Pensions legislation and case law update: the latest developments week ended 1 October

In this week’s Pensions Insight, we cover the PPF’s progress report on payment of PPF compensation following the Hughes judgment, the PPF’s draft 2022/23 levy determination and consultation, the GMP Equalisation Working Group’s latest guidance on communications and anti-franking, and the PLSA’s first progress report on resolving the issue of small DC pots.

PPF updates position on compensation cap following Hughes judgment

The Pension Protection Fund has published an update on progress made following the Court of Appeal's July 2021 decision in the case of The Secretary of State for Work and Pensions and the Board of the Pension Protection fund v Hughes that the PPF's proposal as to how to calculate PPF compensation and Financial Assistance Scheme payments following a 2019 decision (Hampshire v the PPF) was lawful.

In Hampshire, the Court of Justice of the European Union found that the PPF must pay compensation equivalent to 50% of the value of the member's accrued benefit entitlement.

Approach to PPF capped pensioners

The PPF's general approach will be to offer the option of a lump sum to capped pensioners who retired after the scheme's assessment date (generally the date the sponsoring employer entered insolvency) as well as increasing and paying arrears on the monthly compensation.

The PPF is still in the process of deciding whether it will impose a six-year time limit on payments and will announce its decision as soon as it can.

Approach to FAS capped pensioners

The FAS cap was not impacted by the Hughes case, but some FAS pensioners will need an increase to ensure that they receive 50% of the value of their accrued old age benefits – payments for affected members have already been increased. Members are expected to start receiving arrears by the end of 2021 but the DWP has yet to decide on whether these will be limited to a six-year time limit.

Approach to uncapped PPF and FAS pensioners

Certain uncapped PPF and FAS pensioners are not affected by the cap but are affected by Hughes because their compensation does not meet the 50% level on other grounds – the PPF hope to pay the increases owed by December 2022 but it could take longer because of the additional complications with these cases.

PPF draft 2022/23 levy determination & consultation published

The Pension Protection Fund has published its consultation setting out its proposals for the calculation of the 2022/23 levy. This follows last year's adoption of using a single year basis for setting the methodology rather than setting it for three years as is usually the case so that flexibility could be adopted during the pandemic. The consultation closes on 9 November 2021.

The associated press release explains that:

the levy rules for 2022/23 will stay stable because of the strong funding position of the PPF;
as a result of improved scheme funding and stability in levy rules, it intends to collect £415m from levy payers, a decrease of £105m from the 2021/22 levy year which means that 82% of schemes which pay the risk-based levy should see a decrease;
the PPF levy methodology will stay the same; and
processes put in place to assist with the 2021/22 levy cost which included the Small Scheme Adjustment, lower cap on the risk-based levy and COVID-19 measures, will remain (see our Insight Update).

The press release notes that, although there have been improvements in scheme funding, the PPF remains cognisant of what may happen in the future with employer insolvencies and claims on the PPF, certain of which could have a significant impact on its reserves. Therefore, it needs to ensure that enough levy is brought in to meet obligations in respect of current and future members.

GMP Equalisation Working Group communications and anti-franking guidance

The cross-industry GMP Equalisation Working Group, chaired by the Pensions Administration Standards Association, has published two further sets of guidance:

GMP Communications - Implementation Stage guidance which follows on from its August 2020 early planning stages of the communications process guidance; and
anti-franking guidance which considers anti-franking (used to prevent deferred GMP revaluation being offset against a member's benefits) and GMP equalisation.

Trustees should find this latest guidance a useful addition to the existing set of guidance which has been issued by the Group.

PLSA Small Pots Co-ordination Group's report on small DC pots

The Pensions and Lifetime Savings Association's Small Pots Co-ordination Group has published its first progress report looking at resolving the issues relating to small deferred DC pots in particular the feasibility of a member exchange exercise.

The report notes that the issue is complex, and that resolution must consider not just existing small pots but how to stop new small pots occurring. Solutions must address the different pensions structures and allow consolidation by pension providers as well as allow savers to locate and consolidate their own pots.

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