In depth

Pensions legislation and case law update: the latest developments week ended 19th February 2021

Gateley Legal

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In this week’s update we look at the proposed increase to normal minimum pension age, the GMP Equalisation Working Group’s latest guidance on tax issues, the revocation of the recently introduced £95,000 cap on public sector exit payments, the recovery of funds to the Arcadia DB pension schemes, the Regulator’s new podcast series and its blog on the Pension Schemes Act 2021.

HM treasury consults on increase to NMPA to age 57 and proposed protection regime

Development: 

HM treasury has published a consultation 'reconfirming' its September 2020 announcement that the normal minimum pension age (NMPA) will rise from age 55 to 57 in 2028 and seeking views on its implementation and the proposed protection regime. NMPA is the minimum age at which the majority of members can access pension benefits without the payment being unauthorised (unless for reasons of ill-health). 

The change in NMPA will not apply to members of the firefighters, police and armed forces public service pension schemes. 

Proposed protection regime: it is proposed that:

  • individual members of any type of registered pension scheme who have an existing, unqualified right under the scheme rules as at 11 February 2021 (the date of the consultation) to take pension benefits below age 57 will be protected from the increase in NMPA;
  • the protection will apply to all benefits under the relevant scheme not just those accrued before 2028;
  • no application will be required for a protected pension age;
  • the protected pension age will be specific to the scheme in question and its rules, so a member may have a protected pension age under one scheme they have accrued benefits in and not another e.g. the member could have a protected NMPA of 55 in one scheme but have benefits under another scheme which have a NMPA of 57;
  • there will be no need for all benefits under a scheme to be taken on the same date in order to be able to retain the protected pension age (as there currently is in respect of protected pension age benefits);
  • individuals should keep the protection if they transfer to another scheme under a block transfer (but there is no mention of this being the case for individual transfers and so it is likely that such protection will be lost on an individual transfer as is currently the case).

The consultation closes on 22 April 2021.

Key point: 

Scheme trustees and administrators should ensure they understand what their scheme rules provide and that this is clearly communicated to members so that expectations can be managed, and appropriate financial planning undertaken. 

PASA publishes guidance on GMP tax issues

Development: 

The GMP Equalisation Working Group, chaired by the Pensions Administration Standards Association, has published guidance on tax issues which schemes may have to deal with when undertaking GMP equalisation exercises. 

The guidance looks at the scope and applicability of HMRC's equalisation newsletters (issued in February and July 2020), deferred benefits and pensions in payment and the tax treatment of arrears and lump sums. It also briefly comments on GMP conversion – more detailed guidance on this is expected in April 2021. 

Key point: 

The guidance produced by the working group provides useful assistance to trustees undertaking GMP equalisation exercises and is designed to give trustees potential ways of dealing with the various issues in a 'pragmatic and proportionate' manner. See our earlier insight update for details of further guidance which the working group intends to publish this year.

Government disapplies £95,000 cap on public sector exit payments & will revoke relevant regulations

Development: 

After concluding that the application of the £95,000 cap on public sector exit payments would have 'unintended consequences', the Government has decided to revoke the regulations which introduced the cap back in November 2020.

From 12 February 2021, the cap has been disapplied by means of HM Treasury Directions until the regulations are formally revoked, although the Directions do not apply to devolved Welsh authorities.  

This latest development comes after several unions and local government organisations sought judicial review of the introduction of the cap. It is expected that these challenges will now be withdrawn.

The guidance which accompanies the removal of the cap states that individuals whose exit payment has been capped because of the regulations should contact their former employers to request the amount they would have received had the cap not been in place. It also refers to an expectation that employers will pay affected former employees any such additional sums.

Key point: 

This is not quite the end of the story as HM Treasury intends to make further proposals 'at pace' to deal with 'unjustified' exit payments given the need to ensure that exit payments are of value to taxpayers and fair and proportionate to employers.

See our insight update for an outline of the regulations and our later update for details of the judicial review applications.

Arcadia group pension schemes – payment of funds could mean exit from PPF assessment

Development: 

The trustees of the Arcadia Group Pension Scheme and the Arcadia Group Senior Executives Pension Scheme, have written to members to provide a further update following their January 2021 update, which confirmed the defined benefit schemes had entered into Pension Protection Fund (PPF) assessment. 

The further update explains that the £100m cash contribution owed by Lady Green was settled by December 2020 and that the schemes have received an initial £173m distribution from the employer in relation to security granted over other assets agreed under the terms of the 2019 company voluntary arrangement settlement. Further monies should also be paid to the schemes as other recoveries are made during the administration.

Key point: 

The trustees hope that these payments will improve the schemes' funding to such a level that the schemes can exit PPF assessment enabling members’ benefits to be secured with a buyout provider at a level in excess of PPF compensation amounts, which would be positive news for both members and the PPF.

Regulator launches podcast series beginning with pension scams

Development: 

The Pensions Regulator (the Regulator) has announced the first in a new series of podcastsTPR Talks, in which Margaret Snowdon, Chair of the Pension Scams Industry Group (PSIG) and Nicola Parish, Executive Director of Frontline Regulation, discuss pension scams. 

Key point: 

The podcast can be accessed here: it is 26 minutes long and includes discussion of what the pensions industry can do to combat scams, the lessons that can be learned from the banking industry and the possibility of putting the currently voluntary PSIG's Code of Good Practice on a statutory footing.

Regulator blog on the pension schemes act 2021 (the act)

The Regulator's blog on the Act provides a little insight into the Regulator's thoughts on the new legislation:

  • Extended Regulator powers: There is reference to the extended 'moral hazard' provisions bringing efficiency, increasing deterrence against risk-taking behaviour and helping 'drive better standards' in respect of schemes that come under the Regulator’s remit. The enhanced information-gathering powers will assist the Regulator's investigations and the new civil penalties for breaches should mean speedy enforcement will be possible. 
  • Scheme funding: The blog emphasises the importance of schemes setting a long-term funding objective and that those schemes that are already doing the 'right thing' should find this 'straightforward to achieve'.
  • Climate change: The last topic covered in the blog is climate change – the Act's climate change provisions demonstrate that trustees are now expected to 'put climate change at the heart of scheme governance' and consider the risks and opportunities more thoroughly. The Regulator will be publishing its own climate strategy this Spring; this will set out how the Regulator can assist trustees step up in this area.

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