In depth

Pensions legislation and case law update: the latest developments week ended 4 June 2021

Gateley Legal

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In this week’s digest we look at a recent Court ruling on exit credits under the LGPS, the Government’s response to tax relief reform recommendations and the Pensions Dashboards Programme’s rapid evidence assessment.

We also consider the FCA’s statement on publication of workplace personal pension costs and charges and the ICO’s call for views on draft guidance on anonymisation, pseudonymisation and privacy enhancing technologies.

High Court holds that retrospective amendments to LGPS exit credit mechanism justified for public interest reasons

Decision

The High Court has ruled that changes introduced by the Local Government Pension Scheme (Amendment) Regulations 2020 (the 2020 Regulations) giving retroactive effect to amendments to the exit credit mechanism in the Local Government Pension Scheme (the LGPS) were justified for public interest reasons.

Exit credit payments

On 14 May 2018, legislation was introduced which gave an exiting employer an automatic right to an “exit credit” if an actuarial assessment showed that there was an excess of assets over liabilities relating to that employer. Following a number of local authorities coming under obligations to pay sizeable exit credits, the 2020 Regulations were introduced to remove the automatic payment mechanism and replace it with a discretion for the LGPS funds to decide the extent to which a surplus should be distributed. The 2020 Regulations had retrospective effect from 14 May 2018.

What happened in the case?

In R (Enterprise Managed Service Ltd) v Secretary of State of Housing, Communities and Local Government, a claim was filed for judicial review of the 2020 Regulations. The claimant had participated in the LGPS through an admission agreement with the local council after entering into a contract to provide outsourced services to local authorities. In June 2018, the contract came to an end and a surplus of approximately £6.5m was identified in the LGPS, which the council was consequently required to pay to the claimant as an exit credit. The council refused to pay the credit as it said that it amounted to an unfair windfall because the “pass-through arrangement”, which had been entered into when the contract commenced and under which the council indemnified the claimant in respect of any exit payment the claimant may be required to make, resulted in the claimant not taking on any of the pension risk.

The claimant brought a claim in the High Court arguing a number of points including that the retroactive effect of the 2020 Regulations infringed its property rights. 

The Court's decision

The High Court considered that it was startling that an exiting employer could receive an exit credit which gave it back more than its initial contributions, particularly when that surplus may have been created due to the strong market performance of funds paid into the scheme before the relevant exiting employer had joined. Exit credits had been introduced to counter-balance an employer's potential liability to make an exit payment to cover a deficit, but the policy had failed to anticipate that illogical results could follow. Given the strong public interest in remedying the position, the Hight Court found that the Government had been justified in making the 2020 Regulations retroactive, preventing the payment of anticipated exit credits and those which had fallen due but not been paid.

Comments

This judgment provides useful clarity on the 2020 Regulations and how they should be applied. When exercising discretion to award exit credits administering authorities need to make a rational and fair application of the provisions, having regard to all relevant factors of which they are aware – no primacy is given to one factor and the weight to be given to a particular factor will depend on the particular circumstances of the case. 

Government responds to Treasury Committee’s report on tax relief reform

The Government has responded to the House of Commons Treasury Committee’s March 2021 Tax after Coronavirus report which called for reform to the pensions tax relief system. The response confirms that the Government has not accepted the Committee’s recommendations, noting that previous consultations revealed that there was ‘no clear consensus’ for reform. Significant changes could have ‘profound and far-reaching impacts’. Therefore, although all tax reliefs are subject to review, such changes would need ‘careful consideration’.

Pensions dashboards: PDP publishes rapid evidence assessment report

The Pensions Dashboards Programme (the PDP) published a rapid evidence assessment report on 1 June 2021 which looks at existing domestic and international literature to identify what improves people’s engagement with their savings and digital dashboards. 

The report notes that the key barriers to engagement include inertia, present bias (a preference for immediate smaller rewards rather than later larger rewards), friction costs (small difficulties that make an action harder to complete), choice overload and lack of knowledge or ability.

Strategies to deal with these barriers include timely prompting, making the future more ‘salient’, removing frictions, providing rules of thumb to simplify decisions, personalising information, making certain positive behaviour a ‘social norm’ and showing that inaction may lead to a potential loss.

The evidence gathered by the report will be used to assist the Money and Pensions Service develop UK dashboards.

FCA statement on its expectations for publication of workplace personal pension costs and charges data

The Financial Conduct Authority’s (FCA) 3 June 2021 statement on its expectations of the first publication of costs and charges information by workplace personal pension providers under new rules made in February 2020 confirms that the information should be published at individual employer level as such data could assist in improving value for money.

Independent governance committees (IGCs) must publish and disclose certain administration charges and transaction costs information to members by 31 July 2021, when IGCs publish their annual reports.
Certain firms were unclear as to the FCA’s expectations and have been preparing registered scheme level disclosures. Because of this, the FCA has confirmed that it does not intend to take action against such firms for this reporting year which:

  • “Disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges); or
  • Show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (that is, without also disclosing the relevant employer or scheme details against the particular costs and charges).”

ICO call for views on draft guidance on anonymisation, pseudonymisation and privacy enhancing technologies

The Information Commissioner’s Office (the ICO) is calling for views on the first draft chapter of its Anonymisation, pseudonymisation and privacy enhancing technologies draft guidance to collect in feedback which will then be used to finalise the guidance that will then be subject to consultation this Autumn. Further detail on the ICO’s plans for updating its anonymisation guidance can be found here. 

Further chapters will be published for comment throughout the Summer and Autumn. The consultation closes on 28 November 2021. Feedback can be provided by emailing anonymisation@ico.org.uk.

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