Pensions legislation and case law update: the latest developments week ended 16th October 2020

In this week’s edition, we look at the current status of the Pension Schemes Bill and pension contribution requirements under the expanded Job Support Scheme.

Pension Schemes Bill has passed its second reading in the House of Commons on 7 October 2020

Development:

The Pension Schemes Bill (the Bill) passed its second reading in the House of Commons on 7 October 2020 without further amendment. The Bill will now proceed to the Committee stage in the House of Commons where it will be subject to detailed line-by-line scrutiny. It is expected that the Committee stage will conclude on 5 November 2020. 

The matters discussed by the House of Commons during the second reading included pensions dashboards, climate change and the further tabled amendment in relation to pension scams which, if accepted, would allow trustees to prevent a transfer going ahead if a scam is suspected. 

The Government confirmed that it was broadly satisfied that the Bill is currently drafted in such a way as to deal with these concerns but that liaison with relevant parties would continue. 

Although there was considerable discussion of climate change and pension scams there was far less discussion on the new criminal offences included in the Bill (failing to comply with a contribution notice, avoidance of an employer debt and conduct risking accrued scheme benefits). Reference was made to the House of Lords’ criticism as to the lack of clarity over what constitutes 'reasonable excuse' as a defence against the new offences and the fact that this will be left to the Pensions Regulator (the Regulator) to clarify in guidance. A commitment has previously been given to the House of Lords that this guidance will be produced and consulted on before the new moral hazard powers go live.

The Secretary of State's response to this criticism placed emphasis on the Bill making "it crystal clear that an offence is committed only if the person did not have a reasonable excuse for their behaviour…It will be for the regulator to prove that the act was not reasonable." This is unlikely to provide much comfort. Accordingly, concern remains that the provisions of the Bill go further than what was originally proposed in the Government’s white paper on protecting defined benefit pension schemes, could catch currently routine activities undertaken in respect of pension schemes and be applied against a very wide net of individuals.   

Key point: 

The Government has confirmed that the Regulator will publish specific guidance on the new moral hazard offences after consultation with the pensions industry. Whether Regulator guidance can comprehensively clarify the extent of the new moral hazard powers remains to be seen and the lack of detailed discussion during the latest stage of the Bill's progress through Parliament will be disappointing to many in the pensions industry who hoped to see further clarity on the scope of the new offences.

The Pensions Minister confirmed on 15 September 2020 that he expects the Bill to be brought into force by the end of 2020 and the Bill remains on track to meet this timescale. We will provide further updates as the Bill progresses through Parliament. 

We will be hosting a webinar on the Regulator's extended moral hazard powers under the Bill on 19 November 2020 – further details will be circulated shortly.

Expanded Job Support Scheme does not cover pension contributions

Development: 

On 9 October 2020, the Government announced that the Job Support Scheme (the JSS) would be expanded to support businesses which are 'legally required' to close their premises due to coronavirus restrictions with the Government paying two-thirds of employees' salaries, up to a maximum of £2,100 per month. To be able to access the JSS, employees have to cease all work for the employer for at least seven days in a row as a direct result of their employer’s business being "legally required" to close due to COVID.

It includes premises restricted to delivery or collection only services from their premises but not those which are closed by local public health authorities because of specific workplace outbreaks. It also does not cover those businesses which may be adversely affected by the required closure of a business, but which are not legally mandated to close themselves (although they may be able to access support to protect 'viable jobs' through the 'reduced demand' part of the Scheme).

This communication shortly preceded the Prime Minister's 12 October announcement of tighter restrictions including the temporary closure of pubs and restaurants and the potential closure of other venues such as gyms and hairdressers for those regions with 'very high' infection rates which will place them in 'Tier 3' of the new local COVID alert levels.

Employers will not have to contribute to wages but will have to cover NICs and pension contributions; this mirrors the NIC and pension contribution position for businesses using the JSS where they face lower demand because of the pandemic. 

The Government's announcement references that the contribution required from employers will represent a very small proportion of overall employment costs. It also estimates that approximately half of the potential claims will not incur employer NICs or auto-enrolment pension contributions meaning that no contribution from the employer will be required. 

The expanded JSS begins on 1 November 2020 and will run for six months with a 'review' in January 2021. The factsheet can be accessed here. 

Key point:

The expansion of the JSS will be welcomed by many employers although it remains to be seen how successful the Winter Economy Plan will be in protecting employment during the next stage of the pandemic. These remain extremely difficult and challenging times.

If an employer does intend to take part in the JSS, advice may be required with regards to certain matters including, for example, in relation to the definitions of 'salary' and part-time working in pension scheme rules.