In this week’s update we look at the 5 April 2021 expiry date of an employer statutory power to amend formerly contracted-out scheme rules, the conviction of Dominic Chappell, former BHS owner, for tax evasion, Regulator guidance on spotting employer distress, the Regulator’s ‘pledge to combat pension scams’ initiative, PASA’s new cybercrime guidance for administrators, the availability of the Fraud Compensation Fund to compensate some pension scam victims and briefly touch upon the Government’s updated guidance on the CJRS.
5 April 2021 expiry of statutory power to amend rules of formerly contracted-out DB schemes
Contracting-out for salary related pension schemes was abolished from 6 April 2016, one consequence being that National Insurance Contribution (NIC) rebates were no longer available for employers or employees and increased NICs were payable as a result.
Subject to certain restrictions, employers are unilaterally permitted to amend the rules of formerly contracted-out schemes by means of an overriding statutory power, to enable them to offset the cost of these additional NICs by altering accrual rates and/or increasing member contributions. Employers do not need to obtain the consent of the trustees beforehand even where required under the scheme’s amendment power.
The statutory override is only available until 5 April 2021 so there is a limited period before it expires; if relevant, please get in touch with your usual Gateley contact for more information.
Dominic Chappell, the former owner of BHS, sentenced to six years for tax evasion
Dominic Chappell, the former BHS owner, has been sentenced to six years in prison for tax evasion after failing to pay tax on income from his purchase of the retail chain for £1 in 2015. Mr Chappell owed £584,000 in tax on £2.2m of income received following the purchase. The Court heard how Mr Chappell had spent hundreds of thousands of pounds on luxury items during his ownership of BHS including the purchase of a private yacht, a Bentley car and firearms.
This latest development follows the January 2018 Determination Notice from the Pensions Regulator (the Regulator), which required Mr Chappell to pay £9.5m in respect of the two pension schemes connected to the BHS collapse and the November 2019 Insolvency Service announcement that Mr Chappell had been disqualified by the Court from acting as a company director for ten years as a result of his actions in connection with BHS.
Regulator guidance on spotting employer distress
The Regulator has published guidance for trustees of defined benefit pension schemes, offering practical recommendations as to how to spot signs of employer distress and actions that can be taken to protect pension schemes where such signs are spotted. The key messages for trustees are to be prepared, be vigilant, to have robust information gathering process in place so that the employer’s financial position can be kept under review and to act quickly where signs of distress are identified so that members’ benefits are protected as far as possible. Annex 2 of the guidance sets out example warning signs of corporate distress with annex 3 containing case examples of where a scheme’s position can worsen as a result of corporate activity.
The Regulator’s guidance is a useful reminder for trustees as to the actions they should be taking in these current uncertain times, including adopting a fully documented integrated risk management approach, scenario planning and putting in place suitable triggers that will drive further action.
Regulator launches 'pledge' initiative to combat pension scams
The Regulator has launched an initiative with support from the Pension Scams Industry Group (PSIG) asking trustees, pension providers and administrators to sign up to a new 'pledge to combat pension scams' campaign and to follow the principles of the PSIG Code of Good Practice.
The pledge sets out the Regulator's expectations for the pensions industry and the 'minimum steps' that should be taken to protect scheme members. It involves committing to six steps including providing regular warnings to members, knowing the warning signs, carrying out checks on pension transfers and communicating concerns to members who insist on a high-risk transfer being paid.
Trustees should visit the pledge website page to ensure that their scheme has the appropriate practices in place to protect members from pension scams and self-certify that the pledge is met if they wish to do so. They should also ensure that they are familiar with the Regulator's guidance on pension scams, which covers how scams work, the warning signs of a scam, how to report a scam, the role of trustees and administrators, business advisers and employers in protecting members and which contains links to other useful resources. We would expect that well-run schemes are already meeting the minimum steps highlighted by the Regulator.
PASA has launched new Cybercrime Guidance for pension scheme administrators
The Pensions Administration Standards Association (PASA) has launched new cybercrime guidance (November 2020) to assist administrators understand and combat different elements of cybercrime. It covers four key areas: meeting legal and regulatory standards; understanding the organisation's vulnerability to cybercrime; ensuring resilience; and remaining able to fulfil critical functions in the case of an attack.
Administrators hold a significant amount of personal and financial data in relation to the schemes to which they provide services and are at risk of cybercrime attacks. PASA notes that many will be subject to an attack even with stringent processes in place, especially with the increased risks resulting from the pandemic. The 'important thing' is how administrators minimise risks and deal with any situations that arise.
Although trustees often delegate certain services such as administration to third-party providers they should still be ensuring service providers have appropriate processes and procedures in place to assess and minimise the risk of a cyber incident happening and that they are able to appropriately manage an incident should one occur. Such verification should be obtained on a regular basis.
Fraud Compensation Fund can compensate pension scam victims
The Pension Protection Fund (the PPF) has obtained clarity from the High Court as to whether the Fraud Compensation Fund (FCF), which it manages and which is funded through the fraud compensation levy, can compensate victims of pension scams who were incentivised to transfer out from genuine occupational pension arrangements. The FCF was originally established to compensate scheme members whose schemes have lost funds as a result of an offence of dishonesty. Accordingly, it was unclear if the FCF could also award compensation to pension scam victims.
The High Court has now ruled that in certain circumstances the FCF can compensate victims of pension scams, giving a form of recourse to some who have lost pension benefits as a result of scam activity.
Whilst the decision is to be welcomed, certain criteria does need to be met in order for the FCF to pay such compensation including that the receiving arrangement must be an occupational pension scheme and a scheme failure notice must have been issued. Accordingly, not all victims of pension scams will be able to apply for compensation and therefore emphasis must remain on ensuring, as far as possible, that members do not transfer to scam arrangements in the first place.
HMRC guidance on the extended Coronavirus Job Retention Scheme published
The Government has now published further guidance with additional information on how the Coronavirus Job Retention Scheme (CJRS) will operate through to the intended 31 March 2020 2021 end date.
The position in respect of National Insurance Contributions (NICs) and pension contributions remains the same as that previously reported in our pensions update with employers paying employer NICs and pension contributions only for the hours an employee does not work.
The Government's guidance includes examples to help employers calculate employee's wages, NICs and pension contributions which were updated on 10 November 2020 to take account of the extended CJRS and can be referred to for assistance.