European Union: Pensions Snapshot - July 2018

Last Updated: 18 July 2018
Article by Mark Catchpole and Stephen Richards

This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:

  • Consultation now open on wider Pensions Regulator powers
  • A final salary link does not amount to pensionable service: G4S Plc v G4S Trustees Ltd
  • Interpreting guidance: R (Palestine Solidarity Campaign Limited) v Secretary of State for Communities and Local Government
  • Gender re-assignment and sex discrimination: MB v Secretary of State for Work and Pensions
  • Heterosexual civil partnership court ruling
  • Some upcoming key cases

Consultation now open on wider Pensions Regulator (tPR) powers

Following the White Paper 'Protecting Defined Benefit Pension Schemes' released in March 2018 (click here), the DWP has now opened a consultation on enhancing tPR's powers. The consultation document can be found here.

The consultation will seek responses on a variety of topics relating to tPR's powers, including giving tPR further capability to impose penalties, such as larger fines and criminal sanctions. The consultation addresses new ways in which tPR can give closer scrutiny to the actions of sponsoring employers in corporate transactions, in particular through changes to the notifiable events regime and a new 'declaration of intent' from a sponsoring employer on its plans in relation to its pension scheme. The consultation will also look at enhancing tPR's moral hazard powers - contribution notices and financial support directions - including widening the scope of potential targets of tPR's powers and reviewing the existing criteria for when those powers can be used.

Sponsoring employers and trustees can expect changes to the regulatory regime further down the road but should anticipate that tPR will be adopting already its new strategy of being a "stronger, quicker, tougher" regulator.

The consultation will run until 21 August 2018.

A final salary link does not amount to pensionable service: G4S Plc v G4S Trustees Ltd

The yet to be reported case of G4S Plc v G4S Trustees Ltd confirmed that retaining a link to an employee's final salary in a pension scheme, in which members no longer accrue years of service, does not constitute "pensionable service" for the purposes of the employer debt legislation. The distinction is important as an employer with employees in pensionable service could owe a statutory debt under section 75 of the Pensions Act 1995 to the pension scheme upon ceasing to employ any employees in pensionable service. This will provide comfort to sponsoring employers in relation to closed schemes which retain a final salary link. We await the full transcript for the case.

Interpreting guidance: R (Palestine Solidarity Campaign Ltd) v Secretary of State for Communities and Local Government

This case gives us some clues as to the limits of guidance issued under a statutory power. In this instance, the guidance was issued by the Secretary of State in relation to the local government pension scheme. Whilst the court held that the guidance did not extend beyond the scope of the authorising legislation, the case demonstrates that there are limits to the scope of guidance issued under a statutory power. Guidance and codes of practice issued by the tPR would be subject to similar principles.

The case concerned guidance published by the Secretary of State for Communities and Local Government in relation to the investment strategy of authorities administering the local government pension scheme. In particular, the guidance required that an authority, when making investment decisions, "consider any factors that are financially material to the performance of their investments, including social, environmental and corporate governance factors... however... using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are [sic] inappropriate". Further, when formulating and maintaining its policy on social, environmental and corporate governance factors, the guidance states that an administering authority "should not pursue policies that are contrary to UK foreign policy or UK defence policy".

These statements were challenged by the claimants who objected to the limiting effect of the guidance on their ability to campaign around the investment of local government pension funds, in particular in respect of issues relating to Palestine. The government expressed concerns that involving local government pension funds in political issues might undermine community cohesion at home and could impact adversely on the financial success of UK defence industries.

The court considered whether the statements in the guidance extended beyond the scope of the legislation which gives the Secretary of State the power to issue guidance. The court held that the legislation does permit wider considerations of public interest to be taken into account when formulating guidance and that the guidance did not extend beyond the scope of the legislation.

Additional point to note: This case reflects the growing influence of environmental, social and governance factors on pension scheme investment and we should expect further developments in this area as 'ESG' becomes a more prominent issue to members and regulators alike.

Gender re-assignment and sex discrimination: MB v Secretary of State for Work and Pensions

The Court of Justice of the European Union (CJEU) considered the case of MB, who was born a male in 1948 and married in 1974. She began to live as a woman in 1991 and underwent sex reassignment surgery in 1995. MB did not, however, hold a full certificate of recognition of her change of gender as for that certificate to be granted her marriage had to be annulled. Without the full certificate, MB was not treated as a woman for the purpose of determining her state pension age and was not granted a state pension from age 60.

The CJEU held that the UK legislation which required marriage annulment before granting a certificate of recognition of change of gender was directly discriminatory on grounds of sex. Member states cannot treat differently persons who have changed gender after marrying and persons who have kept their birth gender and are married, with regard to the age of entitlement to a State retirement pension.

Heterosexual civil partnership court ruling

The Supreme Court has held that restricting civil partnerships to same sex couples and not heterosexual couples is discriminatory. Trustees may wish to revisit their rules to assess the impact of this ruling on survivor benefits.

Some upcoming key cases

  • Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank PLC: The High Court is now hearing this GMP equalisation case which many in the pensions industry hope will grasp the nettle on how to equalise GMPs.
  • Barnardo's v Buckinghamshire: The Supreme Court has considered the ability of the Barnardo's pension scheme to switch to CPI rather than RPI and a decision is expected in the coming months. Stephenson Harwood advised the representative beneficiaries in this case.
  • BT is appealing to the Court of Appeal after the High Court rejected its argument to move to CPI rather than RPI as the appropriate index for pension increases. The Court has now confirmed that the appeal hearing will begin on 9 October 2018 and is estimated to last 3 days. Stephenson Harwood acts for the representative beneficiary in this case.

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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