Government investment guidance upheld

We reported last June (see Pensions Bulletin 2017/27) the results of the High Court challenge by anti-Israel campaigners to overturn a section of the Government’s investment guidance which bans local government pension schemes from pursuing investment policies involving boycotting foreign nations or UK defence industries.

Back then the challenge succeeded on one of the three grounds tested, with the judge ruling that the Secretary of State had acted for an unauthorised purpose.  The Government appealed and the Court of Appeal has now upheld the appeal, ruling that the broad discretion the legislation confers on the Secretary of State to make guidance allows him to take wider considerations of public interest into account.

The Court of Appeal also rejected a cross appeal by the campaigners that the European Pensions Directive prohibited the challenged guidance.  The appellate court agreed with the High Court judge that this was not the case.

Comment

As we commented last year there is no direct read-across to private, trust-based schemes.  However, this case illustrates that those who set investment policy for pension schemes do come under pressure from activists.  We think that pension trustees have quite enough on their plates already without having to take overtly political factors into account.

It is possible that the case will be appealed to the Supreme Court.

This decision may be a double-edged sword.  If the discretion is very wide then there may be nothing to prevent a Secretary of State in a future government from issuing guidance requiring a boycott.

Actuaries produce mature scheme run-off plan

How today’s mature DB pension schemes are run and possible areas for improvement are the main topics of a slide book published  by the Running off Mature Schemes Working Party of the Institute and Faculty of Actuaries.  For this purpose, a “mature” DB scheme is classed as “one where the bulk of the liabilities have already accrued and are anticipated to run-off for a number of years” – ie most DB schemes in the UK.

The lengthy slide book (reaching 115 slides) focuses on twelve specific features of DB pension scheme operation, split into how current mature scheme practice meets the authors’ expectations:

• Practice consistent with expectations – in the areas of liability management, cash flow matching, outsourcing and bulk annuities
• Practice semi-consistent with expectations – there is some work to be done in the areas of pace of funding, covenant, contingent assets and asset allocation; and
• Practice not consistent with expectations – the authors suggest improvements are needed in the following areas
  • Locking down the benefits – schemes could undertake data and benefit cleansing exercises sooner rather than later
  • Journey plans – these should be extended into full run-off plans incorporating all relevant factors
  • Employer relationship/governance – independent trustees should usually be in place and the employer disentangled from the trustee board; and
  • Expense management – reserves for future expenses should usually be included within the technical provisions (an estimated increase of 6% of technical provisions for medium-sized schemes)

The authors speculate how each of these behaviours are likely to change in future, as schemes move from mature to winding up/buying out.

The slide book also suggests a run-off framework that mature schemes can adopt, looks at the effect of future employers becoming separated (abandoning) their pension schemes and discusses the benefits of scheme consolidation (including, perhaps, consolidating benefits for weaker employers in a defined ambition style fund).

Comment

This is an interesting and wide-ranging read for those with the time.  The authors make some sensible suggestions for improving the way mature pension schemes are run and focusing trustee mindsets on the endgame to come.

PPF publishes its CVA guidance

Following a number of recent high profile Company Voluntary Arrangements where the PPF has exercised creditor rights for the company’s DB scheme, the PPF has published guidance which explains the approach employers and their advisors should take when presenting a CVA proposal to the PPF.  It highlights the issues that should be considered so that the PPF can decide whether or not it is appropriate to vote in favour of the proposal.

The PPF also reminds readers that when an employer (or all employers in the case of a last man standing scheme) lodges a CVA proposal in Court, a PPF assessment period will commence for the associated pension scheme(s).  From this moment, the trustees’ rights as a creditor are exercised by the PPF.

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.