In this insight we cover recent key pensions developments including an Ombudsman decision on a trustee’s duty to accept a transfer-in, the announcement of a Law Commission’s review of divorce laws, the authorisation of the Royal Mail CDC scheme and the latest on the Spring Budget pensions tax changes.
Pensions Ombudsman – trustee refusal of returned transfer amounted to breach of duty
A recent Deputy Pensions Ombudsman (the DPO) determination has highlighted that, although a pension scheme is not under a legal obligation to accept a transfer of benefits (which would include a benefit top-up such as might be payable because of Guaranteed Minimum Pension (GMP) equalisation), past conduct in relation to transfers may be relevant in determining if a scheme is being reasonable in refusing to accept a transfer.
The member, Mrs N, complained about the Universities Superannuation Scheme (the USS) trustee’s refusal to accept a returned transfer value relating to her part-time service under the Teachers Pension Scheme (the TPS).
Mrs N had been awarded benefits (Preston benefits) under the TPS in 2007 in respect of part-time service by an employment tribunal following the House of Lords’ decision in Preston & ors v Wolverhampton Healthcare NHS Trust & ors  that excluding a part-time employee from a scheme amounted to unlawful sexual discrimination.
Mrs N had joined the USS by the time she was granted the Preston benefits and had already transferred her other benefits from the TPS to the USS. Therefore, in 2011 the TPS transferred the Preston benefits to the USS. However, they were subsequently returned to the TPS in 2014 upon Mrs N’s request. The TPS then tried to return the Preston benefits back to the USS following a related 2017 Ombudsman determination which concluded that the Preston benefits should have followed Mrs N’s original 2003 transfer of her TPS benefits to the USS.
The USS trustee would not accept the returned Preston benefits because it believed that it was not permitted to do so under the USS rules. The DPO decided that the relevant rules did give the USS trustee the power to accept them. Furthermore, because the USS trustee had accepted the Preston benefits initially in 2011 and retained them until 2014, it had established a duty of care to Mrs N as a pensioner member. The USS trustee had breached this duty by refusing the later transfer and was directed to reinstate the TPS Preston benefits into the USS and pay Mrs N £1,000 for serious distress and inconvenience.
Relevance to other schemes
It should be remembered that the Ombudsman is not bound by previous determinations and determinations are not binding on non-parties. However, earlier decisions do indicate how the Ombudsman might determine a similar issue before it in the future.
Although there is no statutory requirement for a scheme to accept a transfer-in, this case demonstrates that there may be circumstances where past conduct means that trustees have established a duty of care towards a member and refusing to accept a transfer would breach that duty.
The facts of this case are specific to the circumstances surrounding Mrs N’s complaint which were very unusual because the benefits in question had been transferred back and forth between the schemes previously. This could contrast with determining the reasonableness of a decision in respect of, for example, a GMP equalisation transfer top-up in respect of which there may be other ways in which the top-up could be provided. Trustees should liaise with their legal adviser in relevant cases.
British Steel: BSAG drop legal challenge against FCA
On 12 April 2023, the Financial Conduct Authority issued a statement confirming that the British Steel Adviser Group has decided to drop its legal claim challenging the FCA’s decision to set up a redress scheme for former British Steel Pension Scheme members. As reported in our insight, the FCA believed that the challenge was simply an attempt by certain firms to delay paying redress. BSAG will be making a ‘substantial contribution’ to the FCA’s costs.
DC: Illiquid investment, asset allocation and performance fees regulations come into force
The Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023 came into force on 6 April 2023. These are the regulations that bring in the requirement for DC schemes in scope to ‘disclose and explain’ their illiquid investment policy and their asset allocation. The Regulations also exempt certain performance-based fees from the charge cap. See our insight for further details.
Law Commission to review divorce law
On 4 April 2023, the Law Commission announced that it will be reviewing the laws governing finances on divorce and the termination of a civil partnership – it has been 50 years since the introduction of the Matrimonial Causes Act 1973 (the primary act which governs divorce) and the Government has now requested a review to see if the current law is effective, fair and consistent. Within scope will be pension-related orders and whether these are being ‘overlooked’.
Royal Mail CDC scheme receives Regulator authorisation
On 13 April 2023, the Pensions Regulator confirmed that it has authorised the UK’s first collective defined contribution scheme, the Royal Mail Collective Pension Plan. The legislative framework for Collective Defined Contribution (CDC) schemes was introduced under the Pension Schemes Act 2021. Schemes need to meet six ‘stringent’ criteria before they will be authorised including a fitness and proper test, having a sound scheme design and financial sustainability and satisfying certain member communication requirements. They are authorised and supervised by the Regulator.
Although only connected employers are presently permitted to set up CDC schemes, the Government intends to expand the CDC framework to schemes with non-associated multi-employers and master trusts (see our insight).
HMRC updated scheme administrator guidance on tax changes
HMRC updated its pension scheme administration guidance on 6 April 2023 to take account of the Spring Budget tax changes (see our insight and our follow-on update).
In addition, following concerns raised by the Lifetime Allowance (LTA) working group, HMRC has confirmed that it will continue with the deceased member’s legal personal representative (LPR) being responsible for dealing with HMRC in respect of any tax due on DB lump sum death benefits and uncrystallised funds lump sum death benefits. This is instead of having scheme administrators take over responsibility for determining tax due as HMRC recently indicated would happen.
This means that, until the full LTA removal from 6 April 2024, the LPR will provide information to HMRC which will then raise marginal rate taxation (rather than a 55% LTA charge which, from 6 April 2023, has been abolished) on the relevant part of the lump sum.
McCloud remedy LGPS consultation response
On 6 April 2023, the Government issued its response to the July 2020 consultation on how it will address the McCloud age discrimination identified in 2018 by the Court of Appeal in respect of changes that were introduced on 1 April 2014 to the Local Government Pension Scheme to address affordability and sustainability issues.
The response confirms that, to remedy the discrimination identified, the Government will extend the ‘statutory underpin’ which protects members affected by the 2014 reforms to those who were too young to receive the underpin protection initially. The underpin works by providing protected members with the higher of legacy ‘final salary’ benefits and reformed ‘career average’ benefits for the period 1 April 2014 to 31 March 2022, 1 April 2022 being the date when members began accruing benefits in the career average scheme with no protection.
The Government has consulted separately on the Local Government Pension Scheme (LGPS) because the transitional protection was different to that under other public sector pension schemes.
There will be another consultation shortly on the regulations which will implement the changes – the intention being that these will come into force on 1 October 2023.
PPF business plan for 2023/24
The Pension Protection Fund’s (PPF’s) business plan for 2023/24 sets out its aims over the coming year in a number of different areas including service, asset and liability management, making a difference, and transforming how the PPF works.
The aims include completing payments for those residual impacted members that are due an uplift to their benefits following the Hampshire and Bauer court decisions by March 2024. Other plans centre around sustainability, improving the digital offering to stakeholders, and evolving the levy approach to take account of the new funding phase that the PPF has entered.