UK Pensions

Year in Review 2020 and Year to Come 2021

UK Pensions Year in Review 2020 and Year to Come 2021

As part of the Year in Review, Year to Come series, our UK Pensions team has contributed a UK Pensions Year in Review and Year to Come publication. In this publication we have summarised the key legal developments in the pensions space for 2020 and looked forward in predicting likely themes for 2021.

Find out more about our Pensions advice, or read below for the top developments last year and what we expect to see in the year ahead.

UK Pensions in 2020

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.

Covid-19:

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:

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.

Scheme funding:

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.

GMP equalisation

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.

DB superfunds:

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.

DC consolidation:

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.

PPF compensation:

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.

UK Pensions in 2021

What will 2021 have in store for pension scheme trustees and sponsoring employers?  Perhaps most significantly, the Pension Schemes Bill is expected to become law by the end of 2020, with the impact on trustees and employers expected to be felt from 2021.  Our top predictions for UK pensions law in 2021 are below, with links to further information where available.

Criminal offences:

The Pension Schemes Bill includes new criminal offences for avoidance of an employer debt and conduct risking accrued scheme benefits.  The scope of these offences is wide, with an unlimited fine or up to seven years’ imprisonment (or both) for those found guilty.  The Pensions Regulator is expected to provide guidance on the circumstances in which parties will have a “reasonable excuse” for their actions.  Read more here.

Stronger Pensions Regulator powers:

Alongside the criminal offences, the Pension Schemes Bill includes changes to the Regulator’s anti-avoidance powers, the introduction of a new corporate transaction notification regime and an extension to the Regulator’s information-gathering powers.  Employers will need to significantly adjust their processes around corporate transactions in response.  Read more here.

Scheme funding:

A response to the Regulator’s 2020 consultation on a proposed new regulatory approach to funding for DB pension schemes is expected, together with a second consultation on a draft code of practice.  Read more here.

GMP equalisation:

It is over two years since the High Court handed down its landmark decision in the Lloyds case, confirming that trustees are under a duty to equalise for guaranteed minimum pensions (GMPs), but many trustees are yet to make a start on their GMP equalisation projects.  For most, work is likely to start in earnest in 2021.  Read more here, herehere and here.

Climate change:

The climate change agenda is expected to continue apace, with the new requirements for occupational pension schemes to align their governance processes and disclosures with the TCFD recommendations predicted to start applying to larger pension schemes and authorised master trusts from October 2021.  Read more here.

Pensions dashboards:

The Pension Schemes Bill includes the legislative framework for pensions dashboards, the online platforms which will allow users to view information from multiple pensions in one place.  While the reality of pensions dashboards are probably some years away, the Bill includes powers to compel pension schemes to provide information to the dashboards.  A first version of the data standards is expected imminently, and schemes will be keen to start getting their data ready for the new requirements.  Read more here.

Consolidation:

The theme of consolidation is likely to continue.  Now that the interim regulatory regime for assessing and supervising DB superfunds is in place, we can expect to see the first superfund transaction in 2021.  Meanwhile, smaller DC schemes will come under increasing pressure to wind-up and consolidate into larger schemes, with a more detailed value for members assessment intended to give them a strong nudge in this direction.  Read more here and here.  

Annual benefit statements:

The government is planning to consult on draft regulations mandating simpler annual benefit statement templates for auto-enrolment DC schemes, as well as a mandatory approach to the timing of annual benefit statements.  Read more here.

Pensions Regulator guidance:

The Regulator has said it is planning to combine the content of its 15 current codes of practice to form a single, shorter code.  Its intention is to develop the new code in phases, with its early focus being on the codes most affected by the regulations that implement the EU pensions directive (known as IORP II).  We are also promised an updated version of the TKU code of practice.  Read more here.

x COP26 and beyond: explore our thinking