Pensions legislation and case law update: the latest developments week ended 11 December 2020

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This week’s update includes a look at the Pensions Regulator’s blog reflecting on responses to the first consultation on the new DB funding code, the FCA’s warning on ‘international’ SIPPs, changes to the priority given to certain taxes on corporate insolvencies and a new working group on pension scheme voting.

Pensions Regulator blog on the defined benefit funding code responses

The Pensions Regulator's 8 December 2020 blog reflects on the record 130 or so responses it received to the initial consultation on the new defined benefit funding code of practice. The first consultation covered the proposed regulatory approach, the key principles and how they might be applied in practice. The second consultation will focus on the code itself. 

The Regulator emphasises that there is still 'some way to go' on the journey and warns against 'rash predictions. Further details are set out below. 

Cost impact

Amongst the responses were various estimations of the cost impact of the new code which have come as somewhat of a surprise to the Regulator given that it has not yet finalised the propositions for the second consultation and that this will take into account an impact assessment.

Preparations for the second consultation

The responses will be factored into the Regulator's deliberations as to whether the principles set out in the first code need to be amended in any way. The Regulator is also considering the varying economic scenarios that might arise post-COVID and post-Brexit and working through the issues set out in the consultation itself cognisant of the need to both protect members and support employers. Once these basic building blocks have been completed it will be able to 'start thinking' in more detail about how the Fast Track parameters should be set. 

The de-risking journey

The blog notes the support in the responses and wider commentary to the concept already adopted by many schemes that a maturing scheme should have a high resilience to risk and limited reliance on the employer by the time it becomes very mature. Trustees need to consider risk properly; the Regulator's focus will be on schemes that are not adequately managing risk. 

Open and immature schemes

The Fast Track proposals in the first consultation were set on the premise that open and closed schemes should provide the same level of security for members' accrued benefits but that open schemes could also take into account their open status. Although it is reasonable for an immature scheme to take the additional risk this should be supported by a sufficiently strong covenant and suitable plans and positioning to manage change as it arises. 

The blog references the responses which suggest that an appropriate approach for open schemes would involve contingency planning for closure to new entrants and future accrual. The Regulator is comforted by the fact that although the Regulator's proposals do require 'something more concrete and evidenced' than just planning, they do closely reflect the Regulator's position. 


The final comments in the blog relate to liquidity, although liquidity is an important consideration for trustees this does not prevent a scheme from investing in illiquid assets.

Key point:

The blog provides some interesting commentary on the responses and the latest thoughts of the Regulator. It also outlines the preparatory work which the Regulator is undertaking prior to finalising the second consultation. As regards timing, the Regulator confirmed at a recent pensions conference that it expects to launch the second consultation in mid-2021.

Wrongful trading easement under CIGA reintroduced


The Corporate Insolvency and Governance Act 2020 introduced certain easements as a result of the pandemic including a temporary 'suspension' of directors' liability for wrongful trading which was in place until the end of September 2020. Regulations have now reintroduced a wrongful trading easement with certain exceptions for the period 26 November 2020 to 30 April 2021 providing that a court is to assume that a director is "not responsible for any worsening of the financial position of the company or its creditors" during this period. 

Key point: 

Despite the existence of an easement, the requirement for an employer to notify the Pensions Regulator (the Regulator) with regard to wrongful trading remains the same; an employer must notify where it has received advice that it is trading wrongfully or where a director knows that there is no reasonable prospect that the company will avoid going into insolvent liquidation.

FCA warning on 'international SIPPs'


On 2 December 2020, the Financial Conduct Authority published a warning and letter to SIPP operators about overseas advisory firms advising expatriates to transfer UK pension benefits to 'international' self-invested personal pensions often through an offshore investment bond which may expose individuals to high and/or unnecessary charges. The letter reminds SIPP operators to take relevant action in the best interests of clients where they become aware of investment or introducer issues. Members of DB schemes who wish to transfer their benefits to an international SIPP are urged to obtain impartial guidance from The Pensions Advisory Service. 

Key point: 

This is the latest in a series of regulatory warnings on pension transfers and the possibility of members being 'advised' to invest in an arrangement which may not be in their best interests, in this case potentially leading to a diminution in value due to charges. 

The PSIG code on combating pension scams also warns of the emergence of 'international SIPP transfers' since the introduction of the Overseas Transfers Charge for some transfers to Qualifying Recognised Overseas Pension Schemes in March 2017. The code includes detail on such transfers together with case studies and specific due diligence trustees should undertake. Trustees and administrators must ensure that relevant due diligence is carried out where a member requests a transfer to an overseas pension arrangement referring to the code and other regulatory guidance and information as necessary.  

Corporate insolvencies – certain HMRC taxes move up the priority order as from 1 December 2020


Following changes made by the Finance Act 2020, as from 1 December 2020, certain taxes such as VAT, PAYE income tax and employee National Insurance Contributions temporarily held by a company which enters insolvency will be given higher priority status on corporate insolvency. 

Under the new provisions, these debts will be given secondary preferential creditor status meaning that they will be paid after holders of fixed charges and insolvency practitioner costs but before floating charge holders and non-preferential creditors.

Key point: 

This change means that the pension scheme might receive less towards any Section 75 debt than it would previously have done although the extent to which this is the case will of course vary depending upon circumstances. HMRC's policy paper provides further detail.

New working group on pension scheme voting & 'central directory of statements of investment principles'


On 1 December 2020, in a speech to the Association of Member-Nominated Trustees, the Pensions Minister announced the launch of a new DWP working group, the Taskforce on Pension Scheme Voting Implementation. This is being set up in response to the Association of Member Nominated Trustees (the AMNT) November 2020 report on the barriers to trustee voting which hinder the implementation of ESG stewardship policies. The AMNT report concluded that while barriers did exist these were mainly due to fund manager unwillingness to implement client voting policies and were capable of being resolved.

The new task force has been set up to consider ways to resolve these voting issues, to improve pension schemes’ and asset managers’ stewardship and engagement with companies and to recommend measures to ensure that asset managers' voting policy approaches and trustee policy execution 'converge'. Mr Opperman was clear that trustee voting policies need to improve, and the task force is seen as a step in the right direction towards improved engagement and stewardship and ultimately 'safer' and 'greener' pensions.

In the same speech, the Pensions Minister also announced that the Government will be setting up a 'central directory of statements of investment principles', supported by the Regulator and the DWP. This takes up the recommendation of the UK Sustainable Investment and Finance Association (a membership organisation for those in the finance industry committed to growing sustainable and responsible finance in the UK) for a central register to "allow the quality and adequacy of schemes' investment policies to be scrutinised". 

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