UK: Pensions Ready Reckoner - July 2016

PARLIAMENT

Topic

Legislation

Lifetime ISA from 6 April 2017

The Brexit Vote on 23 June 2016 may disrupt the government's legislative programme, including the new Lifetime ISA (from 6 April 2017 save up to £4,000 per annum into a "Lifetime ISA" until your 50^th birthday and then access it (along with a Government-funded "bonus") tax-free, either as a deposit for your first house or once you've hit age 60).

Reduction in Lifetime Allowance ("LTA")

Brexit Vote has delayed Finance Bill 2016 from July to the Autumn.  Once enacted the change in the LTA to £1 million will be retrospective to 6 April 2016 as will the right to elect for protection from the change.  These changes have provisional effect under the March 2016 Budget Resolutions.

Single State Pension from 6 April 2016

Problematic areas remain including:

• Whether scheme rules relating to GMP revaluation need amending and, if so, whether under the scheme's amendment power or by trustees using their new statutory modification power from 6 April 2016; and
• A legislative flaw means that group transfers without members' consent cannot be made to a new scheme in relation to members' contracted-out rights.

Secondary annuity market

Government is going ahead with the secondary annuity market from April 2017. The relevant tax legislation will be contained in Finance Bill 2017. Authorised firms are to check whether annuity holders have received "advice" before holders sell their annuity income and "Pension Wise" guidance will be expanded to this area – see generally the Bank of England and Financial Services Act 2016 enacted 4 May 2016.

Accessing (or transferring) DC trust based benefits

Disclosure Regulations amended: DC trust based schemes must provide generic risk warnings as a second line of defence, on top of the existing statements/warnings already required.

The pensions on divorce legislation amended from 6 April 2016 to take into account the new DC flexibilities and how this interacts with e.g. attachment orders on divorce.  Administrators must inform ex-spouses about member's request for flexible access.

GMPs - sex equalisation

Questionable whether the Government will proceed following the Brexit Vote.

Auto-enrolment:  LLP members

Regulations made with effect from 6 April 2016 giving limited liability partnerships discretion to exclude certain LLP members (those who are genuinely partners in the business) from auto-enrolment. For more details please see 'A can of worms (and then some) – LLPs and auto-enrolment'.

FROM THE COURTS 

The Courts continue to be busy with important pensions cases.

Topic

Developments

Signing the wrong deed and rules

Girls Day School Trust

May 2016

In this clear case of an oversight, the High Court granted rectification without a full hearing so the later correct Deed and Rules could be executed.

VAT – recipient of services

Airtours v HMRC

May 2016

In 'Airtours' PWC provided its services (financial report on Airtours) under a tripartite agreement between PWC, Airtours and Airtours' bankers. Airtours sought to reclaim input tax on PWC's invoices paid by Airtours. HMRC refused the claim on the basis that PWC's services were supplied to Airtours' bankers, and not to Airtours.  The Supreme Court has upheld HMRC's decision.

Actuary's certificate on group transfer of members

Pollock v Reed

May 2016

On a group transfer of members without their consent Regulations require the actuary to give a certificate. The High Court decided that the "broadly no less favourable" condition in the Regulations does not require the actuary to take into account the security of benefits in the receiving scheme. WB comment: however, security will usually still be an issue for trustees.

Bankruptcy and elections for pension

Horton v Henry

April 2016

This case has been heard and the Court of Appeal's judgment is awaited. This is an important decision on whether trustees in bankruptcy can oblige bankrupt individuals to elect to access their DC pension not yet in payment, so trustees in bankruptcy can obtain an income payments order. See also the High Court decision on 19 May 2016 in Hinton v Witherspoon concerning the point at which a bankrupt becomes entitled to income when in capped drawdown.  The Court indicated that income rights have to be fully settled before the Court can make an income payments order.

Indemnity for section 75 debt

Heis v MF Global Services

March 2016

Court of Appeal has upheld the High Court's decision that reimbursement provisions between a group company and the group's service company were wide enough to include any section 75 debt falling due.

Defective deeds

Briggs v Gleeds

Appeal July 2016

In July 2015 the High Court held that a series of amending deeds were legally ineffective as they had not been properly executed. This and other matters, including the meaning of the scheme's alteration powers, are being appealed and are due to be heard in the Court of Appeal on 11 or 12 July 2016.

RPI/CPI

Buckinghamshire v Barnardo's

Appeal October 2016

The High Court decided in July 2015 that RPI had not been replaced by CPI and therefore under the wording of the scheme rules the trustee could not switch to CPI. This finding is being appealed. The members are cross-appealing on section 67 Pensions Act 1995, arguing that the trustees switching to another index would breach the section 67 protection for subsisting rights. See 'To switch or not to switch: that is the question for the High Court decision'. The Court of Appeal hearing is on 5 or 6 October 2016.

RPI/CPI, take two

British Airways v Spencer

Appeal October 2016

British Airways are seeking to overturn the decision of the BA pension scheme trustees to give themselves power to award discretionary pension increases, following the government's switch from RPI to CPI for statutory purposes.

Employer's duty of good faith

Bradbury v BBC

Appeal 2017

Court of Appeal hearing due in February/March 2017 – a long time to wait! The High Court previously decided in May 2015 that the BBC was not in breach of its employer's duty of good faith by imposing a cap on pensionable salary.

Employer duties

IBM v Dalgleish

Appeal 2017

Court of Appeal hearing not now anticipated until May 2017 – the High Court decision in 2014/15 that IBM were in breach of the duty of good faith, and the Court's remedies awarded as a consequence of the breach, are being appealed.

FROM THE PENSIONS REGULATOR

Besides giving evidence to the BHS Select Committees TPR has been active in numerous other areas. Please see our article 'The bid that fell through'.

Topic

Developments

DC Governance

(1) New Code of Practice re DC trust based Schemes – the new Code was laid before Parliament on 9 May 2016 and takes effect in early July. Six TPR guidance notes to the Code are expected to be issued. Codes of Practice do not have the force of law but, if relevant to any questions arising in legal proceedings, must be taken into account by the Court or tribunal.

(2) TPR has issued the first fine for failure to produce an annual government statement - the trustee of the Abbey Manor Group Pension Scheme received the minimum mandatory fine of £500 (TPR announcement 29 June 2016).

(3) TPR is consulting on a revised Compliance and Enforcement policy relating to occupational DC schemes.

Prosecution policy

TPR has issued its formal policy regarding prosecutions for criminal offences in relation to work place pensions including auto-enrolment.

AND THE PENSIONS OMBUDSMAN

Generally – the Pensions Ombudsman has announced that in future it will anonymise decisions and not publish claimants' names, bearing in mind the trend towards increasing protection of personal information.

Topic

Developments

Exclusion of pensioner from pension increase exchange (PIE)

Mr N

May 2016

The pensioner's complaint that the insurer had incorrectly excluded him from the PIE exercise was dismissed. The Deputy Ombudsman held it was the employer who had decided this in accordance with the deed governing the PIE exercise.

WB comment: any claim based on age discrimination seems not to have been considered.

Condition for marriage at time member ceased employment upheld

Mrs R

May 2016

The scheme rules specified the time of ceasing employment as the basis for identifying the spouse of the member. Even though the parties had lived together for 20 years and had married 3 months before the member's death, the Ombudsman found no reason to justify deviating from the scheme rule.

High risk SIPP investments

Mr N

May 2016

In dismissing the complaint the Ombudsman disregarded later FCA guidance, specifically referring to unregulated collective investment schemes as it was not appropriate "to apply current levels of knowledge and understanding, or present standards of practice, to a past situation".