Pensions insight: weeks ending 4 & 11 November 2022

In this edition of our Insight, we report on a recent age discrimination case that confirms the validity of the time limit in respect of post-Brexit claims and provide updates on all other key pensions developments including an update from the Pensions Regulator on the new single code of practice and the appointment of Laura Trott MP as Pensions Minister.

Age discrimination case confirms validity of the time limit for post-Brexit cases

The Employment Appeal Tribunal (the EAT) has confirmed that, although the legislation that excludes pre-1 December 2006 accrued pension benefits from the general prohibition on age discrimination (the December 2006 Exemption) is inconsistent with EU law principles, the introduction of the European Union (Withdrawal) Act 2018 (the Withdrawal Act) means that only two of the 17 claimants could continue with their claim because they were the only two who had brought their case before 31 December 2020, the date that the UK left the EU (the Withdrawal Date). The other 15 claimants were not permitted to continue their claims because they had not brought their claims until after the Withdrawal Date. (Secretary of State for Work and Pensions v Beattie & Ors [2022])

The EAT’s decision means that, subject to any appeal, the potential disapplication of the December 2006 Exemption on the grounds that it does not conform with EU anti-discrimination general law principles is significantly curbed to prevent any claims being made on this basis following the departure of the UK from the EU. Had this not been the case the decision could have had far reaching implications for many occupational pension schemes that, in reliance of the December 2006 Exemption, have not removed age discriminatory provisions relating to benefits accrued prior to December 2006.

Background

The case concerned the T&N Retirement Benefits Scheme (1989) which entered a PPF assessment period in 2006. The scheme has also been involved in two other well known cases (Hampshire and Hughes) which held that the PPF must pay compensation equivalent to 50% of the value of a member’s accrued benefit entitlement and that the PPF compensation cap amounted to unlawful age discrimination (see our Insight).

Under UK age discrimination legislation, schemes are not permitted to discriminate on the grounds of age unless the discrimination is objectively justified. This general rule is subject to several exemptions including a carve-out for pre-1 December 2006 pensionable service. The claimant members argued that reducing their benefits because they were under normal pension age when the scheme entered a PPF assessment period was age discriminatory and, despite this being permitted by the December 2006 Exemption, contrary to EU non-discrimination law principles.

The Employment Tribunal (the ET) decision

The ET decided that, in line with the Walker v Innospec decision (see our Insight) on same sex survivor pensions and the ‘future effects’ principle, because the claimants were being paid benefits after the age discrimination legislation was introduced they had an ongoing right which meant that their case could be heard. (The future effects principle provides that a decision as to whether discrimination has occurred should take place at the time that a benefit is paid.)

The ET went on to hold that the December 2006 Exemption was incompatible with EU non-discrimination law principles and should be disapplied. If upheld on appeal, this decision would have had a significant impact on those schemes that have relied on the Exemption when ensuring that the rules comply with age discrimination requirements.

However, although the EAT agreed with the ET on this point (and on other parts of the ET’s ruling that were the subject of the appeal) it held that all but two of the claimants could not continue their case as the Withdrawal Act does not allow a Court or Tribunal to disapply UK domestic legislation because it is incompatible with EU law after the Withdrawal Date (with an exception applying for claims submitted before the Withdrawal Date). As noted above, only two claimants had brought their case before this provision was introduced.

New single code of practice timing update

The Pensions Regulator has given an update on the new single code of practice. Louise Davey, Head of Policy at the Regulator, has confirmed that the code is “in its final stages” and, subject to parliamentary process variables, is expected to be laid before Parliament by the end of this year or the start of January 2023. It will need to lay before Parliament for 40 days before it can be brought into force.

Laura Trott MP confirmed as Pensions Minister

Member of Parliament for Sevenoaks, Laura Trott, has been appointed as the new Minister for Pensions at the DWP. The DWP announced her appointment on 7 November 2022. As Pensions Minister, Ms Trott will have responsibility of state, private and occupational pensions as well as oversight of bodies such as the Pensions Regulator.

Regulator, FCA and MaPS joint warning on pension scams

The Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service have issued a joint warning to trustees and savers concerning the heightened pension scam risk arising from recent cost of living and interest rate increases.

Although evidence of any increase in pension scams has not yet materialised, the organisations wish to highlight the potential issue now given the current economic climate means that certain savers with finance concerns may be more vulnerable to scammers.

The press release sets out some common scam signs which include:

• “being contacted out of the blue
• phrases like ‘pension liberation’, ‘loan’, ‘loophole’, ‘savings advance’, ‘one-off investment’, ‘cashback’
• guarantees of better returns
• help to release cash from a pension before the age of 55, with no mention of the HMRC tax bill that can arise
• high-pressure sales tactics – time-limited offers to get the best deal; using couriers to send documents, who wait until they’re signed
• unusual high-risk investments, which tend to be overseas, unregulated, with no consumer protections
• complicated investment structures
• fixed-term pension investments – which often mean people who transfer in and do not realise something is wrong for several years.”

As ever, trustees should remain alert to the presence of scams and suspect transfer requests. They must follow the red and amber flag system that was introduced a year ago by new transfer regulations (see our insight).

PPF 7800 Index Report shows increases in aggregate surplus and deficit

The latest PPF 7800 index update setting out the estimated funding position on a section 179 basis as at the end of October 2022 of the eligible 5,215 DB schemes shows that:

• the aggregate surplus of these schemes increased over the month to £374.7bn from a surplus of £374.5bn at the end of September 2022;
• total assets were £1,490.3bn and total liabilities were £1,115.6bn;
• the funding ratio fell from 134.8% at the end of September 2022 to 133.6% at the end of last month; and
• the aggregate deficit of the schemes in deficit increased to £5.8bn, up from £5.3bn at the end of September 2022.

Bank of England speech on leverage risks

On 7 November 2022, Sarah Breeden, Executive Director at the Bank of England (the BoE) made a speech on the risks from leverage. The speech follows the recent economic volatility that resulted in the BoE’s intervention in the gilts market.

Ms Breeden elaborated on how leverage outside of the banking sector has the potential to create risks and how a “small corner of the pensions industry threatened financial stability”.

Key points of Ms Breeden’s speech include:

• Leverage is a key part of the economy but there are intrinsic risks that must be managed. Crises and economic turbulence, including recent activity by pooled funds in the pensions’ liability-driven investment industry, have underscored the need to consider the potential consequences of poorly-managed leverage.
• An emphasis on the importance of firm stress testing and setting resilience with reference to the system and to market dynamics to mitigate the risks that leverage poses to markets and counterparties who provide cash to meet collateral calls.
• Banks can limit the risks from leverage in the non-bank system to the core financial system through strengthening risk management practices of dealer banks and prime brokers.

FCA issues statement on defined benefit pension redress calculations

The FCA issued a statement on 9 November 2022 noting that a minority of firms that are required to provide defined benefit pension advice redress calculations are not incorporating all fees and charges in keeping with pension transfer redress guidance (FG17/9). Some firms are also unfairly ending consumer contracts after a complaint has been made. The FCA has made clear that offending firms will have action taken against them by the FCA.

The statement also highlighted the importance of correctly calculating redress for former members of the British Steel Pension Scheme following a consultation the FCA launched in March 2022 on whether to implement a consumer redress scheme. The FCA Board are yet to make a decision on this.

The FCA have set out in further detail how firms should calculate redress payments in their statement on pension transfers redress guidance.

FCA issues final rules and guidance on pensions dashboards for regulated providers

On 1 November 2022, the FCA issued a policy statement outlining its final rules and guidance for pensions dashboards for FCA-regulated pension providers. Firms will be required to complete connection to the dashboard’s ecosystem by 31 August 2023 – this deadline is extended to 31 October 2024 for providers with less than 5,000 pots in accumulation which depend upon a third-party integrated service provider to comply.

The FCA also confirmed that it will open another consultation before the end of year on the proposed regulatory framework for operators of qualifying pensions dashboard services with the intention of opening the authorisations gateway in the summer of 2023.

You can read more about pensions dashboards in our previous insights here and here.