None of us could have predicted the most significant event of 2020: Covid-19 has dominated the year, with the pensions world not escaping the impact. But pension scheme trustees and sponsoring employers have had plenty of other developments to get to grips with in the ever-shifting world of pensions. The snapshots below provide a summary of the most important developments in UK pensions law over the year, with links to further information where available.
Trustees and sponsoring employers of UK pension schemes faced a range of challenges as a result of the government response to Covid-19, with requests for contribution deferrals topping the agenda. The Pensions Regulator published a wealth of guidance to help trustees of both defined benefit (DB) and defined contribution (DC) schemes. Read more here, here, here and here.
Climate change remains high on the agenda for the government, with the publication of a consultation on significant new requirements for occupational pension schemes to align their governance processes and disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Initially the requirements would apply only to larger pension schemes and authorised master trusts, but smaller pension schemes should expect similar requirements to extend to them in the coming years. Read more here.
In March, the Regulator published a consultation on a proposed new regulatory approach to funding for DB pension schemes. This represents the most fundamental shift in the scheme funding regime since it was introduced in 2005. Read more here.
The High Court has handed down its latest decision in the Lloyds case, ruling that trustees are liable to top-up past transfer payments that failed to take account of the obligation to equalise for GMPs. As a result, trustees will need to expand their GMP equalisation projects to include consideration of top-up payments in respect of transfers-out going back to 17 May 1990. Read more here.
In October, the Regulator published guidance for trustees and employers of DB pension schemes considering transferring to a superfund. This follows the introduction earlier in the year of an interim regulatory regime for assessing and supervising superfunds, pending the full legislative framework that the government intends to put in place in due course. The guidance should provide employers and trustees with the confidence to proceed with a superfund transaction where this is appropriate for their scheme. Read more here.
In September, the government consulted on proposals which would require trustees of smaller DC occupational pension schemes to carry out a more extensive value for members assessment. If trustees do not consider that the scheme provides value for members, they would be expected to wind-up the scheme and consolidate members into a larger scheme. Read more here.
Future of trusteeship:
The Regulator published its response to last year’s consultation on the future of trusteeship and governance. The consultation included proposals in relation to trustee knowledge and understanding (TKU), scheme governance structures and DC consolidation. For the time being at least,
many of the more controversial proposals, such as requiring a professional trustee to sit on every pension scheme board, have been shelved. But trustees can expect some changes, particularly in relation to TKU, with much of the detail to follow in a consultation expected in early 2021. Read more here.
The High Court handed down its decision in Hughes v Board of the Pension Protection Fund. This case looked at two questions of significance to trustees and employers of DB pension schemes: the PPF’s proposed approach to calculating compensation following the Hampshire decision; and whether the PPF compensation cap is lawful. Read more here.
Switching from RPI to CPI:
2020 saw several Court decisions about whether the wording of the relevant scheme rules allowed a switch from RPI to CPI as the index by reference to which pension increases are calculated. In two construction cases, the Courts thwarted the attempts by employers to switch from RPI to CPI, but a rectification claim was more successful. Read more here.
Corporate Insolvency and Governance Act:
The new Corporate Insolvency and Governance Act came into force, giving companies in financial difficulties two new tools to help them avoid insolvency: a new moratorium (or temporary payment holiday); and a new restructuring process, which could allow the company to reduce (“cram down”) the rights of creditors without their agreement. Both have potential implications for pension scheme trustees. Read more here.