Pensions Bulletin 2020/05

Our viewpoint

Regulator publishes report on Arcadia Group

The Pensions Regulator has highlighted its expectations of employers in company voluntary arrangement (CVA) situations in a Regulatory intervention report on Arcadia Group Limited (AGL).

A CVA is a process between a company and its creditors to amend the agreed terms for repayments of debts.  In AGL’s case, it was seeking to reduce the rents on some if its commercial properties and also reduce deficit reduction contributions to the two DB pension schemes it sponsored from around £50m a year to around £25m a year.  As the two schemes were eligible for the PPF and represented over a third of the value of AGL’s creditors, the PPF (stepping into the shoes of the trustees once the CVA was triggered as part of the schemes then being in PPF assessment) could have blocked the CVA proposals from going ahead.

The Pensions Regulator works with the PPF in these cases to help inform the PPF’s vote by using the same principles as for Regulated Apportionment Arrangements - ie:

  • Whether insolvency of the employer would otherwise be inevitable
  • Whether the scheme might receive more from an insolvency
  • Whether the pension scheme might get a better outcome by other means
  • The position of the remainder of the employer group; and
  • The outcome of the proposals for the other creditors

Applying these principles, the PPF was able to agree a CVA that included security over group assets of £185m for the pension schemes and £100m cash from the majority shareholder payable over two years, backed by a guarantee arrangement, plus an additional £25m security.  This then enabled the PPF to accept £25m pa in deficit-reduction contributions, albeit increasing after three years.

As a result, AGL was rescued as a going concern with it retaining responsibility for the two schemes.  Such a “scheme rescue” meant that the PPF assessment period came to an end with scheme members no longer facing the prospect of going into the PPF.


The Regulator encourages trustees and companies to engage with them early in the process, and it appears in this case they were involved virtually from the start.  From the members’ point of view, it all ended with the two schemes staying out of the PPF and with no reduction in their pension promises.

Innovative challenge on the RPI v CPI issue fails at the High Court

There have been a number of RPI v CPI cases reported in the last few days.  This week we report on the Atos case where an attempt to challenge the continued use of the Retail Prices Index for increasing pensions in payment failed.  But had it succeeded it would have likely resulted in many schemes being able to move away from using the RPI in the indexation rule.

The Atos UK 2011 pension scheme set out in its documentation the following definition:

"Retail Prices Index means the general index of retail prices (all items) published by the Office for National Statistics, or, where that index is not published, any substituted index published by that Office (or its successor) as the Principal Employer and the Trustees may agree.  Where the retail prices index ceases to exist, the Principal Employer and the Trustees may agree any substituted index published by that Office (or its successor)".

The court was asked three questions:

  • What did "the general index of retail prices (all items) published by the Office for National Statistics" mean … on 30 June 2011 (the date of the document founding the scheme)
  • Do those words mean anything different today or at any time between 30 June 2011 and today
  • Thirdly, is the RPI still “published”

At the heart of the employer’s argument was that since 2011 the changes in the status of the RPI “were so profound and extraordinary, and so unthinkable and unforeseeable” that the definition needed to be construed differently in these changed circumstances and should be regarded as referring to some other index.

However, this was rejected by Justice Nugee, who said that the expression in question meant the RPI and this was obviously the right and indeed the only possible answer.  He found that the words meant the same today as back in 2011 and that the RPI was still published.  So, the attempt to have the scheme indexation rate changed by the court from RPI to another index likely to give rise to lower indexation rates was accordingly unsuccessful.


Sometimes one finds indexation wording in trust deeds which is ambiguous and could be construed either way.  It is hard to see much ambiguity here.  As such, the rationale for the High Court’s decision seems unimpeachable despite the use of an innovative argument by Counsel for the employer.

The case is notable for two things though.  The admirable clarity of the judgment by one of the leading members of the of the pensions bar now sitting as a judge who confirmed that this sort of case turns “on the construction of the particular terms used in the scheme in question”; it is the words on paper in the deed that matter.

The transcript also includes a summary of recent developments in relation to the RPI (headed the demise of the RPI) and an appendix well worth a read for non-mathematicians who want to understand the difference between arithmetic and geometric means which is in turn helpful in understanding how inflation indices are compiled.

Actuaries start inquiry into “the great risk transfer”

The Institute and Faculty of Actuaries is calling for evidence from its members in relation to the now well-established phenomenon of financial risks, such as pension management, being transferred to individuals from government, financial services providers and employers.  As part of this the IFoA is calling for a strengthening in the following three areas:

  • A minimum level of knowledge for consumers to make informed decisions that are in their best interests, with institutions to retain responsibility for delivering communications that empower consumers to make these informed decisions
  • Mechanisms in place that enable individuals to hold institutions to account, such as sanctions and redress, as well as a need for oversight bodies that have the expertise to act as guardians and create societal accountability; and
  • Consumers’ freedom to choose to be coupled with access to products and services that meet their needs

The IFoA would like its members to consider five areas when preparing their evidence.  For its part, throughout 2020 the IFoA will explore this topic in detail, see what solutions could help people become better equipped to manage risk and look at examples from across different policy issues and financial products, including pensions, general insurance, investment and social care.


This is a potentially worthwhile exercise that the IFoA is pursuing as part of its role in protecting the public interest.  This risk transfer, driven by economic and political factors, has some clear downsides for individuals and society, with progress on their mitigation remaining incomplete at best.

National insurance contribution threshold rises, but State pension entitlement protected

On 30 January, the Conservatives’ pledge to increase the threshold at which national insurance contributions start to become payable to £9,500 in 2020/01 (a 10% rise) was delivered.  And, as we had anticipated (see Pensions Bulletin 2020/02), the point which low earners must reach in order to build up State Pension entitlement rises only by the customary CPI measure of inflation (1.7%).

The draft regulations laid before Parliament on that day increase the contribution threshold from £8,632 to £9,500 pa whilst increasing the Lower Earnings Limit from £6,136 pa to £6,240 pa.  The Upper Earnings Limit remains frozen at £50,000.

The Government intends to increase the NI contribution threshold to £12,500 in the coming years, presumably with the intention of eventually equalling the income tax personal tax allowance which is currently set at £12,500 for both 2019/20 and 2020/21, after which it is to increase in line with the CPI.  Given this, the Government will need to accept a widening gap with the LEL in order that those on very low pay can continue to build up their State Pension entitlement.


Now that the Lower Earnings Limit has been settled, expect to hear soon from the DWP as to what the auto-enrolment qualifying earnings band and earnings trigger are for 2020/21.

PPF compensation cap and levy ceiling rise in line with average earnings

The non-service related cap on PPF compensation will rise to £41,461.07 from 1 April 2020 and the overall pension protection levy “ceiling” for 2020/21 will be £1,099,445,505 – as set out in The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2020 (SI 2020/101) made by the DWP on 30 January 2020.

The compensation cap will increase by 3.6%, which is the increase in general level of earnings to the year ending April 2019.  The new £41,461.07 cap is that applicable at age 65; actuarially equivalent caps determined by the PPF Board apply where PPF compensation commences at other ages.

The overall levy ceiling will increase by 3.9%, which is the increase in general level of earnings to the year ending July 2019.  The actual maximum levy the PPF can take in 2020/21 is further constrained by other rules and is substantially less than the £1.1 billion permitted by this particular Order.  The PPF is intending to raise £620m in 2020/21 (see Pensions Bulletin 2019/48).

In notes accompanying the Order the Government states that the PPF’s proposals for implementing the Hampshire decision are currently being challenged in a judicial review before the High Court (Paul Hughes and Others v the Board of the Pension Protection Fund) (CO/571/19).  They also say that the PPF and the DWP are carefully considering the implications of the Bauer judgment, will respond in due course and in the meantime, the PPF will continue to assess and make payments to those affected by the Hampshire ruling.


The levy ceiling has been an anachronism in the PPF’s legislative framework right from the start.  Initially set at a level where it was unlikely to have any impact, it continues to have next to no bearing on the PPF’s financial management.

The new Frank Field steps forward

Stephen Timms, the Labour MP for East Ham and briefly pensions minister on two occasions in the 1997-2010 Labour Government, has won election as Chair of the powerful Work and Pensions Committee in Parliament.  He takes over from Frank Field who lost his seat at the December General Election.

Mr Timms will formally take up his role when the remaining members of the Committee have been named – expected this month.

Other Committee Chairs whose remit potentially overlaps with pensions are Rachel Reeves on the Business, Energy and Industrial Strategy Committee, Mel Stride on the Treasury Committee and Caroline Nokes on the Women and Equalities Committee.


We expect that the Work and Pensions Committee will have a full agenda to pursue in this coming Parliamentary session, especially in relation to the Pension Schemes Bill where it will want to quiz ministers.  However, it is important to note that the Committee’s remit ranges beyond pensions to include other matters covered by the DWP – most notably social security.

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.