Pensions snapshot - August 2017
This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of July 2017 in relation to occupational pension schemes.
This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of July 2017 in relation to occupational pension schemes. The topics covered in this edition are:
- Pensions Regulator gets tough on failure to provide information
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
- Ill-health retirement and disability discrimination
- Walker v Innospec – implications for pension schemes
- And now for something slightly different…
Pensions Regulator gets tough on failure to provide information
Under section 72 of the Pensions Act 2004, the Pensions Regulator (tPR) may issue individuals, such as an occupational pension scheme's trustees or employers, with an information notice requiring them to produce any document, or provide any other information, which is relevant to the exercise of tPR's functions. Neglecting or refusing to produce documents/provide information required by tPR under an information notice without a reasonable excuse is a criminal offence under section 77(1) of the Pensions Act 2004 (Section 77(1)).
tPR has now publicly stated it will no longer hesitate to prosecute companies and individuals who refuse to hand over information it needs for an investigation. In support of this new tougher stance, tPR has published a report outlining a number of successful criminal prosecutions it has recently taken under Section 77(1) in response to compliance failures:
- tPR issued an information notice to Ashley Wilson Solicitors LLP which required it to produce conveyancing documents relating to a residential property linked to a tPR pension scam investigation (neither the solicitors nor their client were under investigation). The notice was issued on 26 June 2015 and required the documents to be produced by 30 June 2015. However, despite many chaser emails, telephone calls and letters, the firm did not produce the documents until 17 March 2016 when tPR staff attended the firm’s offices with a search warrant. Both Ashley Wilson LLP and Anthony Wilson, the senior partner at the firm, were successfully prosecuted under Section 77(1) for refusing to provide documents without a reasonable excuse. The Judge ordered the firm to pay a £2,700 fine, £2,500 costs and a £120 victim surcharge. Mr Wilson was fined £4,000 and ordered to pay £7,500 costs and a £120 victim surcharge.
tPR considered the offences committed by Ashley Wilson Solicitors LLP and Anthony Wilson as being at the top end of the scale of seriousness for offences of that kind. This was for a number of reasons, including the deliberate failure to produce the documents more than eight months after the deadline despite numerous demands.
- In a separate case, tPR prosecuted Patrick McLarry in his capacity as a director of VerdePlanet Limited (VerdePlanet), which was trustee of the Yateley Industries for the Disabled Limited Pension and Assurance Scheme (the Scheme). In light of concerns about the management of the Scheme, tPR appointed an independent trustee in place of VerdePlanet. The independent trustee's investigations revealed that VerdePlanet had arranged for the Scheme to make a loan to Plane Sailing Sales Limited and that this led to funds being transferred from the Scheme to an account in the names of Mr McLarry and his wife. tPR wanted to understand how the funds had been used and so issued Mr McLarry with an information notice on 1 May 2015 requiring him to provide copies of bank statements for the account. However, the documents were not provided by a revised deadline of 31 July 2015 and so Mr McLarry was successfully prosecuted under Section 77(1). He was fined £2,500 and ordered to pay £4,000 costs and a £120 victim surcharge.
tPR does point out that it applies a risk-based approach and considers each case on its particular facts when considering how to respond to a failure to comply. However, the report provides a useful reminder that tPR's power to issue an information notice is an important enforcement tool as failure to comply can lead to legal action and might ultimately result in a criminal conviction, a fine and serious reputational damage.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
On Monday, 26 June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations) came into force. In short, the Regulations impose new obligations on trustees of occupational pension schemes to disclose information about "beneficial owners" in certain circumstances. "Beneficial owners" will include the members, the trustees and the sponsoring employer of a scheme. The Regulations have not come in with any fanfare, but behind the scenes there has been some considerable concern voiced about the extent to which these requirements will impact occupational pension schemes (and trustees' workloads!).
Among other things, the Regulations require scheme trustees to keep a record of, and report to, HMRC a certain amount of basic personal information about the beneficial owners of the scheme (e.g. where members are concerned, name, date of birth, national insurance number and where the trust is concerned, details of those who provide legal, tax and financial advice).
There is an exception which means that the requirement to hold the above information does not apply "where the beneficial owners include a class of beneficiaries, not all of whom have been determined." Instead, under the exception, trustees would only need to keep a record of and report to HMRC "a description of the class of person who are beneficiaries or potential beneficiaries under the trust." However, it is unclear how this will apply. The obligation to supply information is onerous and, depending on how the exception can be met, could involve trustees in extensive information-gathering exercises.
Clearly, there is much interest over this and various industry bodies are seeking urgent clarification from HMRC as to how the requirements will work in practice in relation to occupational pension schemes. We will continue to monitor developments but, in the meantime, trustees of occupational pension schemes would do well to look at their common data now to ensure it is up-to-date and accurate.
Ill-health retirement and disability discrimination
A recent case which originated in the Employment Tribunal and reached the Court of Appeal is relevant for those considering applications for ill-health early retirement.
Mr Williams suffered from Tourette's Syndrome, obsessive compulsive disorder, depression and other mental health issues. He worked for Swansea University for 13 years and was a member of their pension scheme. After ten years' employment, as a result of his medical conditions and in discussion with his employer, he reduced his hours by half. Three years later, he became unable to work and took ill-health early retirement under the pension scheme at age 38. Under the rules of the scheme he was entitled to an enhanced pension based on his salary at retirement with no actuarial reduction. This pension was awarded on the basis of the part-time salary which he had been receiving at the time of his retirement.
Mr Williams brought a claim for discrimination arising from disability. He asserted that the failure to base his pension on his full-time salary amounted to unfavourable treatment because of the fact that he had worked part-time, on the basis that his part-time hours arose only because of his disability. He was successful at the Employment Tribunal, but this decision was overturned at the Employment Appeal Tribunal and this was confirmed by the Court of Appeal.
The Court of Appeal, agreeing with the EAT, essentially held that in being granted ill-health early retirement with no actuarial reduction, Mr Williams was in fact receiving a significant benefit – he would not have received that benefit had be not been disabled. The fact that the benefit could have been more generous was not sufficient to show that Mr Williams had been treated unfavourably.
The case is helpful when considering applications for ill-health early retirement as it confirms that, where treatment imparted to an individual is intrinsically advantageous to a member, it will not constitute unfavourable treatment just because it could have been even more advantageous.
Walker v Innospec – implications for pension schemes
We recently reported on the Supreme Court's decision in Walker v Innospec, where the Court declared that an exception in the Equality Act 2010 was irreconcilable with the plain direct effect of EU law. The exception permitted pension schemes to provide certain same sex survivor benefits on a less generous basis than that applicable to survivor benefits for an opposite sex spouse.
As a result of this judgment, where a pension scheme contains provisions that place limits on a same sex spouse's or civil partner's pension that would not apply to an opposite sex spouse's pension, trustees should consider taking action now to ensure that any such discrimination is removed going forwards. They should also consider whether benefits need to be adjusted in relation to any past- or non-payment of same sex survivor benefits where restrictions have been applied.
And now for something slightly different…
Although most pension complaints go via the Pensions Ombudsman, a number do find their way to the Employment Tribunals. The Supreme Court has held that the regime for payment of fees by individuals bringing claims in the Employment Tribunal (and appeals in the Employment Appeal Tribunal), which was introduced by the coalition government in 2013, is unlawful and must be scrapped with immediate effect. The Court held that the introduction of fees have imposed an unjustifiable obstacle to access to justice and also concluded that the regime was indirectly discriminatory on the grounds of gender. The Ministry of Justice will now have to repay all fees received during the four years since the regime was introduced (reportedly around £30 million) and no further fees can be charged. The Government may seek to introduce a replacement regime, but has not yet indicated its intentions in this regard.