Pensions snapshot - May 2015

This edition of snapshot, Graham Wrightson and Alexander Rush summarise some of the key legal and regulatory developments that occurred during April 2015 in relation to occupational pension schemes.

"Last man standing" deadline approaching – 29 May 2015

Any scheme that has confirmed it is a "last man standing scheme" in its scheme return this year will be subject to a new reporting requirement.

This involves completing and submitting a form to the Pension Protection Fund* to confirm that the scheme's trustees have received legal advice that the scheme's structure is "last man standing". The form must be submitted by 29 May 2015 to be taken into account for levy calculation purposes. 

*Please note the form should not be sent to the Pensions Regulator as reported in our earlier SnapSHot

HMRC dismisses Q  

Cloak and dagger antics in the corridors of HMRC’s international branch (?) have led to the replacement of its qualifying recognised overseas pension schemes (QROPS) list with a new recognised overseas pension schemes (ROPS) list.

Oblique 007 references aside, the implications of the QROPS list disappearing and HMRC's disclaimers in the new ROPS list are potentially grave. A transferring scheme will find it almost impossible to determine whether a receiving overseas scheme is a QROPS even if it is on the ROPS list. If a receiving overseas scheme is not a QROPS then any transfer to it will be an unauthorised payment.

Regulator publishes new guidance on DB to DC transfers

The Pensions Regulator has published guidance on the new requirements applicable to transfers or conversions of safeguarded benefits (typically, DB benefits) to acquire flexible benefits (typically, DC benefits). In particular, the guidance focuses on the new advice requirements that apply to both statutory and non-statutory transfers.

The guidance does not cover every aspect of the new requirements and Trustees may wish to take legal advice on their transfer procedures to avoid any breaches of the new legislation.

Pensions Ombudsman (PO) liberation update

Three recent determinations have been issued by the PO concerning liberation issues.

Two determinations related to Mr Winning's complaints against his former scheme providers for processing a transfer to the Capita Oak Scheme. Mr Winning sought compensation from each provider for the amount transferred. The PO rejected the complaints on the grounds that the providers had every reason to believe that Mr Winning had a statutory right to transfer and there was no reason to withhold his request.

The PO placed emphasis on the transfers taking place before the Pensions Regulator had issued guidance to providers about pension liberation scams; noting that publication of the guidance in February 2013 could be regarded as a point of change in good industry practice. We have yet to see how this "point of change" might affect any PO decision in relation to transfers occurring after February 2013.

The third determination related to a provider refusing a member's transfer request. Following a forensic review of the facts, the PO determined that the provider had erred in refusing the transfer. Whilst the Member did not have a statutory right to a transfer, the PO found that he did have a contractual right under the provider's scheme. The PO criticised the provider for failing to give proper reasons for refusing the transfer and directed that a transfer could be made.

Deputy Pensions Ombudsman (DPO) directs trustees to pay £193,000

The DPO has directed two pension scheme trustees to pay £193,000 to a scheme due to a breach of trust. The breach involved a payment of that amount (on the basis it constituted excess employer contributions) from the scheme to the scheme's employer when the scheme rules did not permit such a payment.

The DPO directed that the trustees involved were not protected by the scheme's exoneration provisions because the breach involved "a deliberate disregard of the interests" of the scheme's beneficiaries. In particular the DPO found that the trustees had failed to:

• consider whether such a payment could be made under the scheme's rules;
• take legal or tax advice in respect of the payment;
• consult their fellow trustees about the payment; and
• show "undivided loyalty to" the scheme's beneficiaries.

Secondments and section 75 debts

In a recent judgment relating to the insolvency of the MF Global group, the Court held that there was an implied contract between a service company and another company in the same group (the "Relevant Company") concerning staff secondment. Under that implied contract, the Relevant Company had an obligation to indemnify the service company for the section 75 debt attributable to benefits of the seconded staff. That debt was triggered when MF Global group entered insolvency in 2011.

The judgment took into account a factual matrix that was unique to MF Global group's circumstances. However, it is worth noting that the judge considered that, where a host company (to whom secondees provide a service) is liable to pay pension contributions or the payroll costs of employing secondees under a secondment agreement, this can include a liability to pay a section 75 debt.

This judgement should be borne in mind where a secondment is in place or proposed and the seconder sponsors a defined benefit pension scheme.

Record keeping report

In its latest review of record keeping standards, the Pensions Regulator has reported that small schemes need to do more to improve their record keeping processes. It also considers that recent reforms (such as the minimum governance standards for DC schemes and the end of contracting-out for DB schemes) up the ante considerably in relation to good record keeping. The Regulator will be reinforcing its expectations on record keeping over the next 12 months.