Pensions legislation and case law update: the latest developments week ended 6th November 2020
In this week’s update, we look at the extension of the Coronavirus Job Retention Scheme and what this means for pension contributions, new ICO guidance on subject access requests, the joint regulator warning on risks arising from an increase in transfers from the Rolls-Royce scheme, the successful repayment order obtained against a trustee convicted of fraud, the pensions implications of the new £95,000 cap on public-sector exit payments and the new Government proposal to encourage greater member engagement with pensions guidance.
Extension of the coronavirus job retention scheme (the CJRS) and postponement of the job support scheme (the JSS)
Extension of the CJRS:
Accompanying the Government's 31 October 2020 announcement of a new national lockdown running from 5 November to 2 December 2020 was an announcement from HM Treasury that the CJRS would be extended throughout November with employees receiving 80% of their current salary for hours not worked, up to a maximum of £2,500. The extended scheme is more generous to employers than it was during October because the cost of retaining workers is reduced to reflect the grant levels provided in August.
A subsequent announcement on 5 November 2020 confirmed that the CJRS would be extended further until 31 March 2021 to give businesses longer to recover and additional certainty. The HMRC policy paper published on the same date confirms that there will be a review in January to decide if the economic situation has improved sufficiently to require an increased employer contribution.
All employers with a UK bank account and UK PAYE schemes can claim the grant and neither the employer nor the employee needs to have previously used the CJRS. Flexible furlough is permitted and there will be no gap in eligibility for support between the previous 31 October 2020 closure date and the extension.
The announcement explains that "employers will pay employer NICs and pension contributions only for the hours the employee does not work…and should continue to pay the employee for hours worked in the normal way". As with the current CJRS, employers are able to top up employee wages above the grant levels at their own cost.
The Pensions Regulator (the Regulator) updated its Automatic enrolment and DC pension contributions: COVID-19 guidance for employers and related guidance on DC pension contributions for large employers on 2 November 2020 to reflect the extension of the CJRS and that the Job Support Scheme will no longer come into effect on 1 November; trustees and employers should refer to this guidance as necessary.
Postponement of the JSS and expansion of its terms:
The JSS was due to start on 1 November 2020 so that it immediately followed the intended 31 October 2020 closure date of the CJRS but the start date has been put back following the Government's announcement that the CJRS would be extended.
There are two parts to the JSS: the 'JSS Open' which will support employers facing lower demand as a result of the pandemic and the 'JSS Closed' which will support businesses that are 'legally required' to close their premises due to local or national coronavirus restrictions.
The Government announced on 22 October 2020 that it would be improving the level and reach of the JSS. The extended package will include changes to the JSS Open including a reduction of the hours an employee is required to work from 33% of normal hours to 20%, with the employer contribution to wages reduced from a third to just 5% of reference salary (capped at £125 per month). The Government will also now pay up to 61.67% of wages for unworked hours, to a maximum of £1,541.75 per month (a doubling compared to the previous maximum of £697.92).
The Government also released guidance on 30 October 2020 covering the eligibility criteria for the JSS which confirms that businesses can claim both types of support at the same time for different employees, but each employee can only be claimed for under a single type of support for each day. The guidance was subsequently withdrawn on 1 November 2020 because of the CJRS being extended.
The JSS does not cover employer NICs or pension contributions which means that the employer will still need to cover these. The Government's guidance explains that employers must still deduct and pay employer contributions and automatic contributions from the employee in accordance with the applicable scheme terms unless the employee has opted out or stopped saving into their pension.
If an employer does intend to take part in the JSS when it is introduced, 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.
Data protection: new ICO guidance on subject access requests (SARS)
The ICO has published a new guide and an accompanying blog on SARs, the right of individuals to access and receive a copy of their personal data. SARs can be made either verbally or in writing and in most circumstances, no fee can be charged. A response must be provided within a relatively short time period, one month of receipt of the request, although a further two months is allowed if the request is complex or numerous requests are made. A request can only be refused if an exemption or restriction applies or if the request is manifestly unfounded or excessive.
The guide discusses in detail numerous issues including what is the right of access, preparation, factors to consider when responding to a request, when a request can be refused and exemptions. Illustrative examples and links to source documents are also provided.
It reiterates that data controllers, not data processors, are responsible for complying with SARs. Trustees will act as a data controller in respect of data held by the scheme, although some professional advisers are likely to be deemed joint-controllers. Trustees must ensure that contractual arrangements are in place with the data processors (for example, scheme administrators) to ensure that SARs can be dealt with properly and data processors must assist trustees in meeting their obligations. ICO guidance on contracts is available here. It is also the data controller's responsibility to decide whether clarification is needed from the individual (when in certain circumstances the clock on the response time stops running) or if a request is manifestly excessive (on which the guidance provides additional clarification).
Trustees should ensure that they are familiar with the new guidance especially given the short timescales within which SARs must generally be dealt with. They should also obtain legal advice as necessary to ensure that relevant obligations are complied with.
FCA warning of transfer risks following an increase in transfers from Rolls-Royce DB scheme
The Financial Conduct Authority (the FCA), the Pensions Regulator (the Regulator) and the Money and Pensions Service (MaPS) issued a joint statement on 28 October 2020 after an upturn in transfer requests from members of the Rolls-Royce defined benefit (DB) pension scheme following a recent redundancy exercise.
The FCA has issued a data request to some of the financial advisers who have provided members with advice on the transfers. The statement notes that advisers need to be clear on the FCA's expectations around the provision of advice to members and that it will act where unsuitable advice or bad practice is identified. It also confirms that the Regulator is 'working closely' with the trustees of the Rolls-Royce scheme to protect members.
The FCA, the Regulator and MaPS have made it clear in the past and reiterate in the statement that transferring out of a DB scheme is "unlikely to be in the best interests of most consumers". Members who are considering a transfer have been told that they should contact the Pensions Advisory Service before taking any further action.
The template letter prepared jointly by the Regulator, the FCA and MaPS which trustees were recently asked to send to all members who request a transfer value quotation also emphasises the importance of members obtaining guidance before making a decision.
The Rolls-Royce case is a reminder to trustees to be vigilant and to continue monitoring the number and pattern of transfer requests especially given the current economic situation. Trustees should report to the Regulator if any unusual or concerning patterns are identified.
Fraud prosecution against trustee and administrator results in £274,000 repayment to the pension scheme
Mr Roger William Bessent, an accountant who acted as trustee and administrator of the Focusplay Retirement Benefit Scheme and who fraudulently transferred monies into businesses he part-owned, has been ordered to repay £274,333 to the scheme. The compensation order follows a March 2019 prosecution by the Pensions Regulator (the Regulator) which resulted in Mr Bessent being sentenced to three years in prison (see here for the Regulator's March 2019 press release).
The Regulator's 28 October 2020 press release referenced the Regulator's determination that "criminals such as Bessent are not only punished for their crimes but also do not benefit financially from their crimes".
Fortunately, cases concerning this degree of criminality are relatively rare and it is welcome to see the Regulator taking a strong stance against such behaviour in keeping with its statutory objective to protect members' benefits.
Public sector exit payments capped at £95,000 as from 4 November 2020
The Restriction of Public Sector Exit Payments Regulations 2020 (the Exit Payments Regulations) which came into force on 4 November 2020 restrict exit payments that a public sector employee or officeholder can receive to a maximum of £95,000 (subject to future variation by the Government). They follow a 2015 consultation in which the Government set out its plans to introduce a cap on public-sector exit payments to modernise the terms and to make them fairer and more consistent.
The organisations that are covered by the Exit Payments Regulations are set out in a schedule and include a wide range of public bodies from Government departments through to the BBC and NHS trusts.
Included within the remit of exit payments is any payment to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect of the cost to a scheme of such a reduction not being made. However, the cap only applies where there is an additional cost to the employer so a payment arising from an accrued pension right including one purchased by the individual would not count as an exit payment but an employer top-up payment in respect of an exit over and above the member's entitlement would. These are referred to in the guidance as 'pension strain' payments. Payments for death in service are excluded.
A waiver system will operate in 'exceptional circumstances' with either HM Treasury consent or in compliance with HM Treasury directions.
The government has published guidance and a Treasury Direction to assist public sector employers with the new changes.
The Exit payments Regulations prevent the making of a payment but do not change the employee's entitlement to it. This could lead to disputes and the British Medical Association has sought permission to judicially review the Regulations as a result.
As regards 'pension strain payments', relevant compensation and pension scheme rules will need to be amended to reflect the introduction of the cap with the expectation being that members will have the option to use their own funds to make up the shortfall or take a reduced benefit. However, there will be a period during which the scheme rules will require a payment in excess of the cap but schemes are not permitted to make this payment because of the effect of the Regulations.
In particular, the Ministry of Housing, Communities and Local Government has consulted on proposals for reforming exit payments in local government and specifically in relation to eligible members of the local government pension scheme. However, the amending local government pension scheme regulations are not yet in force so there will be a period after 4 November 2020 when relevant authorities will be subject to the Exit Payments Regulations, but the required schemes changes will not have been implemented. In this interim period, the MHCLG recommends that employees either defer receipt of their benefits or be paid a reduced early retirement pension. Further guidance is expected.
DWP publishes statement of policy intent on encouraging engagement with pensions guidance (28 October 2020)
The DWP has published Stronger nudge to pensions guidance: statement of policy intent setting out the Government's intention to introduce regulations requiring trustees to 'nudge' members to appropriate guidance when they wish to access their pension through the pension freedoms. The Pensions Regulator will provide guidance to support trustees on implementation and the FCA will consult on rules for contract-based pensions.
The policy statement follows successful 'Stronger Nudge' trials held between October 2019 and February 2020 which presented taking guidance as part of the access process through the offer of an appointment with Pension Wise.
No date has yet been announced as to when draft Regulations might be made available so for now, it is a matter simply for noting. We will report further on this new regime as it develops.
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