25 January 2018
Update on DB pension reform – pensions a political football again
Leading politicians are talking about pensions again. It appears that the Observer was briefed by the Prime Minister’s office last weekend that proposals to levy “huge” fines on “company bosses” who fail to protect workers’ pensions will be announced “within weeks”.
This appears to refer to the forthcoming White Paper on DB pensions. As we reported last week (see Pensions Bulletin 2018/03) the White Paper may not arrive until as late as June. Furthermore, we understand that there will not be a Pensions Bill to enact the necessary legislation until 2020. So far, no indication has been given as to whether, or how, this timetable will be accelerated.
The proposals announced at the weekend are not new. Theresa May first announced proposals to give the Pensions Regulator powers to block corporate activity, issue punitive fines, ban miscreants as directors and introduce new criminal offences in this area in a BBC interview last May (see Pensions Bulletin 2017/19). These then found their way into the Conservative Party manifesto (see Pensions Bulletin 2017/22) for the 2017 election.
On Monday there was an Urgent Question debate in the House of Commons “on the Government’s plans to stop private sector pension abuse” in which Esther McVey, the new Secretary of State for Work and Pensions, was quizzed and stuck to the line that the White Paper will be published “in the Spring”. However, she also said the following:
- The Government would give the Pensions Regulator the power to impose punitive fines alongside contribution notices
- Certain corporate transactions would become subject to mandatory clearance by the Pensions Regulator; and
- Following the publication of the White Paper, new regulations would be introduced to ensure that the Regulator gets the information it requires to conduct investigations and casework effectively and efficiently
It is hard not to be cynical about announcements (or re-announcement in this case) such as this. After being told by the junior pensions minister on 11 January not to expect anything soon, ten days later, under the pressure of events, we are told that something will happen within weeks. Of course, no detail at all is given about the process, particularly how Parliamentary time can be found, nor are we really any the wiser about how developed the proposals for cracking down on abuse are.
If you would like to refresh your memory about last year’s Green Paper proposals for DB pension reform generally do have a look at our News Alert.
Contingent assets – PPF publishes the final piece of the levy jigsaw
Last Thursday the Pension Protection Fund published its contingent asset guidance and new standard forms, almost one month after the final 2018/19 levy determination. The levy rules for 2018/19 concerning contingent assets remain the same as those made available in December (see Pensions Bulletin 2017/53).
Key points arising from this latest development include the following:
- The new standard forms must be used for new contingent asset agreements entered into from 18 January 2018, and “evergreen” agreements that need annual re-execution (“Type C(i)” contingent assets)
- Existing contingent asset agreements with no fixed cap element are not likely to require re-execution in 2019/20; however those with a fixed cap element are likely to need to be re-executed onto the new standard forms for the 2019/20 levy year. The PPF recommends that schemes should start planning ahead now
- If a fixed cap is used, then new or re-executed agreements must include a “post-insolvency” cap, and may also include a separate “pre-insolvency” cap. Pre-insolvency demand payments do not erode the post-insolvency fixed cap
- Amendment and release criteria under the new standard forms have become more flexible. Previous standard forms set out formulae within which the guarantor could propose an amendment or release of contingent assets; these have now been removed, but trustees and guarantors are free to continue to state these (or other) requirements within their agreements. The PPF’s approach to accepting or rejecting a contingent asset following an amendment remains unchanged
The new standard forms provide greater flexibility for both parties to the agreement, without diminishing the trustees’ power to reject proposals. While it is always onerous and sometimes expensive to enter into a new agreement, trustees and guarantors of affected schemes should consider the new clauses carefully and not dismiss the requirement to re-execute as simply a tick-box exercise.
GMP inequalities in the public sector – the can is kicked down the road
The Government may take action on sex-based differences within public sector pensions due to the introduction of the new State Pension in April 2016, but for the time being the temporary fix announced by the Government on 1 March 2016 will be extended for a further 2 years and 4 months. As a result a new tranche of public service pensioners (those reaching State Pension Age between 6 December 2018 and 5 April 2021) will have the GMPs earned in public service fully indexed by their public service pension schemes.
Unsurprisingly, the Government has also decided not to pursue the “case by case” option, which found little favour by those responding to the consultation. What it does intend to do, having bought some time, is to investigate further the possibility of using a conversion approach in which the GMP is turned into a scheme benefit on a £1 for £1 basis.
This option was strongly supported by respondents. However, the Government notes that to implement it properly there will need to be an agreed methodology underpinned by suitable legislation. The Government also wishes to consider any possible implications of certain court cases before implementing a conversion methodology in future.
Although this belated response is clearly a holding exercise and the inequality issue that the Government is intending to fix is entirely different to that facing private sector schemes, it is of note that conversion is where the Government’s energies will be directed – both in the private and now the public sector. But there seems to be no urgency to deal with the issue in either sector, so for the time being uncertainty will remain in the private sector, whilst the sticking plaster will continue to be applied in the public sector.
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.