Pensions Bulletin 2019/44

Our viewpoint

Interim patches announced to address doctors’ pensions tax concerns in 2019/20

The press (including the BBC) is reporting a limited, short-term solution to the NHS senior staffing issues that have been created by the tapered annual allowance.

The Health Secretary, Matt Hancock, is expected to issue a ministerial direction imminently instructing NHS chiefs to introduce an interim plan such that “Clinical staff will be told that tax bills caused by overtime can be paid out of their pension, with the NHS committing to later topping up their pots, so the total value of them is not reduced”. Such a deal, to operate in the current financial year only, is “likely to cost the health service hundreds of millions of pounds but will be spread over decades as the money will not have to be found until the staff concerned retire”.

The Treasury is understood to have agreed the deal following pressure from the Health Secretary with the operational details expected to be announced by NHS England.

It is worth noting that the NHS Scheme is a public sector scheme operating on a pay as you go basis, but with notional funding (and notional deficits, and contribution charges for some employers).

The reports reference NHS England only.  NHS Scotland has separately announced its own interim patch, namely that staff who can evidence that they are likely to breach the annual allowance in the 2019/20 financial year and generate a tax charge as a result, can withdraw from the NHS Scheme and get (taxable) cash in lieu of pension accrual, set at what would have been the employer pension contribution.  This temporary policy, which is in line with short-term guidance issued by NHS Employers in September, will run until the end of the current financial year, 31 March 2020.

Consultation on changes to the scheme operation (flexible options and extra information) for senior NHS clinicians to help them manage their pensions tax issues from 2020/21 closed on 1 November 2019 (see Pensions Bulletin 2019/35).  It was made clear that these might not be needed if there were broader changes to the overall pensions tax regime - and longer-term changes to the regime are indeed rumoured to feature in the Conservative Party manifesto.


For NHS England it appears that the relevant limited group offered this deal will run up annual allowance charges, use Scheme Pays to have the tax paid for them by the NHS Scheme, and have a reduction applied to their benefit – all in line with current legislation/financing.

But there will be a promise from the NHS to remove the reduction when the member draws benefits.  The net impact is intended to be akin to the doctors not having to personally pay annual allowance charges - but trusting to future funding in the NHS to achieve this by enabling the reversing of the immediate reduction applied to their benefits.

The question is of course where will this extra funding come from?  And presumably by the time the additions are made, we will have a completely different regime (or appropriate tweaks) in place so that removing the reduction at retirement doesn’t hit doctors with another annual allowance charge.

DWP criticised over ending of State pension top up for those with GMPs

The Parliamentary Ombudsman has criticised the handling by the DWP of an important part of the mechanism under which the State Earnings Related Pension Scheme (SERPS) was subsumed within the single tier State Pension when contracting out came to an end on 5 April 2016.  However, the Ombudsman has stopped short of ordering that those adversely affected should be compensated.

Prior to the State pension reforms those in receipt of their State pension who had built up alternative provision through contracting out of SERPS had a test carried out each year under which the SERPS they would otherwise have built up over all contracted-out employments was compared against the minimum pension that their contracted-out schemes taken together had to deliver (such as GMPs).  If the SERPS pension was higher, a top-up equal to the difference was paid by the State.

When the State pension reforms came in, this calculation was done once – at 5 April 2016.  But the nature of the comparison previously carried out was such that the need for a top-up might not have existed at 5 April 2016 and even if it did, the amount of the top-up required could grow significantly with the passing years – mainly because the pension increases required to be paid on GMPs were less (including nil between 6 April 1978 and 5 April 1988) than those on SERPS.

As a result, a number of individuals who had been contracted-out will lose out on the top-up they would have been expecting to receive.  The sums involved can mount up over an individual’s expected retirement.

The Ombudsman criticised the DWP for failing to follow its own service standards, customer charter and communications strategy.  The Ombudsman said that the DWP should have raised awareness of the impact of any periods of contracting out and made information “complete, consistent, clear and accurate”.


This is a particularly complex aspect of the transition from the old to the new regime under which no-one was meant to lose out.  But even those who will be adversely affected during the course of their retirement should experience some mitigation by virtue of the fact that all of their single-tier pension will certainly increase with earnings and since April 2016 has benefitted from the triple lock.

“Wilful and reckless” – guilty as charged

It was a double bill at Brighton Magistrates on 13 November with two separate auto-enrolment cases resulting in guilty pleas.

  • In the first, a recruitment agency and its managing director pleaded guilty to three charges of wilfully failing to comply with their automatic enrolment duties and one charge each of knowingly or recklessly providing false information to the Pensions Regulator
  • In the second, a pre-school nursery pleaded guilty to wilfully failing to comply with its automatic enrolment duties, whilst its main director pleaded guilty to recklessly providing the Pensions Regulator with false and misleading information

In both cases the issue being tried was one of falsely claiming that staff had been put into a workplace pension scheme.  The maximum sentence the Court can pass for each charge is an unlimited fine.


These charges may be a foretaste of what is to come when the Pension Schemes Bill presumably returns after the General Election.  The Bill contains a number of criminal offences relating to DB schemes, many of which may find their way to Brighton Magistrates, unless the Crown Court is needed in order to achieve an up to 7 years’ jail sentence.  They include: failing to pay a contribution notice by the due date, “avoidance of employer debt”, and “conduct risking accrued benefits”.

But what many are starting to ask is whether some of these proposed powers are going too far, both in who they potentially cover and what is needed to achieve a conviction.  For example, a desire at the time of the 2017 General Election to imprison company directors who deliberately or recklessly put at risk the ability of a pension scheme to meet its obligations seems to have resulted in a 2019 draft law that is far wider.

Full death benefits denied to doctor – a warning

An insurance that unexpectedly fails when the small print is examined is no insurance at all.  That appears to be the learning in a sorry tale recently heard at the High Court, sending a warning to those who extend retirement provision to those not in regular employment.

In the case in point, Dr Helen Sanderson, a medical practitioner, who was a member of the NHS Pension Scheme, died suddenly on Christmas Eve in 2014 and the issue at hand was how her death benefit should be determined.  Was it as if she was in pensionable employment or was it as if she had left service?  The death benefit was considerably higher if it could be determined that she was in pensionable employment at the time of her death.

To the casual observer it was obvious that she was engaged in a regular pattern of working at the time of her death, but because she was self-employed and due to the nature of her work, because she died on a day when she was in-between assignments, albeit at the same medical practice, the small print of the NHS Pension Scheme revealed that she was not in pensionable employment at the time of her death.

It seemed that she was only in pensionable employment when she was actually at work or engaged in activities that were ancillary to her work.


Dr Sanderson’s husband has failed in front of the NHS’s internal dispute resolution procedure, the Pensions Ombudsman and now the High Court.  Will this go any further?  It seems that it ought to if natural justice is to be delivered.  And with enterprises increasingly using irregular forms of employment for at least parts of their workforce, this case sends a warning to scheme sponsors to check that what is being promised will deliver should the worst befall a scheme member.

Pension scam victim fends off HMRC tax challenge

An example of how HMRC can add to the woes of an individual who has unwittingly had part of their pension savings stolen as a result of a scam was heard at an HMRC tribunal in September and has recently come to light.

In 2012 Miss Hughes sought to consolidate her pension savings and as a first step transferred one of her occupational pensions to a new arrangement.  Unfortunately for her, she responded to a mailing from Fast Pensions, which in 2018 was closed down by the authorities.

Around the same time in 2012, but as a separate and entirely unrelated step as far as she was concerned, Miss Hughes took out a loan to finance the completion of her PhD.  Unfortunately for her, that loan was arranged through Blu Funding, which was connected to Fast Pensions and has also now been closed down.

It was because Blu secured the loan on her pension that the tax trap was potentially sprung, to which HMRC was alerted due to Miss Hughes’ honesty when completing a self-assessment tax return.  She was then pursued by HMRC for 55% tax on the loan she had taken out, as HMRC was of the view that the loan had come from the pension and so fell to be treated as an unauthorised payment from her pension scheme.

Thankfully for Miss Hughes, the tribunal found against HMRC as the paper trail available was insufficient to link the loan received to her transferred pension savings.  And even if the tribunal had found for HMRC on the unauthorised payment issue leading to a 40% tax charge, it would have found against HMRC in relation to the 15% surcharge aspect as in the circumstances in question the surcharge would not be “just and reasonable”.


There is no doubt that some individuals have knowingly broken the law to gain access to their retirement savings before they are allowed to, but there are also many cases where the individual is a victim, plain and simple.  The law unfortunately does not generally distinguish, other than when it comes to the 15% surcharge.

Compensation for pension loss guidance updated

The 2017 guidance for tribunals on calculating compensation for pension loss (see Pensions Bulletin 2017/34) has been updated.

The key change is to reflect, in the text and the relevant worked examples, the 15 July 2019 announcement of the statutory discount rate used for calculating losses moving from -0.75% to -0.25%.

References to rates of tax and of state pension have also been updated to current figures, the approach to claims for compensation for loss of state pension rights has been modified to take account of national insurance credits and the methodology for grossing up over more than one tax band has been refined and the relevant worked examples modified accordingly.


It was inevitable that the guidance would need to be updated given that very shortly after it was issued, the Government announced that the -0.75% discount rate would increase (see Pensions Bulletin 2017/38).  But the change has had to await Royal Assent for the Civil Liability Act 2018.

Investment Association finalises responsible investment framework

Following consultation earlier this year (see Pensions Bulletin 2019/04), the Investment Association has finalised an industry-wide framework setting out a common language and product categorisation for responsible investment approaches.

The consultation also looked into the development of a UK retail product label and mentioned a stocktake of reporting frameworks for environmental, social and governance considerations, as well as on sustainability indicators and metrics.  The Association is continuing to explore the former having received widespread support for labelling at the fund level for a retail audience.

From the start of 2020 Investment Association members will also be asked to identify which funds should be classified as having responsible investment characteristics.  The Association intends to publish statistics on such funds later in 2020.


It is a hectic time on the responsible investment front, especially with the coming into force of the new requirements for statements of investment principles last month.  But it is not clear that everyone is speaking the same language, so we welcome this development as it should bring greater uniformity to the terms used by the investment community to describe the various aspects of “responsible investment”.

More work for trustees on DB to DC transfers

The Pensions Regulator has updated its DB to DC transfers and conversions guidance.  However, this November 2019 edition is only very slightly altered from that issued in April 2015 (see Pensions Bulletin 2015/16).  Nevertheless, there is one material change of importance.

The FCA register that trustees need to consult to ensure that the independent advice received by an individual with more than a £30,000 transfer value has been given by someone with the required permissions may no longer hold such details from 9 December 2019.

The Regulator says that whilst trustees should continue to check the register for details of the adviser’s firm, they will then need to contact the firms and ask them to confirm that the adviser works for that firm or check an appropriate third-party directory.  A new FCA directory containing data on certified individuals will be released in 2020.


The changes to the FCA register will result in more work for trustees in the short term.  It remains to be seen whether the new FCA directory will be an improvement on what went before.

And it is good night from the Incentive Exercises Monitoring Board

The body that produced the Code of Good Practice on Incentive Exercises (see Pensions Bulletin 2016/04) is standing down.  That is the implication of an announcement made on its website, which itself will close early in 2020.

The Code itself can now be found on the Pensions Regulator’s website where it will be preserved as an example to trustees and practitioners as a source of good practice.  In future, practitioners and trustees should read and follow the Regulator’s incentive exercises guidance, which includes reference to the Code.


The Code, originally launched in June 2012, has been a clear success in terms of influencing market behaviour.  It is right that the Regulator should now lead in this area.  Those involved in the production of the Code and its January 2016 update should be thanked for the work that they have undertaken in the public interest, to protect members and to assist trustees.

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.

Subscribe to receive our Pensions Bulletin and News Alerts