Essential Pensions News

Essential pensions news covers the latest pensions developments each month.

The Pensions Regulator (TPR) has published its latest compliance and enforcement bulletin, covering the first quarter of 2018. The quarter coincided with the end of the staging period for auto-enrolment and therefore saw a significant rise in the use of TPR’s enforcement powers. For example, the number of fixed penalty notices rose from 7,435 to 11,156 and the number of escalating penalty notices increased from 1,440 to 2,770.

As usual, the bulletin includes several case studies. These have previously focused on TPR’s use of its enforcement powers, but TPR will also now highlight cases where enforcement action has been avoided through early intervention and negotiation. Highlights from the cases reported include the following:

• the first concerned a small DB scheme in deficit where the parent company was considering using a regulated apportionment arrangement. Concerned that the scheme was not being treated fairly in comparison to other creditors, TPR used its powers under section 72 of the Pensions Act 2004 (PA 2004) to require the employer to provide relevant information. This step led to further negotiations and ultimately additional support was agreed involving a lump-sum payment to cover the ongoing deficit and a guarantee for the buyout deficit;
• another highlighted the first occasion when TPR fined a professional trustee for failing to take all reasonable steps to keep their registrable scheme information up to date, in breach of section 62 of the PA 2004. In this instance, TPR discovered the trustee had been appointed to a DC scheme eight months previously, but had not reported the appointment. After using its section 72 powers, TPR took action and the Determinations Panel imposed fines of £300 against each lay trustee and £3,000 against the professional trustee; and
• a third case study covered the circumstances leading to the High Court judgment in The Pensions Regulator v Payae Ltd and others [2018], which marked the first use of TPR’s power under section 16 of the PA 2004 to apply for an order requiring restitution of misused or misappropriated scheme assets.

We will be looking in more detail at TPR’s use of its powers over recent months in one of our client seminars later in the year.

View the compliance bulletin.

Of interest to all schemes formerly contracted-out on a final salary basis is HMRC’s publication on May 30, 2018 of the latest edition of its Countdown Bulletin for scheme administrators. This issue includes updates on:

• automation of scheme cessation files;
• new automated solution change of responsible paying authority/buy out;
• not in scheme Contributions Equivalent Premium;
• State Scheme Premium payments.

  View Countdown Bulletin no. 34

Of interest to all scheme administrators is the latest edition of the Pension schemes newsletter on May 30, 2018. This edition includes:

• confirmation that the new Manage and Register Pension Schemes service for pension scheme administrator registrations and applications to register a pension scheme will be available from June 4, 2018, replacing the Pension Schemes Online service which ceased to be available from 6pm on June 1, 2018 (see below);
• clarification of how to apply HMRC’s genuine errors guidance in the Pensions Tax Manual and the situations in which it should be used;
• further administrative guidance on dealing with relief at source for Scottish Income Tax; and
• confirmation that the residency status look-up service is now available.

View newsletter no. 99.

On June 4, 2018, HMRC launched the first phase of its new Manage and Register Pension Schemes service, which replaces the Pension Schemes Online service. The accompanying newsletter includes confirmation that:

• scheme administrators should now use the new Manage and Register Pension Schemes service and the related guidance, which HMRC has updated;
  the Pensions Tax Manual will also be updated;
• additional features relating to registration applications will be available on the new service from June 11, 2018;
• existing scheme administrators’ records can be updated by logging into the new service for the first time;
• non-trading companies and public sector organisations will be able to use the new service only if they have the appropriate taxpayer reference, and there are details provided on how to obtain this from HMRC;
• the second release of phase one later in 2018 will include additional features so that various scheme administrative records can be updated online. Subsequently, it is planned that phase two will introduce additional features on the new service, such as scheme reporting and issuing penalties, notifications and letters from HMRC; and
• changes will be implemented to align HMRC’s registration process with the authorisation process for master trusts.

HMRC seeks volunteers to help with its user research and would like to hear from administrators who have used the new service and are able to provide feedback.

View the service letter.

On May 23, 2018, the Data Protection Bill 2017-19 received Royal Assent to become the Data Protection Act 2018 (the DPA 2018).

The DPA 2018:

• ensures that the standards set out in the General Data Protection Regulation  (GDPR) have effect in the UK. The GDPR is directly applicable in all EU member states, including the UK until it leaves the EU, with effect from May 25, 2018;
• repeals and replaces the Data Protection Act 1998 as the primary piece of data protection legislation in the UK and aims to provide “a comprehensive and modern framework for data protection in the UK, with stronger sanctions for malpractice” and
• ensures that the UK and EU data protection regimes are aligned post-Brexit and that the UK will continue to be able to freely exchange personal data with the EU.

The DPA 2018 affects not only pensions, but all aspects of modern life in relation to which increasing amounts of personal data are processed. The principal provision of interest in relation to pensions is the specific exemption allowing personal data to be processed without consent where such processing is required to make a decision on eligibility for, or payment of, benefits under an occupational pension scheme and the data relates to the health of a potential beneficiary.

The DPA 2018 also implements the Data Protection Law Enforcement Directive and provides a specific data protection regime for the intelligence services based on the standards in the modernised Convention 108 (the Council of Europe Convention for the Protection of Individuals with regard to the Automatic Processing of Personal Data).

Subsequently, on May 24, 2018, the Data Protection Act 2018 (Commencement No 1 and Transitional and Saving Provisions) Regulations 2018 were made.

The Regulations brought a majority of the provisions of the DPA 2018 into force on May 25, 2018, subject to certain exceptions primarily relating to intelligence services processing and minor and consequential amendments.

Many of the other provisions of the DPA 2018 will come into force on July 23, 2018, including those relating to:

• the Information Commissioner's duty to prepare a number of codes of practice;
• the representation of data subjects; and
• the Framework for Data Processing by Government.

In our monthly update for July 2017, we reported on the case of R (Palestine Solidarity Campaign Ltd and another) v Secretary of State for Communities and Local Government [2017]. In this case, the High Court upheld a challenge relating to the statutory guidance governing the investment strategy for the Local Government Pension Scheme (LGPS), and agreed with the claimants that the guidance was outside the minister’s statutory powers in stating that administering authorities under the LGPS must not:

• use pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries except where the Government has put in place formal legal sanctions, embargoes and restrictions; nor must they
• pursue policies that are contrary to UK foreign policy or UK defence policy.

The Secretary of State appealed to the Court of Appeal (CA).

Background

The claimants in the High Court, the Palestine Solidarity Campaign (a pressure group lobbying local and central government to support its campaign for an end to Israel's occupation of the West Bank and Gaza and advocating boycott, divestment and sanctions against Israel) and one of its pension scheme members challenged the statutory guidance by way of judicial review on the following grounds:

• the prohibition on boycotts, divestments and sanctions was outside the minister's statutory powers (ground one);
• the foreign/defence part of the guidance lacked clarity and certainty and was therefore unlawful (ground two); and
• the guidance breached EU law which prohibits local investment decisions being subject to “any kind of prior approval or systematic notification requirements” (ground three).

The High Court decision

The Court ruled in favour of the claimants on the first ground and accepted that this paragraph of the guidance (and the summary of requirements) fell outside the proper scope of the Secretary of State's statutory powers. The Court held that the requirements were issued not in the interests of the proper administration and management of the LGPS from a pensions perspective but were a reflection of broader political considerations, including a desire to advance UK foreign and defence policy, to protect UK defence industries and to ensure community cohesion.

The other two grounds of challenge were rejected.

Pending appeal, revised guidance was issued, with the removal of the paragraph stating: “…the Government has made clear that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are [sic] inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”.

The Court of Appeal decision

The CA decision was unanimous, with Sir Stephen Richards giving the lead judgment. The CA held that it was plainly within the scope of the relevant legislation for an authority’s investment strategy to make provision for non-financial considerations to be taken into account in making investment decisions, including the authority’s policy on how social, environmental and corporate government considerations are taken into account in the selection, non-selection, retention and realisation of investments. 

The Secretary of State (the CA said) was empowered to give guidance as to an authority’s investment strategy, and it was equally plainly within the scope of the legislation for the guidance to cover the extent to which such non-financial considerations may be taken into account by an authority. There was nothing objectionable in the Secretary of State having regard to considerations of wider public interest, including foreign policy and defence policy, in formulating such guidance, and this in no way ran counter to the policy and objects of the legislation. 

With due respect to the High Court judge, the CA found that his analysis in terms of the “purpose” for which the relevant part of the Guidance was included was unduly narrow, and the CA did not accept that the relevant part of the guidance had been issued for an improper purpose.

The CA considered various decisions of the European Court of Justice which, although they related principally to insurance law, were useful in that they adopted an approach which distinguished between national rules which restricted basic freedoms (and in so doing were an infringement) and rules that laid down a technical framework (which were not). In applying that approach to the LGPS case, the CA held that the guidance was closer in character to the technical framework than to a set of rules prescribing the authority’s investment strategy. As such, the although the guidance could have an indirect effect on individual investment decisions, the authority was left with the freedom to take those decisions and was not required to invest (or not invest) in any particular financial product.

The guidance therefore did not infringe the prohibition on subjecting an institution’s investment decisions to any kind of prior approval or systematic notification requirements in the IORP (pensions) Directive.

Comment

Presumably, this decision will result in an “as you were” approach in relation to the strategy guidance for local authorities under which they make decisions before investing LGPS funds. The judgment was handed down on June 6, 2018, and the expected result is that the paragraph which was removed from the guidance pending appeal will be reinstated.

Local authorities will need to continue to ensure that their investments are made taking into account appropriate factors, both financial and non-financial. There is both legal precedent and DB investment guidance from TPR recognising that trustees may take non-financial considerations into account when making investment decisions.