Pensions snapshot - June 2015

This edition of snapSHot summarises some of the key legal and regulatory developments that occurred during May 2015 in relation to occupational pension schemes. The topics covered in this edition are:

• In good faith: High Court rules that the BBC did not breach its implied duties in imposing a pensionable pay cap
• Pensions Regulator publishes annual funding statement
• Pensions Ombudsman case: Ignoring incomplete transfer request held to be maladministration
• PPF Ombudsman case: Legal opinion required to post-date contingent asset agreement
• Pensions Ombudsman case: No requirement for SIPP provider to check suitability of investments

In good faith: High Court rules that the BBC did not breach its implied duties in imposing a pensionable pay cap

In the recent case of Bradbury v British Broadcasting Corporation [ 2015 ] EWHC 1368 (Ch)it has been held that, in imposing a cap on the amount of salary which could count towards the calculation of a pension, the BBC was not in breach of its implied duty of trust and confidence arising from its contractual employment relationship.

This new High Court decision is the most recent in a number of decisions relating to the same case (which has alternated between the Pensions Ombudsman and the High Court). Mr Bradbury had argued that the Pensions Ombudsman, in considering the question of whether the BBC had breached its implied duties, had wrongly considered separate components of the BBC's conduct, when it should have looked at everything in the round. It was held by the judge in the High Court that the Pensions Ombudsman had decided the point correctly and that it was necessary to look at separate components of the BBC's conduct to determine whether there had been an overall breach of the implied duty of trust and confidence. 

Pensions Regulator publishes annual funding statement

The annual funding statement has been issued by the Pensions Regulator (tPR). The main purpose of the annual funding statement is for tPR to set out certain key messages and themes which it considers that trustees and employees should consider as part of any valuation and consequent funding plans being agreed in relation to their pension scheme.

The 2015 funding statement emphasises the need for co-operation between employers and trustees. Key messages which run through the funding statement are that trustees must take an integrated approach to managing risk to the scheme's funding position; they should ideally have contingency plans in place in relation to funding risks; funding plans can take account of current market conditions including low interest rates and low gilt yields; and the trustees can take into consideration the employer's business plans (as long as sufficient due diligence is done) when agreeing funding plans. The full statement can be found here.

Pensions Ombudsman case: Ignoring incomplete transfer request held to be maladministration 

In Crossland (PO-4414) the Pensions Ombudsman determined that, although the complainant, Mr Crossland, had not properly complied with statutory requirements in making a transfer request, the trustee of the scheme from which he was seeking to make a transfer was guilty of maladministration in ignoring his incomplete transfer request.

Mr Crossland's letter to the trustee had failed to clarify that he wished to use his cash equivalent transfer value to acquire transfer credits or rights in an occupational or personal pension scheme. As the letter was defective, Mr Crossland did not acquire a statutory transfer right. However, the trustee failed to respond to his transfer request letter. The Pensions Ombudsman decided this was maladministration and if Mr Crossland were to make a proper transfer request then the trustee must comply and effect the transfer.

The Ombudsman also advised Mr Crossland to take some FCA-regulated advice on the scheme to which he wanted the transfer-out to be made so he did not suffer a repeat experience.

PPF Ombudsman case: Legal opinion needs to post-date contingent asset agreement 

In the case of the Action for Children Pension Fund, the PPF Ombudsman held that; when re-certifying a contingent asset, the trustee of the pension scheme should have supplied an updated legal opinion which post-dated the registration of the contingent asset agreement.

The trustee had instead supplied a legal opinion provided on a previous occasion when security had been substituted under the contingent asset agreement. It was considered that this was not permissible and a new up-to-date legal opinion was required to allow the trustee to make a declaration that there was no prior or pari passu security affecting the contingent asset.

The decision highlights the need to comply with exactitude with the requirements for the certification or re-certification of contingent assets. Many employers, of course, rely on such certification or re-certification to allow for a reduction in their PPF levy payment.

Pensions Ombudsman case: No requirement for SIPP provider to check suitability of investments

In Beasley (PO-5670) the Pensions Ombudsman determined that the provider of a self-invested personal pension (SIPP) was not under an obligation to check the suitability of investments chosen by a member.

The statutory duty of care under section 1 of the Trustee Act 2000 can apply to the trustee of a SIPP and this would apply when the trustee exercised its powers of investment under the SIPP. However, in this case, Mr Beasley had signed contractual terms which effectively disapplied section 1 of the Trustee Act 2000 as those terms provided that the provider of the SIPP had not given any advice to Mr Beasley as to the suitability of the investment and would not be liable for any loss caused as a result of the investments chosen.

Moreover, the basic verification which the provider had undertaken in relation to the suitability of the investments was sufficient to meet the requirements of the Financial Conduct Authority.

The decision is in many ways unsurprising given the nature of the pension arrangement under consideration. It does, of course, highlight the need for members of SIPP arrangements to be particularly careful when considering their investment options. It also highlights the importance for providers of SIPPs to take care in delineating the extent of the duty of care they owe to members in respect of investments.