Pensions Essentials - June 2024

Labour Party: The Labour Party manifesto says that a Labour government will:

• Act to increase investment from pension funds in UK markets. It is not clear how this will be achieved and whether a Labour government would continue with the current proposals to allow surplus to be refunded from ongoing schemes.
• Adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC. This appears to be in line with the current direction of travel and the intentions of the Pensions Regulator.
• Undertake a review of the pensions landscape to consider what more is needed to improve pension outcomes and improve security in retirement. This could potentially lead to far reaching reforms but, without more detail, it is impossible to say whether this is the case or even guess what such reforms might entail.
• Adopt reforms to workplace pensions to deliver better outcomes for UK savers and pensioners. This suggests that a Labour government would enact regulations under the Extension of Automatic Enrolment Act 2023 to reduce the age of eligibility for auto-enrolment to 18 (from 22) and to provide that contributions are payable from the first pound earned (instead of on earnings over £6,240).  

The Labour Party has also been reported as no longer planning to reverse the abolition of the lifetime allowance, noting that “thousands of people approaching retirement [are] in limbo because of errors in legislation”. This means that the regulations that HMRC has already said are required to make the post LTA tax regime work as intended are likely to go ahead.

Conservative Party: Presumably, a Conservative government would keep on doing what they were already doing and pursue the reforms that have already been consulted on, including refunds of surplus, extending collective defined contribution schemes and introducing a public consolidator. In addition, the Conservative manifesto says that a Conservative government would not introduce any new taxes on pensions and would maintain the 25% tax free lump sum and tax relief on pension contributions at their marginal rate.  In addition, it would not extend National Insurance to employer pension contributions.

Liberal Party: The Liberal Party said in their manifesto that they would:

• Require pension funds to show that their investments are consistent with the Paris Agreement and create new powers for regulators to act if banks and other investors are not managing climate risks properly. It is not entirely clear what this would add over and above existing climate change reporting requirements. 
• Review employment law rights including rules concerning pensions so that those in the gig economy don’t lose out.
• Develop measures to end the gender pension gap in private pensions (see below for more on this).

In a recent blog, the Ombudsman noted that demand for his office’s services has increased significantly for a number of years and that this trend seems likely to continue.  However, this increased demand is “outstripping [the] capacity to resolve cases for complainants and respondents in a timely fashion”. To deal with this, the Ombudsman has carried out an in-depth review of its operating model, looking at options for improved efficiency. He says that there is now a “clear plan for tackling our historical caseload and reducing our queue lengths and waiting times.”  

More detail on what this plan will mean for those bringing complaints and those defending them will emerge in coming months but in the meantime, it is clear that there will be an increased reliance on scheme internal dispute resolution procedures (“IDRPs”). 

Existing regulations provide that where a dispute is covered by a scheme’s IDRP, the Ombudsman cannot generally investigate a complaint until a decision has been reached under that procedure and notified to the member. There are exceptions to this where the Ombudsman concludes that there is no real prospect of a decision being reached or it would be reasonable for him to investigate.  

The Ombudsman notes that these requirements were relaxed in 2018 when the Pensions Advisory Service moved its (informal) dispute resolution function to the Ombudsman’s office and the early resolution service was established. This provides “an informal and streamlined approach to dispute resolution… [which] relies on the willingness of all parties to resolve a complaint informally and is run on the basis of consent and cooperation”. The Ombudsman’s factsheet on the service said that it is available where the member has not completed the scheme’s IDRP, although it does require “a complaint to have at least been raised informally with the respondent”.

The Ombudsman is now changing its approach and says that going forward, the early resolution service will require complainants to exhaust their scheme’s IDRP before it will consider investigating a complaint. The hope is that this change will allow some complaints to be resolved by trustees without the need for input from the Ombudsman.

In terms of timing, the Ombudsman says that it will “be moving from piloting some aspects of the change to full implementation by autumn this year.”

The guidance is aimed at situations involving transitions of members to and from master trusts, focussing on master trust to master trust and single employer schemes to master trust transfers. It assumes a transfer does not involve a distressed situation or an imposed wind-up and that the receiving master trust is selected after appropriate due diligence.

The guidance looks at a number of aspects of a transfer, including:

Fiduciary duties: Trustees of the transferring scheme will need to consider the advantages and disadvantages of the transfer for their members and ensure legal and regulatory requirements are complied with. This means that they will need to undertake due diligence on the receiving scheme and consider how it compares to theirs, including looking at charges, quality of governance and administration, member services, benefit and investment options, security of benefits and ongoing value for money.

Planning the transition: The guidance sets out the practical issues that will need to be dealt with as part of the transition and time scales. These include consultation with members, auto-enrolment, payroll, data audit, member queries, asset transfer and issues around winding up the transferring scheme. 

Communications: As well statutory consultation requirements for employers, the guidance considers the need to clearly communicate with employees about the receiving scheme including the need to complete expression of wish forms, fund selection, target retirement ages, options and registering on member websites. It also considers how to ensure that communication with members is as effective as possible.

Data: There is a checklist of issues to consider around the transfer of data and ensuring that data is in an acceptable format to transfer. This includes the need for trustees to consider the quality of their data and to rectify any historic issues which become apparent as a result of the data cleanse. It also looks at the practicalities of the data transfer and how to test that data has been properly transferred.

Assets: The transition of assets could involve either an in specie transfer, a cash transfer or the re-registration of assets held on an insurance platform. Each option will entail different charges, some of which may be mitigated and different out of market risks for members. The guidance lists the issues that should be considered in relation to asset transfers.

This determination shows the importance of carefully considering the meaning of words used in a trust deed.

R was a member of a scheme which provided unreduced early retirement benefits from age 60. In addition, where an active member left service “at the request of the employer”, they could receive unreduced early retirement benefits from minimum pension age (which was 50 for some members and 55 for others). In 2010, as part of a benefit restructuring exercise, the employer agreed that the unreduced early retirement benefit would also apply where a deferred member was made redundant although this was never reflected in the scheme rules.

In 2016, R (who was over his minimum pension age of 50) was told that his employment would be transferred to a new employer but that an unreduced early retirement pension would not be available from the transferring employer’s scheme. The new employer subsequently went into administration in 2019 and R was made redundant. R complained that he should have been entitled to an unreduced early retirement pension from the transferring employer’s scheme from 2016, or failing that, from 2019.  

The Ombudsman determined that R was not entitled to an unreduced early retirement pension. He referred to a decision of the Court of Appeal in AGCO v Massey Ferguson Works Pension Trust Ltd which considered when an entitlement to an unreduced early retirement pension arose where the rules provided for it where a member “retires from Service at the request of the Employer”. The Court said that “it is requiring too much of this phrase to suppose that it is intended to include cases where the employer not merely requests but successfully enforces retirement. The natural meaning of “request” suggests that the employee can choose whether or not to comply with the request.” The majority of the Court concluded that the rule could not therefore apply to a compulsory redundancy situation.

Although the rule in AGCO was not on all fours with the rule in this case, both rules referred to “the request of the employer”. The Ombudsman concluded that in this case, R left employment as a result of the operation of TUPE rather than at the request of the employer. The TUPE transfer could not be said to be voluntary as there was no option for R to remain in employment with his original employer, he could either transfer to the new employer or employment would be terminated on the transfer date. 

The Ombudsman also considered the contractual promise from the employer to provide unreduced early retirement benefits on redundancy to deferred members but concluded that it was clear that this only applied where a deferred member was made redundant by the original employer and R was not – he was made redundant by his new employer after the TUPE transfer.