7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• DCLG launches consultation on merger of two local pension funds
• FCA to consult on methodology in cases of redress for pension transfers
• High Court shuts down pension liberation scheme
• MoJ publishes update on the implementation of the Fee-Paid Judicial Pension Scheme
• HMRC issues latest “Countdown bulletin” on the abolition of DB contracting-out
• PPF publishes Levy Data Correction Principles
• Pensions Institute report on exploitation of pension schemes
• Work and Pensions Select Committee launches DB pension schemes inquiry
• Grenville Holden Hampshire v the Board of the Pension Protection Fund (28 July 2016)

DCLG launches consultation on merger of two local pension funds

On 4 August 2016, the DCLG launched a consultation on proposed regulations that would enable the merging of the pension funds of the London Boroughs of Wandsworth and Richmond upon Thames, with the aim of achieving efficiency savings.

Currently, the Local Government Pension Scheme Regulations 2013 require each borough to maintain its own pension fund. It is therefore proposed that the 2013 regulations will be amended to permit the merger. However, no changes to members’ contributions and pension benefits are intended.

The closing date for responses to the consultation is 15 September 2016.

FCA to consult on methodology in cases of redress for pension transfers

On 3 August 2016, the FCA announced its intention to consult in the autumn on proposals to update the methodology used in calculating the levels of redress due in cases of unsuitable advice on transfers from DB occupational schemes to personal pensions.

The current methodology, developed in the 1990s, aims to put consumers back in the position they would have been in had they stayed in their DB scheme. The FCA is concerned that the methodology, which is used by the industry and the Financial Ombudsman Service, may no longer achieve this objective.

Where a firm is currently handling a complaint regarding advice given in connection with pension transfers, or receives such a complaint before the consultation is complete, the FCA states that the firm should continue to comply with its obligations under complaints handling rules. However, if, following its investigation and assessment, the firm needs to offer redress, the FCA would not expect it to be fair for the firm to attempt to settle the complaint on a ‘full and final’ basis until the outcome of the consultation is known. The FCA states that it would expect the firm to communicate the reason for any delay to the customer, and to consider whether it can offer provisional redress on an interim basis until the outcome of the consultation is known.

The FCA aims to reach its conclusions by spring 2017. It is intended that any changes to the redress methodology will apply to future redress payments only.

High Court shuts down pension liberation scheme

An investigation by the Government’s Insolvency Service has lead to the winding up of Thames Trustees Ltd, a company operating a pension liberation scheme.

The investigation found that 79 members had joined the scheme, investing an aggregate of £3,333,665 by transferring their existing pension scheme investments into it. Members had been promised cash payments in return, either in the form of a ‘loan’ from an associated company or from commission on investments made by the company.

The High Court found that the company had operated with a lack of transparency and a lack of commercial probity, that there was never any intention that the loans received by clients would be repaid, and that the investments made with the scheme funds were not made for any true commercial purpose.

Insolvency Service Investigation Supervisor, Colin Cronin, commented: “The structure of this pension liberation scheme was deliberately opaque and the lack of transparency was added to by the failure of those in control of the company to fully cooperate with the investigation. The operation of the scheme was highly prejudicial to the clients who were required to invest their pension funds into it in order to obtain the early release of part of those funds. The balance of funds were not legitimately invested as clients were led to believe.” He noted that the proceedings “show that the Insolvency Service will take firm action against companies which mislead the public in this way.”

MoJ publishes update on the implementation of the Fee-Paid Judicial Pension Scheme

On 4 August 2016, the MoJ issued an update to its January 2016 statement, on the introduction of a “fee-paid judicial pension scheme” (for fee-paid judicial office holders), in response to the UK Supreme Court’s judgment in the 2015 case of O’Brien.

The latest statement explains progress made since the MoJ’s January update, and notes that the scheme is now likely to be put in place on or before 1 April 2017. This represents a further delay in the process, with the MoJ’s announcement in January having already pushed the scheme’s introduction back from 31 March to 1 December 2016.

The main reason now given for the delay, is the complexity of drafting rules dealing with AVCs, added years and added spousal and civil partner benefits.

Any eligible judges who retire between now and 31 March 2017 can apply for interim payments on account of pension by contacting the MoJ.

HMRC issues latest “Countdown bulletin” on the abolition of DB contracting-out

On 5 August 2016, HMRC published issue 19 of its contracting-out Countdown Bulletin, which provides guidance for pension scheme administrators in relation to the end of contracting-out as of 6 April 2016.

Among other things, the bulletin gives information on Carer’s Credit, the GMP Checker service, and the Scheme Reconciliation service.

PPF publishes Levy Data Correction Principles

The PPF published a document on 4 August 2016 setting out the key principles that it will apply when considering a data correction request from schemes and advisers.

The PPF notes that, while its fundamental aim is that levies are based on accurate information, this does not mean that all data corrections will be allowed. The PPF will only correct data where it feels the particular circumstances merit it, rather than routinely. The PPF reminds schemes and their advisers that they are the ones “ultimately best placed to ensure that their data is correct, and bear primary responsibility for ensuring that their levy is based on correct data”.

The principles set out in the document remain subject to the provisions of the PPF Levy Determination.

Pensions Institute report on exploitation of pension schemes

On 3 August 2016, the Pensions Institute at Cass Business School published a report issuing a “stark warning” against the “ingenuity of businesses and advisers to milk and dump their pension schemes”. The research identified various ways in which scheme surpluses have been exploited, and deficits shed or sidestepped.

The report calls on the Government to establish an effective Early Warning Programme (similar to that operating in the Pension Benefit Guaranty Corporation (the US equivalent of the PPF) in which TPR would actively seek out and start negotiations directly with weak employers, enabling it to pick up early signs of practices of the kind identified in the report.

Work and Pensions Select Committee launches DB pension schemes inquiry

As announced at the end of May 2016, on 8 August 2016 the Work and Pensions Committee invited written submissions to address one or more of the following issues in relation to DB pension schemes:

• regulation by TPR
• the PPF
• the role and powers of pension scheme trustees
• relationships between TPR, PPF, trustees and sponsoring employers
• the balance between meeting pension obligations and ensuring the ongoing viability of sponsoring employers

In each instance, recommendations for potential improvements are said to be particularly welcome.

The deadline for written submissions is Friday 23 September 2016.

Grenville Holden Hampshire v the Board of the Pension Protection Fund (28 July 2016)

Mr Hampshire had challenged the level of compensation he is entitled to from the PPF, following the insolvency of his employer. In the opinion of the Court of Appeal, several issues of EU law need clarification. The CA has therefore decided to refer certain questions to the CJEU.

For full details, please see our case report.