UK: Pensions Snapshot - June 2018

Last Updated: 12 June 2018
Article by Philip Goodchild and Alex Rush

This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of May 2018 in relation to occupational pension schemes. The topics covered in this edition are:

  • Upper Tribunal rules against ITV in anti-avoidance case
  • Mr L (PO-18149): Employers failed to make appropriate pension arrangements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
  • Data Protection Act 2018 comes into force
  • The great advice Act

Upper Tribunal rules against ITV in anti-avoidance case

The Upper Tribunal has ruled that it was reasonable for the Pensions Regulator (TPR) to seek financial support from ITV for members of the Box Clever Pension Scheme (the Scheme). This is the first TPR anti-avoidance case to be heard in full by the Tribunal.

The case concerned the decision taken by TPR in 2011 to issue Financial Support Directions (FSDs) against five ITV group companies in relation to the Scheme, which currently has a buy-out deficit of around £115 million. This anti-avoidance action came about following the collapse of Box Clever in 2003. Box Clever was formed in 2000 as a result of a merger between Granada (now ITV) and Thorn (now Carmelite) and the Scheme was established in 2001 for affected employees. It appears that ITV extracted significant value from Box Clever prior to its collapse.

ITV originally challenged TPR's determination to issue the FSDs in January 2012. It also challenged TPR’s ability to submit additional evidence to the anti-avoidance case in 2013. However, both the Court of Appeal and the Upper Tribunal found in TPR’s favour in relation to the additional evidence challenge and permission for ITV to appeal was refused.

The Upper Tribunal's recent decision, which followed a two week hearing in January 2018, concluded that it is reasonable for ITV to provide financial support for the Scheme in the circumstances. The Upper Tribunal noted that “By their choice of structure for the Joint Venture, the Shareholders extracted considerable cash from the business with no risk of recourse to their assets. They retained an ongoing interest in the merged business with the possibility of further value being generated if the business was successful, but without having to bear any responsibility if the business, whose strategy they continued to determine, subsequently failed.”

The Tribunal also clarified a number of points regarding how and when TPR can use its FSD powers:

  • Retrospectivity – when operating the FSD regime in order to meet its objectives, TPR can take into account events which occurred prior to the Pensions Act 2004 coming into force.
  • Responsibility – the FSD regime is not fault-based and so does not require criticism/blame to be found against targets for their conduct. Instead, the regime is responsibility-based; in this case ITV chose the structure of the joint venture and should therefore bear appropriate responsibility for the risks.
  • Reasonableness – whether it is reasonable to issue an FSD is assessed by balancing all the relevant facts to reach a conclusion, with the relationship between the targets and the scheme as the starting point. An FSD may still be issued against a target even if it has not received any substantial benefit from its relationship with the scheme's sponsor.

The Upper Tribunal also clarified the scope of the decision taken by the Courts in 2010 in ITS v Hope concerning whether it is permissible for trustees to take into account the availability of the PPF when making scheme decisions. They did not lay down any general principles but, instead, concluded that the question had to be considered on a case-by-case basis.

ITV has indicated that it will seek to appeal the Upper Tribunal's decision and so this long-running dispute looks set to continue for a while longer.

Mr L (PO-18149): Employers failed to make appropriate pension arrangements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

The Pensions Ombudsman (PO) has upheld a complaint where there were two successive business transfers as a result of which two employers transferred a small business but both of them failed to comply with their obligations to make appropriate pensions arrangements under sections 257 and 258 of the Pensions Act 2004.

Mr L was employed by the Co-operative Group (CG) and was a member of the defined contribution section of the CG pension scheme. In April 2015, Mr L was notified that CG had agreed to transfer his business to Mr M and that the transfer constituted a TUPE transfer – this would have provided protection for Mr L's pension benefits. Mr L's employment was transferred to Mr M in April 2015. A second TUPE transfer then occurred in December 2016 when Mr L's employment was transferred to Blacksey Limited (BL) (who he worked for until February 2018 when BL was dissolved). Between April 2015 and February 2018, neither Mr M nor BL provided Mr L with pension accrual.

The PO held that both Mr M and BL had been obliged to provide pension benefits under an appropriate pension arrangement for Mr L as a result of the TUPE transfers. The failure of both Mr M and BL to do this had resulted in Mr L suffering injustice which amounted to maladministration on the part of both Mr M and BL.

The PO therefore directed that Mr M and BL (notwithstanding it had been dissolved) should pay pension contributions for the periods during which Mr L had been employed by each of them. The contributions payable were the same as the contribution rates which had been required under the CG pension scheme. In addition, the PO concluded that Mr M's and BL's failure to respond had caused Mr L further considerable distress and inconvenience. The PO took this into account and directed each of Mr M and BL to pay Mr L £2,500 to compensate him.

Data Protection Act 2018 comes into force

The Data Protection Act 2018 (the 2018 Act) received Royal Assent on 23 May 2018. It repeals and replaces the Data Protection Act 1998 and implements the Government's manifesto commitment to modernise UK data protection laws to make them fit-for-purpose for an increasingly digital economy and society. This includes applying the EU’s GDPR standards to help ensure that the UK and EU data protection regimes are aligned and the UK can continue to freely exchange personal data with the EU post-Brexit.

The effect of the 2018 Act can be summarised under four main elements:

1    General data processing

  • Implements GDPR standards across all general data processing.
  • Provides clarity on the definitions used in the GDPR in the UK context.
  • Ensures that sensitive health, social care and education data can continue to be processed while making sure that confidentiality in health and safeguarding situations is maintained.
  • Restricts rights to access and delete data to allow certain processing to continue where there is a strong public policy justification (e.g. for national security purposes).
  • Sets the age from which parental consent is not needed to process data online at age 13, supported by a new age-appropriate design code enforced by the Information Commissioner (ICO).

2    Law enforcement processing

  • Provides a bespoke regime for the processing of personal data by the police, prosecutors and other criminal justice agencies for law enforcement purposes.
  • Allows the unhindered flow of data internationally whilst providing safeguards to protect personal data.

3    Intelligence services processing

  • Ensures that laws governing the processing of personal data by the intelligence services remain up-to-date and in-line with modernised international standards.

4    Regulation and enforcement

  • Enacts additional powers for the ICO, who will continue to regulate and enforce data protection laws.
  • Allows the ICO to levy higher administrative fines on data controllers and processors for the most serious data breaches – up to £17m (€20m) or 4% of global turnover for the most serious breaches.
  • Empowers the ICO to bring criminal proceedings against a data controller or processor who alters records with intent to prevent disclosure following a subject access request.

The great advice Act

The Financial Guidance and Claims Act 2018 (FGCA 2018) received Royal Assent during May. From the perspective of pension schemes it makes three significant changes.

First, the FGCA provides for the establishment of a Single Financial Guidance Body (SFGB) to replace Pension Wise, the Pensions Advisory Service (tPAS) and the Money Advice Service. The SFGB's functions will cover pensions guidance, money guidance, debt advice, consumer protection and the setting of various strategies related to improving citizens' financial awareness. This consolidation follows an earlier change to tPAS that was completed in April 2018, whereby tPAS' dispute resolution function has been moved in its entirety to the Pensions Ombudsman's Service. It has been reported that the SFGB will be up and running towards the end of this year.

Action for pension schemes: This change (and the earlier transfer of tPAS's dispute resolution services to the Pensions Ombudsman Service) will result in a need for trustees and managers of pension schemes to update the wording of member-facing scheme literature, such as IDRP notices, to reflect the new details of the public bodies that pension scheme members can get in touch with in relation to pensions complaints or for general pensions advice.

Second, the FGCA 2018 provides a regulation-making power to allow for pensions cold-calling to be banned. These regulations may be in place by the end of June 2018. The Information Commissioner's Office (ICO) will have responsibility for enforcing the ban. The ICO will have powers to prosecute and serve monetary penalty notices of up to £500,000 in relation to breaches of the regulations.

Third, the FGCA 2018 provides for regulations (in relation to occupational pension schemes) and FCA general rules (in relation to personal pension schemes) requiring trustees or managers of pension schemes to take certain steps when a member or other beneficiary applies to transfer any of their rights under a pension scheme or start receiving their benefits under the scheme. It seems that these provisions will not apply to occupational pension schemes that only provide defined benefits. Significantly, pension scheme trustees or managers will not only need to ensure the individual is referred to appropriate pensions guidance (with an explanation of the nature and purpose of such guidance) but they will also need to check the individual has, in fact, received (or otherwise opted out of) receiving guidance. The Regulations should also set out rules to explain what constitutes appropriate pensions guidance, how pension scheme trustees and managers should comply with this new duty and certain exceptions to the duty.

Action for pension schemes: This could result in a need to make significant changes to the procedures that schemes adopt when transferring out benefits or starting pension payments. It will be important for pension scheme trustees and managers to consider the content of the upcoming regulations (and any associated consultation for those regulations) so that they understand the scope of their new "signposting" duties.

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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