assent on 26 October 2023. Relevant to pensions, is the new legal requirement for the largest and most popular social media platforms and search engines to stop paid-for fraudulent advertisements showing on their services. This should assist in preventing pension scammers who often use the internet to attract interest from members.