Pensions legislation and case law update: the latest developments week ended 17 September 2021

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In this week’s insight we provide an update on the DWP’s decision not to appeal the Court of Appeal’s decision that the PPF compensation cap amounts to unlawful age discrimination, Regulations setting out how “employer resources” will be measured for the purposes of the Pensions Regulator’s expanded powers to issue contribution notices, developments on winding up petitions and moratoriums and the latest PPF funding figures. We also cover the defined contribution value for members regulations and joint Pensions Regulator and FCA discussion paper and PLSA employer guidance on ‘Talking About Workplace Pensions’.

1. DWP will not appeal the Court of Appeal's decision that the compensation cap amounts to unlawful age discrimination

The PPF's website has confirmed that the Secretary of State for Work and Pensions will not be appealing the Court of Appeal's 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 compensation cap amounted to unlawful age discrimination. The compensation cap limits the total amount of pension payable to members who were below normal pension age at the date of the employer's insolvency. 

The other issue determined by the Court of Appeal was whether the PPF's proposal as to how to calculate PPF compensation following a 2019 decision (Hampshire v the PPF) was lawful. The Court of Appeal confirmed that it was. 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.

The PPF will carry on paying members their existing level of benefits until plans for the application of the Hampshire decision are in place. 

Our previous pdate has further details of the Hughes case.

2. PSA 2021: draft Pensions Regulator (Employer Resources Test) Regulations made on 15 September 2021

In last week's update we reported that the draft Pensions Regulator (Employer Resources Test) Regulations 2021 had been approved by both Houses of Parliament. Following approval, they were made as a UK statutory instrument on 15 September 2021 and will come into force on 1 October 2021. The regulations set out details of the employer resources test, one of the two new contribution notice grounds introduced by the Pension Schemes Act 2021.

Our 16 July 2021 update discusses the Government's response to the consultation on these regulations.

3. CIGA update

Winding up petitions

The Corporate Insolvency and Governance Act 2020 (CIGA) contained temporary measures designed to help UK companies mitigate the economic effects which many have suffered because of the pandemic. These included temporary modifications preventing the winding up of a company where it could not pay its debts because of the financial impact of the pandemic. These modifications are currently set to expire on 30 September 2021 (see the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Relevant Period) (No 2) Regulations 2021).

CIGA is going to be amended further to provide that, between 1 October 2021 and 31 March 2022, a winding up petition cannot be presented by a creditor on the grounds that a company cannot pay its debts unless certain conditions are satisfied (see Corporate Insolvency and Governance Act 2020 (Coronavirus) (Schedule 10) Regulations 2021). The conditions are that:

  • the debt does not relate to non-payment of rent under a business tenancy;
  • the creditor has made a formal request to the company seeking proposals for the payment of the debt;
  • the company has not made a proposal that is to the creditor’s satisfaction 21 days starting with the date the formal request was delivered; and
  • the debt (or combined total of the debt if more than one debt is included in the petition) is £10,000 or more. 

There have been a number of extensions to the temporary modifications in the past and there are differences in the approach this time with 'tapering measures'  to assist businesses and protect them whilst they get back to normal following the relaxation of previous restrictions without them 'facing a "cliff edge"' (see the explanatory memorandum).


The Insolvency (England and Wales) (No 2) (Amendment) Rules 2021 have also been laid before Parliament. These will replace the temporary rules which are due to expire on 30 September 2021 for the operation of moratoriums with permanent ones.

The moratorium process is available for companies that are, or are likely to become, unable to pay their debts, but where it is likely that a moratorium would result in the company being rescued as a going concern. The aim is to protect the company from creditor action and to give it breathing space to implement a turnaround. The directors retain control of the company under the supervision of an insolvency practitioner who acts as a 'monitor'.

A moratorium could have a potential impact on any pension scheme that the company is involved with, in particular, a defined benefit pension scheme. This could include deficit repair contributions not being paid during any continued trading, an impact on funding negotiations and on any existing or proposed security arrangements. Any trustees that are notified about an employer moratorium need to ensure that they carefully consider the implications for the pension scheme, obtain appropriate professional advice and take relevant action. 

Our previous update provides further information about CIGA and the pension implications.

4.  Latest PPF 7800 Index Report shows funding has improved

The latest PPF 7800 Index Report setting out the estimated funding position on a section 179 basis as at the end of August 2021 of the eligible 5,318 DB schemes shows that:

  • The aggregate surplus increased over the month to £83.2bn from a surplus of £62.4bn at the end of July 2021;
  • The funding ratio increased from 103.5% at the end of July 2021 to 104.7%; and
  • The deficit of the schemes in deficit decreased to £130.2bn from £142.2bn at the end of July 2021.

For those who wish to know more about the purpose of the PPF 7800 see the PPF's blog: what is the PPF 7800?

5.    DC round up: VFM regulations and TPR/FCA joint VFM discussion paper

Value for member and performance fees regulations approved by Parliament

The draft Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021 (the VFM Regulations) were approved by both Houses of Parliament on 8 September 2021 and can now be signed into law. They are due to come into force on 1 October 2021. 

The VFM Regulations will require trustees of:

  • specified DC and hybrid schemes with less than £100m in total assets to undertake a more detailed annual value for member assessment (applicable in relation to the first scheme year ending after 31 December 2021); and 
  • all relevant DC and hybrid schemes regardless of asset size to calculate and state the investment return on default and self-select funds, net of transaction costs and charges (applicable in relation to the first scheme year ending after 1 October 2021). 

They also allow performance fees to use a five-year moving average of accrued performance fees for the purposes of calculating charges that can be levied on members for a given charge year. This change is designed to encourage investment in illiquid assets.

See our previous updates; (1), (2), and (3) for further details. 

Pensions Regulator and FCA joint discussion paper on driving value for money in DC pensions

The Pensions Regulator and Financial Conduct Authority have published a joint discussion paper on driving value for money in DC pensions. The consultation period closes on 10 December 2021.

The discussion paper looks at creating a framework for information disclosure on assessing value for money in DC arrangements regulated by either the Regulator or the FCA. 

A lot of the paper is based on the VFM Regulations and considers how making uniform disclosures will allow 'meaningful comparisons' to be made between different DC arrangements and, in doing so, improve outcomes for members. The focus will initially be on DC schemes in the accumulation phase. 

Three areas are covered in the paper: 

  • investment performance – with a recommendation for net investment return reporting; 
  • scheme oversight - member communications, core scheme administration and scheme governance being seen as paramount for VFM; and 
  • costs and charges – the report also proposes using current definitions of 'administration charges' and 'transaction costs' in legislation and FCA rules and concentrating on member-borne costs and charges.

The paper suggests developing industry-led standards or benchmarks using a neutral convenor, perhaps the British Standards Institution. There is also reference to ESG and the significance that this plays in scheme design and oversight, although it is not proposed that this be included within VFM as a stand-alone component.

The clear aim of this paper is to continue the drive to improve VFM – as the press release says "DC savers can only maximise their retirement income if their scheme delivers value for money…[which] means well-run schemes delivering good investment performance that is not eroded by high costs and charges". The framework should assist not only members but also schemes look at how they compare with other arrangements.

6. PLSA guidance for employers on talking to staff about pension matters

As part of Pensions Awareness Week (13-17 September 2021), the PLSA (the Pensions and Lifetime Savings Association) has published guidance for employers on 'Talking About Workplace Pensions'.

The purpose of the guidance is to help employers have 'meaningful conversations' with staff about their pensions and clarify what information can and cannot be given in terms of the 'financial advice/guidance boundary'. (Broadly, employers (and trustees) are not able to give members regulated advice or engage in other regulated activities unless they are authorised by the Financial Conduct Authority.)

Employers and trustees might also find the following Regulator and FCA guide useful.

7. PASA's Benefit Statements Working Group report on statement dates

The newly formed Benefit Statements Working Group formed by PASA (the Pensions Administration Standards Association) (see our previous update) has published a report proposing to adopt an appropriate common 'publication date' (i.e. no matter what the valuation date) for producing annual benefit statements. This would use a preferable September date for all statements - alternatively, other dates but not March or April. 

The Group rejected a common 'valuation date', producing all statements 'as at' the same valuation date. Although this would mean less adjustment for many schemes it would mean the statements would be out of date by the time they were received by members. 

8. John Edwards approved as next Information Commissioner

The DCMS (Digital, Culture, Media and Sport) Committee approved the appointment of John Edwards as the next Information Commissioner on 10 September 2021. Mr Edwards will take over from Elizabeth Denham OBE as from 31 October 2021. The next stage is for Her Majesty the Queen to approve the appointment. Mr Edwards is currently New Zealand's Privacy Commissioner. 

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