Pensions snapshot - July 2019
This edition of snapshot looks at the latest legal developments in pensions.
This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:
- New obligations on trustees – disclosure and stewardship
- The need for competitive tenders when purchasing fiduciary management services
- The Court of Appeal gives guidance on the powers of the Pensions Regulator to issue a Financial Support Direction
- Regulator determination: Trustees replaced to protect scheme members’ benefits
- Government refused permission to appeal the discrimination case regarding the Firefighters’ and Judges’ pension schemes
New obligations on trustees – disclosure and stewardship
The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019 (the 2019 Regulations) seem to have taken the industry a little by surprise. The 2019 Regulations are relevant to trustees of both occupational defined benefit and defined contribution pension schemes. They build upon, and are in addition to, the new disclosure requirements that were set out in regulations last year.
As an overview, the 2019 Regulations:
- amend the obligations of trustees of defined benefit schemes by requiring them to publish their statement of investment principles (SIP) on a website. They also expand the information that must be included in the statement setting out how the trustee’s engagement policy has been followed;
- amend the obligations of trustees of defined contribution schemes by expanding the information that must be included in the SIP implementation statement; and
- amend the obligations of trustees of both defined benefit and defined contribution schemes by expanding the information that must be included in the SIP to include information regarding arrangements with asset managers and expanding the content of the stewardship policy.
Further details of these changes can be found in our briefing on the topic.
The need for competitive tenders when purchasing fiduciary management services
The CMA (Competition and Markets Authority) has issued a legally binding order which provides that trustees who wish to delegate investment decisions for 20 per cent or more of their pension fund assets will be obliged to run a competitive tender when first purchasing fiduciary management services. Trustees must use reasonable endeavours to obtain bids from at least three unrelated fiduciary managers to ensure a competitive process. Where schemes already have an appointed fiduciary manager for 20 per cent or more of their assets without a tender, trustees of such schemes must put this service out to tender within five years.
Under the order, fiduciary managers are also required to provide potential new customers with information on their performance and fees to allow for a fair comparison to be conducted between providers.
The order was introduced as part of a number of reforms to the investment consultancy and fiduciary management sector after the CMA found competition problems.
The Court of Appeal gives guidance on the powers of the Pensions Regulator to issue a Financial Support Direction
The Court of Appeal has upheld a Financial Support Direction (FSD) issued by the Pensions Regulator (TPR) against the ITV Group (Target).
The FSD stems from a joint venture that ITV set up with Thorn in 2000, often referred to as Box Clever. In 2001, the Box Clever employers established a defined benefit pension scheme for certain employees (the Scheme). The Box Clever employers subsequently became insolvent, leaving a deficit in the Scheme. TPR issued an FSD to the Target requesting financial support for the Scheme.
There were three areas of appeal:
- The establishment of the joint venture and the Scheme, and the factors TPR took into account in deciding that issuing an FSD was reasonable, pre-dated the legislation that introduced TPR’s FSD powers. The Target argued that the FSD legislation was not intended to have retrospective effect.
- The Target argued that the requisite ‘connected and associated’ test set out in legislation was not satisfied. One of the arguments put forward was that the Target had no control over the employers in the Scheme following the appointment of an Administrative Receiver.
- It was not reasonable to impose the FSD as the establishment of the joint venture was a reasonable commercial decision.
The Court of Appeal rejected each of these arguments, stating that:
- TPR could take into account facts that existed before the FSD regime existed when determining if it was reasonable to impose an FSD.
- On the facts, the Target was sufficiently connected to the employers of the Scheme to be a valid recipient of an FSD.
- There had been no error in law by the tribunal below in determining that the reasonableness test had been satisfied. The Court also confirmed that the Target did not have to be at fault in order to bear some responsibility to the Scheme.
This decision provides useful guidance on the Court’s interpretation of the extent of TPR’s FSD powers. The Court has also reiterated the point that TPR does not need to find there was fault on the part of a target before an FSD can be issued. More detail on this decision can be found in our briefing on the topic.
Regulator determination: Trustees replaced to protect scheme members’ benefits
The trustees of the Dunnes Stores (Bangor) Limited Management Pension Scheme (the Scheme) have been stopped from running the Scheme by TPR. This follows a catalogue of governance failures by the trustees, including failing to:
- prepare adequate chair’s statements;
- comply with statutory charge cap requirements in relation to default investment funds and to properly address the issues arising from that regulatory breach;
- maintain a trustee board consisting of one third member-nominated trustees; and
- follow professional advice obtained in relation to a transfer of Scheme assets.
The decision was made by TPR’s Determinations Panel (the Panel) which determined that the benefits of the Scheme’s 390 members were at risk due to the trustees lacking the knowledge and understanding required to govern the Scheme properly. The Panel found that, despite more than a decade of being responsible for running the scheme, the trustees had failed to “familiarise themselves with the requirements of UK pensions legislation” and demonstrated “that they do not have, or are not exercising, their knowledge and understanding for the proper administration of the scheme”. This led to a series of governance failures which the trustees did little to rectify, even when TPR became involved.
The Panel has now appointed an independent trustee to oversee the Scheme and, ultimately, protect members’ benefits. This is the first time TPR has used its power to appoint a trustee primarily because of a lack of competence of the existing trustee board and perhaps this reflects TPR’s desire to take a clearer, quicker and tougher approach to driving up standards in the pensions sector. Nicola Parish, TPR’s Executive Director of Frontline Regulation, commented: “We will not stand by when trustee incompetence threatens the retirement outcomes of workplace pension savers….In this case, the trustees put member outcomes at risk and so we took action to ensure benefits are protected. The trustees have been replaced because they have consistently failed to show they had the skill to do the job properly….trustees who are not committed to their duties should consider whether it’s right that they continue in their position of being responsible for governing a pension scheme.”
Government refused permission to appeal the discrimination case regarding the Firefighters’ and Judges’ pension schemes
In our briefing in January we discussed the government's transitional arrangements in respect of judicial and firefighter pension schemes. The transitional arrangements were introduced to deal with the transition of members from more favourable terms under the judicial and firefighter pension schemes to less favourable terms. The transitional arrangements favoured older members.
A claim was brought arguing that these arrangements were discriminatory and the Court of Appeal agreed that the transitional provisions were unjustifiably discriminatory. The government attempted to appeal this decision to the Supreme Court. However, we understand that the Supreme Court has refused permission to appeal on the grounds that it does not raise an arguable point of law. The Court of Appeal’s decision will, therefore, stand.