This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of January 2018 in relation to occupational pension schemes. The topics covered in this edition are:
- BT case – High Court rules that RPI was not "inappropriate" for the purposes of uprating pensions
- Consultation on "new" standards for professional trustees
- Amendments to HMRC Reporting Requirements
- PPF releases its new suite of standard form contingent asset agreements
BT case – High Court rules that RPI was not "inappropriate" for the purposes of uprating pensions
BT brought an action to seek a declaration that the wording in a set of rules for its pension scheme would allow it to move away from RPI as the measure for uprating pensions. The relevant wording under consideration required that RPI had become "inappropriate" for these purposes (and another set of scheme rules provided that, in order for RPI to be moved away from, that index ought to have been amended such that it became invalid).
The court held that RPI had not become inappropriate for the purposes of uprating pensions under the BT pension scheme. Various factors were considered such as changes in the composition of RPI and the more widespread use of CPI as an alternative to RPI. None of these factors were enough for the court to hold that that RPI had become inappropriate (or amended such that it had become invalid).
The case is another example of the "rules lottery" which schemes find themselves subject to when it comes to pension increase wording, with the peculiarities of the scheme's particular wording dictating whether or not such a change can be made.
Stephenson Harwood acted for the representative beneficiary in the case.
Consultation on "new" standards for professional trustees
The Professional Trustee Standards Working Group (PTSWG) is consulting on a series of standards for professional trustees of occupational pension schemes. These standards, which are intended to improve the quality of professional trustees and eliminate poor practices from the market, cover the following areas:
- fitness and propriety
- integrity
- expertise and care
- impartiality and conflicts of interest
- professional behaviour
- systems and controls
There are also additional standards for professional trustees who act as Chairs of trustee boards and/or have sole trustee appointments.
The standards will apply to anyone falling within the Pension Regulator's description of a "professional trustee" as set out in its August 2017 policy document. The Regulator will consider compliance with them as an indicator of fitness and propriety.
The standards will be applied on a "comply or explain" basis whereby professional trustees will be expected to describe how they meet each of the standards or explain why they have not done so. It is likely that most professional trustees are, broadly speaking, already compliant with the new standards, so demonstrating compliance is unlikely to be an onerous exercise. From an employer and trustee perspective, the standards should prove useful in helping to clarify what they can expect from a professional trustee.
The consultation closes on 2 March 2018 and the standards are expected to be published by PTSWG in April/May 2018. In addition, PTSWG is also developing an accreditation framework which professional trustees will be expected to achieve. Details are expected to be published later this year.
Amendments to HMRC Reporting Requirements
The Registered Pension Schemes and Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2018 (the Regulations) came into force on 30 January 2018.
The Regulations made amendments to:
- the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567) (the Provision of Information Regulations); and
- the Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (S.I. 2006/208) (the QROPs Information Regulations).
Ceasing to be a Master Trust is a Reportable Event
The Regulations amended the Provision of Information Regulations with effect from the tax year 2018-19 and subsequent tax years, to provide for a reportable event when a scheme ceases to be a Master Trust Scheme.
As a reminder, a Master Trust Scheme is defined in section 1 of the Pension Schemes Act 2017 as being an occupational pension scheme which:
| (a) | provides money purchase benefits (whether alone or in conjunction with other benefits); |
| (b) | is used, or intended to be used, by two or more employers; |
| (c) | is not used, or intended to be used, only by employers which are connected with each other; and |
| (d) | is not relevant public service pension scheme. |
Where a registered pension scheme ceases to be a Master Trust Scheme, the scheme administrator must provide an event report to HMRC confirming that the scheme has ceased to be a Master Trust Scheme and the date which this occurred.
In its Explanatory Memorandum to the Regulations (at paragraph 7.5), the Government explained the rationale behind this change as intending to align "HMRC's tax registration process for pension schemes, with the Pensions Regulator's (TPR) new authorisation and supervision regime for master trust schemes. Legislation in the Finance Bill 2017-18 will introduce changes to the tax registration and de-registration rules, so that HMRC can refuse to register and can de-register a master trust that does not have TPR authorisation. This requirement to notify HMRC when a scheme becomes or ceases to become a master trust scheme will provide HMRC with the information it requires to consider the registration of the scheme".
Consequential amendments to reflect the reduced annual allowance
The Regulations also made consequential amendments to the QROPs Information Regulations to reflect the reduction in the level of the money purchase annual allowance from £10,000 to £4,000 with effect from 6 April 2017.
The QROPs Information Regulations specify the reporting requirements for the provision of information by scheme administrators of registered pension schemes and scheme managers of overseas pension schemes to registered pension scheme members. One of the obligations to members under the QROPs Information Regulations is that the scheme administrator must provide a member with a statement when he/she may be first flexibly accessing his/her pension rights. The amendments made to the QROPs Information Regulations make minor changes to that provision in so far as to reflect the reduction in the money purchase annual allowance from £10,000 to £4,000. These changes took retrospective effect from the tax year 2017-2018.
PPF releases its new suite of standard form contingent asset agreements
The Board of the Pension Protection Fund (PPF) has issued new versions of all of its standard form contingent asset arrangements and has overhauled its contingent asset guidance.
By way of background, contingent asset arrangements provide a pension scheme with assets where certain events occur, such as an insolvency event in respect of the scheme's employer. Subject to meeting a number of conditions, the PPF will take account of a contingent asset when it calculates a scheme's risk based levy – potentially resulting in a reduction in a scheme's PPF levy. Among other conditions for PPF recognition, a contingent asset arrangement must be in the PPF's standard form and various certifications need to be given by the pension scheme's trustees to the PPF both at inception and annually thereafter (normally before the end of March each year).
Any new contingent asset being entered into on or after 18 January 2018 must use the updated versions issued in January 2018.
Contingent asset arrangements executed under an appropriate earlier PPF standard form document before 18 January 2018 can be recertified as normal for the 2018/19 levy year. However, for the 2019/20 levy year, the PPF anticipate that they will not recognise pre-January 2018 style standard form "Type A" and "Type B" arrangements with a fixed (as opposed to floating) cap element. Schemes with those older documents would need to adopt the new standard form arrangement for the PPF to take the arrangement into account for levy purposes. This will be a more involved process and the PPF recommends that schemes affected by this development plan ahead for it.
In addition to the above changes, from 2018/19, as part of certifying or recertifying any Type A contingent asset that provides a levy reduction of £100,000 or more, the trustees will need to obtain a formal guarantor strength report from a professional adviser.
Finally, the PPF has also made some changes to the certification process for Type A guarantees where there is more than one guarantor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
