Issues affecting all schemes
Scheme amendments – retrospective validation
The Court of Appeal has upheld an appeal against a High Court decision that amendments made to a pension scheme to introduce higher pension increases were valid despite a failure to observe the correct formalities. The High Court had decided that the amendments, although not valid at the time, had been validated by replacement rules introduced in 1993. The Court of Appeal held that this involved the re-writing of history to an impermissible extent. The 1993 rules, which purported to take effect from 1990, did not provide for the higher pension increases, but included various provisions whereby the higher pension increases could have been introduced by agreement between the employer and the trustees without the need for signatures.
BIC UK Limited v Burgess and others  EWCA Civ 806
Trustees and employers should take care to ensure that scheme amendments are effective by following all the required formalities under the trust deed and rules and legislation.
Breach of statutory and trust law duties – trustee liability
The Pensions Ombudsman has directed two trustees to pay over £2 million to their scheme following actions on their part which amounted to breaches of their statutory investment duties and their trust law duties. The Ombudsman also held that the trustees' actions amounted to pure maladministration and ordered the trustees to pay £5,000 to each of the 14 complainants in recognition of the exceptional level of distress and inconvenience suffered by the complainants. The Ombudsman has submitted a copy of his determination to the Pensions Regulator so that the Regulator can consider whether to appoint an independent trustee to the scheme.
Mr L and others (PO-7292 and others)
Trustees should ensure that they comply with their statutory and trust law duties and, if necessary, they should take professional advice on what those duties are and what they need to do to comply with them.
Distribution of death benefits – procedural failures
The Deputy Pensions Ombudsman has directed a scheme administrator to reconsider its decision on distribution of the death benefits payable under a member's pension policy after the administrator decided to pay the benefit to the member's partner rather than his widow (from whom he was separated). The Deputy Ombudsman concluded that the administrator had not made sufficient enquiries about the two women's respective financial circumstances and the administrator's stated reason for discounting the widow's claim was inconsistent with the evidence before it. As such, there was a procedural error in the administrator's decisionmaking which had caused the widow injustice. The Deputy Ombudsman also directed the administrator to pay £500 to the widow for the significant distress and inconvenience caused, rather than the £200 that the administrator had offered to pay.
Mrs D (PO-20255)
Trustees should ensure that they follow a proper process when deciding on distribution of death benefits. In particular, they should ensure that they obtain sufficient evidence of the respective financial circumstances of each potential beneficiary and that they verify information received from a potential beneficiary about another potential beneficiary
Issues affecting DB schemes
Derivatives – new EU regulation
The EMIR Refit Regulation has been adopted and will come into force on 17 June 2019. The Regulation amends the European Market Infrastructure Regulation (EMIR) which governs the use of derivatives in the EU. The Refit Regulation makes a range of changes to EMIR, the most important of which in the pension scheme context is an extension of the exemption for pension scheme arrangements from the clearing obligation under EMIR for a further two years (until 18 June 2021) (with the possibility of two further one year extensions). (The extension is also extended retrospectively to 17 August 2018 when the previous exemption expired.) Schemes should also be aware that new rules under EMIR requiring counterparties to post "initial margin" in relation to their uncleared over the counter (OTC) derivatives will come into force in 2020. These changes are only likely to affect the very largest pension schemes.
Trustees of schemes holding uncleared OTC derivatives should take advice to confirm whether the initial margin requirements will apply to them.
DB funding – failure to obtain scheme valuations
The Upper Tribunal has upheld fines issued by the Pensions Regulator to three trustees for failure to obtain two triennial scheme valuations as required under the Pensions Act 2004.
Trustees should ensure that they obtain triennial scheme valuations and annual funding updates in the intervening two years.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.