Pensions Insight: week ended 13 May 2022

In this edition of our Insight we report on the Queen's Speech legislative measures that could impact pensions, a charity trustee case on investments and climate change and the latest development in the long running Box Clever ITV FSD case.

Queen's speech – no specific pensions measures but other relevant legislation to be noted

The Queen's Speech 2022 delivered on 10 May 2022 contained no specific pensions measures, not even those which would expand auto-enrolment to those aged 18-21 and abolish the lower earnings limit such changes being potentially on the cards following the Government's commitment to introducing these during the mid-2020s. However, some of the other legislation proposed will potentially have relevance to pensions:

Data Reform Bill

This will 'reform' current data protection provisions contained in the Data Protection Act 2018 and UK GDPR and, amongst other things, make changes to the Information Commissioner's Office to strengthen its powers and make it more accountable.

Audit Reform Bill

The Audit Reform Bill will replace the Financial Reporting Council with a new statutory regulator, the Audit, Reporting and Governance Authority which will have new powers in respect of reporting and oversight of accountants and actuaries. It will also introduce new measures to widen the audit market, so that 'challenger' firms have more opportunity.

Financial Services and Markets Bill

The Government's press release notes that the bill is designed to 'maintain and enhance' the UK in its role as a global financial services leader following Brexit, protect access to cash and protect financial scam victims by requiring banks to reimburse push payment fraud.

The Retained EU Law Bill (referred to as the Brexit Freedoms Bill)

This aims to make it easier to amend, repeal or replace retained EU law, taking away the supremacy that retained EU law has over UK law. This could potentially impact pensions which is influenced by EU law, for example, the Bauer case on PPF compensation (see our Insight).

Online Safety Bill

This aims to establish a new framework for dealing with illegal and harmful online content, protect individuals from harm, and make internet service and search engine providers subject to duties of care. The Government recently announced that the bill would be amended to require the "largest and most popular social media platforms and search engines" to stop paid-for fraudulent advertisements showing on their services. This is seen as a positive development in the prevention of pension scams.

Charity trustee investment case: relevance for pensions?

The High Court recently allowed the trustees of two charities to adopt an investment policy that would omit, to the extent that it was practically able to, investments that do not align with the 2016 Paris climate change agreement. The trustees wished to adopt such a policy to prevent investments conflicting with the charities' main purposes of environmental protection and improvement and poverty relief (Butler-Sloss v Charities Commission [2022]).

The trustees went to court seeking approval of the policy as they were aware that it would rule out a lot of investments that conflicted with these purposes, and reduce as a minimum short-term financial returns.

The Court permitted the trustees to adopt the proposed investment policy – it ruled that previous relevant case law, notably the Harries v Church of England Commissioners [1992] case, did not absolutely prohibit investments that conflicted with charitable purposes. Instead, trustees have a discretion as to how to exercise their investment powers and, if this discretion is exercised properly an investment strategy that prohibits investments which conflict with the trust's purposes can be chosen.

Consideration of relevant factors as part of the exercise of such a discretion would include consideration of the likelihood and seriousness of the potential conflict and that of any potential financial effect and being careful as to reaching a decision on purely moral grounds because there may be 'differing legitimate moral views' on certain matters. In this case, the trustees were found to have exercised their investment powers in the proper manner.

Relevance to pensions?

The Butler-Sloss case confirms that an investment strategy that excludes certain investments can be adopted provided the trustees have exercised their discretionary powers properly. Therefore, at first glance, it may seem that pension scheme trustees can adopt an investment strategy based on climate change even if this would present financial risk.

However, the case will not have the same impact on pension scheme trustees as it will have on charity ones. Although both sets of trustees have fiduciary investment duties there are differences between pensions and charities, which mean that the case's remit is limited for pension schemes. These differences include:

• the purpose of pension schemes is typically to provide retirement and death benefits in respect of employees of the sponsoring employer whilst a charity's purpose is very different and will be directed towards a particular need; and
• the position of a pension scheme's members and employers results from an employment contract which contrasts with that of charity donors whose position is voluntary.

It should also be noted that investment law for pensions has developed differently to that of charities, with pensions legislation requiring the trustees to include in their statement of investment principles their policy on financially material considerations (which includes ESG) and the extent (if at all) to which non-financial matters (which would include members' views) are taken into account in investments.

That being said, the case is relevant to pension trustees because it provides an interesting analysis of trustee discretion in the climate change area and is notable because the potential short-term financial detriment of adopting a climate-related policy in this case did not prevent such a policy being adopted.

The Pensions Regulator issues £133m warning notice to ITV

ITV has reported in its Q1 2022 trading update that the Pensions Regulator has issued it and four related companies with a warning notice for £133m in respect of the Box Clever Group Pension Scheme.

The Box Clever saga is a long running one dating back to its administration in 2003. Box Clever was the June 2000 joint venture between Granada and Thorn whereby their television rental businesses were merged. The joint venture failed and following the appointment of administrative receivers, the Regulator's Determinations Panel issued a financial support direction (FSD) in 2011 against five ITV companies, the ITV group having acquired the Granada group. The FSD was issued on the basis that the targets were 'associated' with the participating employers of the DB scheme that was in deficit to the tune of £25m in 2003 and £115m by 2019. Following an unsuccessful appeal of the FSD, the Regulator issued another FSD in March 2020. The latest development follows ITV's August 2020 initial offering of £31m (subsequently raised to £52m) in relation to that FSD.

FSDs do not set out a specific amount that should be provided, rather the details of the financial support to be put in place are those as approved by the Regulator as reasonable. ITV increased its provision in its 31.12.2021 Y/E accounts from £31m to £52m and the £133m warning notice comes off the back of the Regulator's rejection of both offers. ITV has confirmed that it will continue liaising with the Regulator to reach resolution.