Pensions snapshot - February 2016

This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of January 2016 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 January 2016 in relation to occupational pension schemes. The topics covered in this edition are: 

Abolition of DB contracting-out: ancillary issues to consider before 6 April

Sponsors of defined benefit contracted-out schemes are likely to have been considering what adjustments, if any, they wish to make to their schemes to offset the increase in National Insurance contributions from 6 April 2016 following the abolition of contracting-out.

There are a number of ancillary issues that sponsors and trustees should address before contracting-out is abolished. In particular, trustees of defined benefit contracted-out schemes should be considering whether or not the rules of the scheme need reviewing and amending to account for the end of contracting-out.

As part of that review, schemes with active members who have an entitlement to a guaranteed minimum pension ("GMP") in respect of pre-6 April 1997 contracted-out service should give consideration to their GMP rules. Legislation regarding the revaluation of GMPs is changing with effect from 6 April 2016 so that schemes will be required, as a minimum, to revalue GMPs in accordance with section 148 revaluation until the end of pensionable service rather than the end of contracted-out service. Depending on scheme rules and the approach taken to revaluation, there is a possibility that the scheme will be required to revalue an active member's GMP in the period between 6 April 2016 and the date the member leaves pensionable service using the better of section 148 revaluation and fixed rate revaluation.

Sponsors using a contracted-out defined benefit scheme to comply with their auto-enrolment requirements will also need to review the scheme to ensure that it can continue to be certified as a qualifying scheme when contracting-out is abolished.

If you require any further advice on any of these areas or think these issues may be relevant to your scheme, please contact a member of our pensions team for further advice.

Pensions Regulator consults on criminal prosecution policy

The Pensions Regulator has issued a draft prosecution policy for consultation. The policy explains how the Pensions Regulator intends to use its prosecution powers relating to criminal offences arising under pensions legislation, generally those concerning automatic enrolment or when a prohibited individual acts as a trustee or auditor.

The draft policy sets out the Pensions Regulator's intention to approach prosecution in a fair, balanced and impartial manner. It explains the steps the Pensions Regulator may take where pursuing criminal prosecutions. The consultation closes on 19 February 2016.

Consultations on member-borne commission, auto-enrolment changes and NEST

The Department for Work and Pensions has published consultations on:

  • draft regulations (the Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2016) banning member charges to recover the cost of commission payments made to advisers for certain advice or services, applicable to money purchase schemes used for auto-enrolment; and
  • draft regulations (the Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016) which seek to simplify processes for the re-declaration of auto-enrolment compliance and bringing forwards an employer staging date.
    NEST has also published a consultation on proposed changes to the NEST rules on the level of contributions that can be paid into the scheme and on transfers to and from the scheme.

High Court decides where sea workers are based for auto-enrolment purposes

In R (Fleet Maritime Services (Bermuda) Limited) v The Pensions Regulator [2015] EWHC 3744, the High Court determined whether seafarers employed on ships operating principally outside of UK waters could be considered as ordinarily working in Great Britain for auto-enrolment purposes.

The High Court applied the principle used in the case of Lawson v Serco (which involved dismissal) to determine where a worker's base was for the purpose of the Pensions Act 2008. The test focuses on the port from which seafarers regularly start and end their tour, rather than where they go when on the ship. A worker paid to travel to a foreign port to embark a ship would likely be considered to be commuting to work in these circumstances.

Scottish court dismisses an appeal claiming scheme amendments are invalid

The Scottish equivalent to the Court of Appeal in England and Wales, the Inner House of the Court of Session, in the case of Alexander and others as trustees of the Scottish Solicitors Staff Pension Fund v Pattison & Sim and others [2015] CSIH 96 rejected an appeal that certain amendments to a pension scheme were invalid because they did not comply strictly with the required formalities.

The case relied on the equitable maxim that "all things are presumed to have been done in due form" and turned the burden of proof to the employer to prove that formalities had not been complied with, rather than on the trustees to evidence that they had been complied with.

Although not binding in England and Wales, this case provides an interesting insight into the approach of an appellate Scottish court in cases where amendment formalities have not been followed. In particular, the case focuses on substance rather than technicality, compared with the stricter approach that has been seen more recently in cases heard in the courts of England and Wales.

Recovery of overpayments lawful if member cannot establish defence

In the recent determination of Belk (PO-372 and PO-4244), the Pensions Ombudsman dismissed a member complaint against a scheme's trustees and administrators for recovering overpayments by reducing his monthly pension payments.

The Ombudsman's decision states that, where there is a clear overpayment, there is a right to recover that overpayment. To avoid recovery, a member would need to evidence that he entered into an irreversible financial commitment in good faith based on the increased level of pension.

In this complaint, the member did not produce any documentary evidence to support a "change of position" defence and so the Ombudsman held that the defence failed. As such, the Ombudsman also determined that the recovery of the overpayments by reducing the member's pension was not unlawful.