It has been a relatively quiet start to the year for pensions. Our latest insight covers developments since the beginning of the year including a Pensions Ombudsman decision on GMP equalisation, updated dashboards reporting standards, confirmation that the pension fund clearing exemption on derivatives will be retained, and confirmation that the auto-enrolment £10,000 earnings trigger and qualifying earnings bands will remain the same for 2025-26.
TPO dismisses complaint that scheme’s GMP equalisation project unreasonably delayed but failure to provide updates was maladministration
Summary
The Pensions Ombudsman (TPO) has found that a trustee failing to provide updates to a former scheme member (Mr N) on the scheme’s guaranteed minimum pension (GMP) equalisation (GMPe) project when it had agreed to do so was maladministration. However, he determined that the scheme’s GMPe exercise had not been unreasonably delayed and that having an incomplete record of the member’s transfer out of the scheme on 5 April 1991 was not maladministration.
Background
In a landmark judgment handed down on 20 October 2018 (Lloyds 1), the High Court ruled that pension schemes must equalise overall pension scheme benefits for the effect of unequal GMPs between men and women. In a subsequent (third) decision in the Lloyds case on 20 November 2020, the High Court ruled that historic cash equivalent transfer values must also be revisited where the transfer value would have been higher if it had allowed for GMPe.
In Mr N’s case, the scheme’s trustee provided two member updates following Lloyds 1 in 2019 and 2020. Although Mr N did not receive these as a former member of the scheme, he wrote to the scheme in December 2020 to ask about the impact of the case on his scheme benefits. There followed several back-and-forth communications about GMPe including the trustee telling Mr N that it would consider the ruling, it would contact Mr N at the “appropriate time to inform him if a top up payment was to be made” and requesting a copy of Mr N’s leaver statement and details of his transfer as the scheme did not have this information.
Mr N’s complaint
Mr N subsequently complained under the scheme’s internal dispute resolution procedure, and then to TPO, regarding the failure of the trustee to provide updates on GMPe and to have a ‘credible plan’ to deal with GMPe and about his ‘lost’ transfer records.
TPO determination
- Delay on the GMPe project (not upheld): The Adjudicator found that there “was no requirement on the Trustee to complete the review within a certain timescale” and that by liaising with the principal employer and advisers on an appropriate methodology, it had “taken appropriate action to address the issue.” TPO agreed. Although GMPe should not be “unnecessarily delayed, it is understandable that it will take a reasonable period of time to implement” and did not find that the project had “at this point, been unreasonably delayed.”
- Incomplete transfer records (not upheld): TPO acknowledged that the transfer records for Mr N were incomplete but noted that he had transferred out a ‘considerable time ago’ and that schemes only typically keep limited information on past transfers. Given Mr N had not suffered a loss in this respect, so there was no maladministration.
- Member communication (upheld): The Adjudicator and TPO found that the failure to communicate with Mr N after agreeing to do so was maladministration. The trustee was directed to pay £500 compensation for the significant distress and inconvenience that this had caused Mr N.
Key point
TPO’s finding that GMPe projects are “difficult and complicated” and will take a “reasonable period of time to implement” will provide some comfort to trustees that are still progressing their GMPe exercises, albeit they should satisfy themselves that they have taken appropriate action to date and do not unnecessarily delay.
That part of the decision relating to member updates serves as a reminder for schemes to provide updates to members where it is appropriate to do so, for example, as in this case where they have agreed to give them.
Pensions Dashboards Programme (PDP) blog on updated reporting standards
The PDP’s reporting standards blog confirms that updated draft reporting standards have been published. These standards cover the requirements for generating and recording operational information and reporting it to the Money and Pensions Service (MaPS).
The latest version follows the updated standards that were issued on 20 November 2024. Following further consultation, additional changes have been made including a new 2-phase approach for reporting meaning although pension providers and schemes must keep records from April 2025, the routine submission of data to MaPS will apply later. Details of all the updates and corrections made can be found in a changelog.
The final standards should be available during Q1 2025 – material changes are not expected to be made.
Pension fund clearing exemption time limit to be removed
HM Treasury’s response to its November 2023 call for evidence confirms that the Government will introduce legislation so that the current 18 June 2025 exemption for pension funds having to clear certain derivative contracts does not expire and to remove any further exemption time limits.
The responses highlighted that mandatory clearing would require schemes to increase cash holdings, thereby restricting investment in higher growth assets, taking away the exemption could worsen market stress events and there are core differences in market structure between the UK and other jurisdictions that do not have an exemption.
The policy will be subject to review so it may change in response to market changes or government reform.
Torsten Bell replaces Emma Reynolds as Pensions Minister
Torsten Bell MP has replaced Emma Reynolds MP as the joint Treasury and DWP Minister as from 14 January 2025. Ms Reynolds has become Economic Secretary to the Treasury.
Auto-enrolment earnings trigger and qualifying earnings bands to stay the same for 2025/26
The Government has confirmed that the earnings trigger that determines eligibility for being automatically enrolled into a qualifying pension arrangement for 2025-2026 will stay at £10,000, representing a real terms decrease in the value of the trigger and the lower and upper earnings limits for the qualifying earnings band will also remain unchanged at £6,240 and £50,270 respectively.
These limits have remained the same for some time now, but we still await confirmation as to the Government’s plans for extending the auto-enrolment regime. The Pensions (Extension of Automatic Enrolment) Act 2023 provides regulation making powers to reduce the age at which workers would be automatically enrolled and abolish the lower earnings limit for contributions, but these regulations have not yet been introduced.