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

• Queen’s Speech: State Pension and the triple lock
• House of Commons Library publishes pensions reform briefing paper
• PRA policy statement on the implementation of ring-fencing
• TPR issues Contribution Notice in Carrington Wire case

Queen’s Speech: State Pension and the triple lock

In her speech to both Houses at the State Opening of Parliament on 27 May 2015, the Queen announced that the basic State Pension will continue to be a focus for the Government, saying that: “Measures will also be brought forward to secure the real value of the basic State Pension, so that more people live in dignity and security in retirement.”

During the previous Parliament, the Government introduced the “triple lock”, under which the basic State Pension now increases annually by the highest of the growth in average earnings, price inflation or 2.5%.  In its manifesto, the Conservative Party pledged that it would maintain the triple lock guarantee for the duration of the current Parliament.

House of Commons Library publishes pensions reform briefing paper

On 26 May 2015, the House of Commons Library published a briefing paper giving an overview of pension reform issues at the start of the current Parliament.  It covers issues such as the new pension flexibilities, increases in State Pension age, auto-enrolment and the single tier State Pension.

PRA policy statement on the implementation of ring-fencing

On 27 May 2015, the PRA released a policy statement on “The implementation of ring-fencing: legal structure, governance and the continuity of services and facilities”.

Under the Financial Services and Markets Act 2000, the PRA is required to make policy to implement the ring-fencing of core UK financial services and activities.

The policy statement provides feedback on the responses received to the PRA’s October 2014 Consultation Paper and includes amendments to the draft rules and supervisory statements included in it.  The policy statement covers three areas:

• legal structure arrangements of banking groups subject to ring-fencing
• governance arrangements of ring-fenced bodies
• arrangements to ensure continuity of services and facilities to ring-fenced bodies.

The Government has stated its intention for ring-fencing to take effect from 1 January 2019.  Ahead of this, the PRA intends to undertake a further consultation during 2015 and to publish final rules and supervisory statements during 2016.

TPR issues Contribution Notice in Carrington Wire case

TPR has published a report detailing its investigation into the Carrington Wire Defined Benefit Pension Scheme (the Scheme), which led to its decision to issue a Contribution Notice of £382,136 against an individual who took control of the sponsoring employer.

Background

Carrington Wire Limited (CWL) was a manufacturing company based in Yorkshire and the sole sponsoring employer of the Scheme, which had around 500 members.

In 2006, CWL (which was loss-making at the time) was acquired by a subsidiary of POA Severstal, the Russian parent company of the Severstal group.  As a condition of the acquisition, the seller required Severstal to provide a guarantee to the Scheme covering all payments due to it from CWL, including employer debt payments due under s.75 of the Pensions Act 1995.  However, Severstal negotiated a clause which meant the guarantee would fall away if Severstal ceased to be associated with CWL.

In 2008, Severstal explored various exit routes from its investment in CWL and, in 2010, informed the trustees, employers and TPR that it had begun a solvent wind-down of CWL.  Later that year it closed the plant.  CWL was left with only one material asset (a property) and no ongoing business but it retained a substantial liability to the Scheme.  Severstal assured the trustees that it would continue to honour the guarantee following the wind-down.

However, without informing the trustees or TPR, Severstal entered into negotiations with Richard Williams, sole director and shareholder of a shell company, Gillico Limited, for the sale CWL.  Severstal sold its entire shareholding in CWL to Gillico for £1, with a purported working capital adjustment of £400,000, the majority of which was received by Mr Williams personally.

As a result of the sale, the Scheme lost the benefit of the guarantee and became solely reliant on CWL, which Severstal had already wound down.

TPR action

In November 2012, TPR issued a warning notice to three potential “targets” – two businesses domiciled in Russia (PA Severstal and OAO Severstal-Metiz) and Mr Williams – indicating its intention to issue Contribution Notices in connection with the Scheme.

In early 2015, shortly before an oral hearing of TPR’s Determinations Panel was due to take place, TPR reached agreement on a settlement with the two Russian companies.  Provided they pay £8.5 million to the Scheme, TPR would withdraw its case against them.

The Determinations Panel chose to issue a Contribution Notice against Mr Williams for £382,136 – the amount he had personally received from the sale and used for his own purposes.

TPR notes that the settlement and funds due from Mr Williams are insufficient to allow the scheme to avoid entry into the PPF.  TPR therefore now expects the Scheme to complete its assessment period and enter the PPF.