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Pensions Bulletin 2017/34

Our viewpoint

British Steel one step closer to a regulated apportionment arrangement

The Pensions Regulator has announced that it has given initial approval to a proposal from Tata Steel UK to restructure the British Steel Pension Scheme (BSPS).  This follows news in May that agreement was close (see Pensions Bulletin 2017/21).

As before, there will be a regulated apportionment arrangement that will enable Tata Steel UK to separate from BSPS.  The new information that has come to light is that the BSPS will receive £550m from Tata Steel Group and a 33% equity stake in Tata Steel UK.  And of course, the Regulator has been satisfied that if no action was taken on the pensions front, Tata Steel UK would likely become insolvent within the next 12 months (with all that could imply for the PPF’s currently strong funding position).

A new DB scheme will be set up offering the same benefits as the BSPS but with lower pension increases.  This will be sponsored by Tata Steel UK and, subject to the scheme meeting certain qualifying conditions, members of the BSPS will be given an option to transfer to it.  Those who remain in the BSPS will be transferred to the Pension Protection Fund.  It is likely that either way, most members of the BSPS will experience some cutback in their promised benefits.

The Pension Protection Fund has issued a short statement that confirms that the proposal meets its published principles and so it has not objected to the regulatory apportionment arrangement.  It has also made it clear that the new DB scheme will need to meet certain risk-related conditions, including funding and size, before being set up.

Separately, the Government has updated that part of its website dealing with the May 2016 consultation.  It would seem that a response to the consultation will not be finalised until there have been further developments with the restructuring of BSPS.

In a press release issued by the trustee of the BSPS, it says amongst other things that it expects the transfer to the new scheme will be completed by the end of March 2018 and the BSPS will go into a PPF assessment period by the end of that month.

Comment

This is a highly significant development, not only for the 130,000 or so members of the BSPS (for whom the trustee will shortly have to explain the choices available in such a way that members can take a decision that is right for them), but also for the preservation of jobs in what remains of the UK’s steel industry.

It had been thought that the new scheme would be one of the new breed of schemes without a substantive employer on which the PPF has special levy terms, but now that Tata Steel UK is to sponsor the scheme this seems not to be the case.

Insofar as the PPF is concerned, how much of the BSPS it has to take on will depend upon the outcome of the transfer exercise, but right now, as many members will be better off transferring to the new scheme than staying put and receiving PPF compensation, it would seem that it may not have to take on much.

As for last year’s consultation on options to separate BSPS from Tata Steel UK, it does now very much seem that none of them are needed to enable the job to be done.

Regulator finalises its monetary penalties policy and definition of “professional trustee”

Following consultation (see Pensions Bulletin 2017/16), the Pensions Regulator has now finalised its policy on monetary penalties applicable to trustees (including managers of non-trust based schemes and any person who exercises trustee functions, such as directors of a corporate trustee) and their advisers who contravene pensions legislation.  It has also settled on a revised description of a professional trustee.

Monetary penalties

The settled policy is very similar to that on which the Regulator consulted – in particular, the banded approach on which it consulted is to go ahead as proposed.

Professional trustee

The essence of the professional trustee description policy, whilst being a new document, is not that different to the proposals on which the Regulator consulted.  However, it does now contain some useful examples to illustrate when the Regulator may consider someone to be (or not to be) a professional trustee.

The Regulator considers a professional trustee to be any person, whether or not incorporated, who acts as a trustee of the scheme in the course of the business of being a trustee.  This includes an individual who represents or promotes themselves to the trustees or sponsors of one or more unrelated schemes as having expertise in trustee matters generally (whether for remuneration or otherwise).  Although this designation seems to be clear cut, the Regulator has also commented that any monetary penalties will take into account particular expertise, experience and remuneration within the trustee board.

The Regulator intends that standards and accreditation for professional trustees will now be built up through the Professional Trustee Standards Working Group, which has been established by a number of professional trustee bodies.

Comment

The monetary penalties framework looked sensible and so it is of little surprise that it has been settled with hardly any alteration.  Insofar as the professional trustee designation is concerned, now that the preliminaries are sorted it will be interesting to see where this leads, as clearly the Regulator wishes to drive improvement in this segment of the market.

More naming and shaming from the Pensions Regulator

In its latest compliance and enforcement quarterly bulletin, the Pensions Regulator has chosen to name those schemes that have received a financial penalty for failing to complete a scheme return or annual governance statement signed by the chair of trustees on its website at http://www.tpr.gov.uk/fines.  The two separate lists set out the name of the scheme and the fine amount.  There are about 100 chair’s statement failures and over 50 scheme return failures.  Amongst them are some high profile organisations including national and multi-national businesses.

This latest “naming and shaming” follows on from the Regulator’s decision in the previous quarterly bulletin to list those employers who had received escalating penalty notices for automatic enrolment failures and county court judgments for failing to pay their fines (see Pensions Bulletin 2017/21).  That list is also supplemented by the current quarter’s failures.

Comment

The Regulator is not obliged to publish these statistics, but clearly thinks that there is a public interest in so doing, as highlighted in the new Monetary Penalties Policy that “penalties … act as a warning to others” (see above article).  Whether it will lead to improvements in compliance for what are fundamental duties remains to be seen.

Once again the bulletin reveals the scale of the use that the Regulator has had to make of its powers to ensure that employers carry out their auto-enrolment duties.  We suspect that there will be no let-up in this for some while.

New guidance published on compensation for loss of pension rights

Following a consultation that took place in 2016 (see Pensions Bulletin 2016/16), fresh guidance has now been issued to employment tribunals setting out how they may wish to go about quantifying the loss of pension rights when someone has been unfairly dismissed.

A short document entitled “Presidential Guidance” sets out the background and explains the key concepts, whilst a much longer document entitled “Principles for compensating pension loss” examines the new approach in depth.

The principles are guided by five concepts: justice; simplicity; proportionality; pragmatism; and flexibility.

In relation to occupational pension rights, the principles identify a category of “simple” cases, for which the suggested approach is to assess the contributions the employer would have made to the claimant’s pension scheme during the period of loss that has been identified.  This is likely to be used in relation to DC schemes and in certain DB scheme cases (eg where the loss relates to a short period).

For “complex” cases, such as where the claimant has lost pension rights from a DB scheme relating to a longer period, the approach is different.  A “seven steps” model is described which incorporates the Ogden Tables.  Alternatively, the parties may call expert actuarial evidence, with the tribunal’s preference being for a jointly-instructed expert.  The guidance also permits tribunals under some circumstances to enable parties to agree a pension loss amount from initial findings, without full calculations using either of these methods.

The Principles do not have the force of law and so if the parties wish to advance arguments for using their own calculations, rather than following the Principles, the employment tribunal will consider them.

Comment

The final guidance is very similar to that proposed in 2016 and is likely to be welcomed by those involved in such cases.  And for “complex” cases, the use of the Ogden tables (utilising a discount rate of – 0.75%) is likely to result in much higher pension awards than under the old approach.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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