UK: Pensions Ready Reckoner - March 2016

Last Updated: 23 March 2016
Article by Clive Weber

A recap of latest developments in the ever-changing world of occupational pension schemes.

PARLIAMENT

 

Topic

Legislation  

Budget – 16 March 2016

Key pension tax changes in the Chancellor's Budget:

  • save up to £4,000 per annum into a "Lifetime ISA" until your 50th 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 60
  • TPAS and "Pension Wise" to be scrapped and replaced
  • cash withdrawals (up to £500) to be permitted from DC funds in order to pay for investment and/or decumulation-related advice

Pre-existing tax changes not affected by the Budget

Already enacted - Finance (No 2) Act 2015:

  • Annual Allowance restricted for high earners from 06/04/2016
  • Pension input periods aligned with tax years from 06/04/2016

To be enacted – Finance Bill 2016 (expected July 2016):

  • Lifetime Allowance reduces to £1 million from the present £1.25 million from 06/04/2016, subject to the right to elect for protection
  • Inheritance tax not to apply to unused drawdown funds

Single State Pension from 6 April 2016

The Government has recently issued numerous regulations paving the way for the Single State Pension from 6 April 2016 and addressing the impact on occupational pension schemes. Notable areas for schemes to consider are:

  • where the scheme's benefit structure integrates with the pre 6 April 2016 state pension e.g. Basic State Pension deducted in calculating pensionable earnings
  • whether scheme rules relating to GMP revaluation need amending and, if so, whether under the scheme's amendment power or under trustees' statutory modification power from 6 April 2016

Secondary annuity market

Government is going ahead with the secondary annuity market from April 2017. The relevant tax legislation will be contained in the Finance Bill 2017. Authorised firms are to check whether annuity holders have received "advice" before holders sell their annuity income. The "Pensions Wise" guidance service will be expanded to cover annuitants considering selling their annuities.

Accessing (or transferring) DC trust based benefits

The Disclosure Regulations are being amended so that 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 is expected to be amended from 6 April 2016 to take into account the new DC flexibilities and how this interacts with e.g. attachment orders on divorce.

GMPs - sex equalisation

Government still intends to legislate but timing uncertain.

Consultation

Employer debts: changes for non- associated multi-employer schemes

The consultation on possible changes to the employer debt legislation opened on 12 March 2015 and closed on 22 May 2015 since when nothing further heard...

Auto-enrolment:  LLP members

Government has consulted on Regulations enabling limited liability partnerships to exclude certain of the LLP's members (i.e. those who are genuinely partners in the business) from their auto-enrolment obligations. The Regulations have been issued and will apply from April 2016. For a more detailed exposé of the problems to which this issue could otherwise have given rise, please see our July 2014 Bulletin.

INCENTIVE EXERCISES MONITORING BOARD

 

Liability management in DB schemes

The revised Code applies to incentive offers made to members on or after 1 February 2016. Employers considering such exercises and trustee boards reacting to employers' proposals should take the new Code into account.


FROM THE COURTS 

 

Much activity, especially in the Court of Appeal.

Topic

Developments

Interpreting scheme provisions

BCA Pension Plan

A cost effective way to correct scheme rules: the High Court made an Order under section 48 Administration of Justice Act 1985 authorising trustees to apply the scheme rules in a particular way, on the basis it was clearly necessary to read certain words into the scheme rules to make sense of them. Please see our January 2016 Bulletin for further consideration of this interesting decision.

VAT – recipient of services

Airtours v HMRC

The taxpayer's appeal to the Supreme Court was heard on 25 February 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. HMRC refused the claim on the basis that PWC's services were supplied to Airtours' bankers, and not to Airtours.

Bearing in mind HMRC's present stance on VAT and suppliers' services to pension trustees and employers under tripartite contracts (as recommended by HMRC), the Supreme Court's decision in 'Airtours' is eagerly awaited.

Bankruptcy and elections for pension

Horton v Henry

Court of Appeal hearing due April 2016 – in the light of the April 2015 pension flexibilities, this is an important forthcoming decision on whether trustees in bankruptcy can oblige bankrupt individuals to access DC funds under the new flexibilities, to enhance creditors' returns.

Employer's duty of good faith

Bradbury v BBC

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

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.

Indemnity for section 75 debt

Heis v MF Global Services

Arrangements between group companies including indemnity provisions were, according to the High Court in May 2015, wide enough to include any section 75 debt falling due. The appeal is due to be heard by the Court of Appeal in May 2016.

Defective deeds

Briggs v Gleeds

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 in July 2016.

RPI/CPI

Buckinghamshire v Barnardo's

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 our November 2015 Bulletin for the High Court decision. The Court of Appeal hearing is on 5 and 6 October 2016.

RPI/CPI, take two

British Airways v Spencer

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. Likely hearing of appeal by Court of Appeal in October 2016.

Statutory right to transfer

Hughes v Royal London Mutual Insurance Society

The High Court has held that a member had a statutory right to transfer, overturning the decision of the Pensions Ombudsman.  Please see the separate article elsewhere in this Bulletin for more detail.

AND THE PENSIONS OMBUDSMAN

 

Topic

Developments

Limitation periods

Webber

In a case heard last month, the Pensions Ombudsman held that the date when the six-year limitation period relating to an action for the recovery of pension overpayments stopped was the date upon which the scheme administrator first notified the member of the overpayments and sought repayment.

Ill-health early retirement

Ascough

An employing authority in the Local Government Pension Scheme was held to have no duty to advise a member of the option of applying for an enhanced ill-health early retirement pension from active status on his redundancy, despite the fact that the LGPS had known that the member had taken sick leave in 2010 for a brain tumour. The Ombudsman held that unless the member had specifically applied for an ill-health pension, his employer was not under any duty to advise him of his ill-health benefit options.

Personal pensions: SIPP provider responsible for transfer delay

Lloyd and others

The Deputy Ombudsman held that a SIPP provider was in large part responsible for delays in making in specie transfers for four account holders to a new provider. This was mainly because the provider had neglected to inform the relevant parties that its procedures required the transfer request to come straight from the new provider.

Early retirement terms

Layfield

It was held that the scheme rule requiring employer consent for an unreduced early retirement pension was not overridden by a member communication which did not refer to the requirement. Further, the Ombudsman held that the employer was entitled to withhold its consent to early retirement without any breach of its implied duty of good faith as it could take its own financial interests into account in making that decision.

Winding up

Muller

The Ombudsman held that a former sponsoring employer unjustifiably stopped a member's monthly pension payments which it had been funding itself, following the winding up of the occupational pension scheme, until the employer was acquired by a new owner in 2013. The Ombudsman held that a reference in the scheme booklet to a pension being payable for life from the date of retirement amounted to an enforceable promise to pay such a pension. The employer's failure to do so was maladministration.  Please see the separate article elsewhere in this Bulletin for more detail.

Transfer values

Bower

In December 2015, the Deputy Ombudsman held that it was maladministration for a pension provider to supply incorrect annual benefit statements and transfer authority forms which implied there was no transfer penalty and then to impose such a penalty on a transfer without giving notice to a member. However, she held that following the Steria decision, the provider was not estopped from going back on its incorrect representations about the transfer value as the provider's existing offer of reinstatement meant the member would not suffer detriment if it was not held to the representation.

Recovery of overpayments

Belk

In November 2015, the Ombudsman dismissed a complaint by a pensioner about the actions of the scheme administrator and trustees in seeking to recover overpaid pension and failing to put one of his additional voluntary contribution (AVC) funds into payment on time. The Ombudsman held that the respondents were legally entitled to recover the overpayment and reduce the pension to its correct level unless the member had a good defence. The member was unable to provide adequate documentary evidence to support such a defence or to support his claim for increased compensation for late payment of his AVC fund. The case demonstrates the difficulties which can arise for administrators and trustees when seeking the recovery of overpayments.

Time limit for complaints

Lennon

In November 2015, the Ombudsman dismissed a member complaint that an employer failed to inform them about valuable pension transfer options as it was outside the three-year time limit applying to complaints. The Ombudsman held that the member ought reasonably to have known about the omission complained of in 2005, seven years before she brought her complaint in 2012.

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.

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