Pensions insight: week ended 15 & 22 April 2022

Former trustees jailed pension scam offences

The Pensions Regulator has successfully brought about the prosecution of two former trustees who had been responsible for a criminal enterprise which persuaded 245 members of legitimate occupational pension schemes to transfer pension savings, with a total value of £13.7 million, into pension schemes that were under their control.

Following their prosecution, Alan Barratt and Susan Dalton were sentenced at Southwark Crown Court on the 22 April 2022 for fraud offences arising from their role as trustees of the pension schemes which convinced unsuspecting members that their savings were being invested in overseas property when they were being used to fund their own lavish lifestyle. Mr Barratt was handed a sentence of five years and seven months whilst Ms Dalton was sentenced to four years and eight months in prison. As you may recall from our insight for the week ended 26 March 2021, Mr Barratt was extradited from Spain in March 2021 under a European arrest warrant.

The mastermind behind the fraudulent schemes, who took the lion’s share of members’ money, committed suicide in 2019 before the investigation was complete, but Barratt and Dalton were key to its operation.

The executive director of Frontline Regulation at the Pensions Regulator, Nicola Parish, commented that “this prosecution and substantial custodial sentence sends a clear message that TPR and the courts will take tough action against fraudsters. Our successful extradition of Barratt from Spain also shows there’s no haven for scammers”. Whilst passing sentence, his honour Judge Perrins, noted that the impact upon victims had been “utterly devastating” and had caused “such misery to so many people”.

The case demonstrates the threat posed by fraudsters and pension scams to members of pension schemes but also the commitment of the Regulator to their pledge to combat pension scams. You can read more about the actions being taken by the Regulator against pension scams in our insight from the week ended 14 May 2021.

Joint statement to P&O Ferries employees warning against transfers out

The Financial Conduct Authority, the Pensions Regulator and the Money and Pensions Service have issued a joint statement warning past and current P&O employees against making any hasty decisions regarding their pension benefits following the recent redundancy exercise undertaken by the employer.

The press release contains a warning that "transferring out of a defined benefit pension scheme is unlikely to be in the best interests of most people". It notes the importance of undertaking checks on any financial adviser, references the Regulator's discussions with the trustees of those schemes associated with P&O Ferries regarding their role in protecting savers and confirms that the Regulator is liaising with the trustees to monitor transfer requests.

PASA publishes vetting guidance for pension scheme administrators

The Cybercrime and Fraud Working Group of the Pensions Administration Standards Association (PASA) has published guidance which aims to assist pension scheme administrators screen applicants for roles within their business in order to prevent fraud. 

The guidance advises administrators to consider rating positions within their business in terms of risk and covers what information and checks are available to them. The guidance concludes that as pension administrators undertake sensitive work where large payments are made, there is a risk of being targeted by recruitment fraudsters. PASA’s guidance asks administrators to consider this risk and confirms that the range of vetting methods detailed should be used in a “proportionate and lawful way, to protect them against this problem”. 

GMP equalisation: income tax treatment of interest on arrears payment of pension

Various pensions industry bodies including the Association of Pension Lawyers, the PLSA and the Association of Consulting Actuaries have released statements commenting on HMRC's position on the tax treatment of interest which may be paid to pensioners with regard to late payment of pension arrears due in respect of GMP equalisation. (The tax treatment of the arrears themselves are already the subject of HMRC guidance – see HMRC's February 2020 newsletter).

HMRC is expected to clarify the position itself in a forthcoming newsletter but agreed that its view could be shared before this with the industry. The point arose following identification of differences in how the interest element has been treated by schemes for tax purposes.

For the purposes of GMP equalisation:

• The interest payment relates to a "late payment of pension instalments";
• It is likely to be 'yearly interest' for tax purposes meaning that "an obligation to withhold tax is unlikely to arise…unless the payment…[is made] to a person whose usual place of abode is outside the UK"; and
• The interest element should be covered by the Personal Savings Allowance for most people. This permits interest of up to £1,000 on savings to be earned without incurring tax but is dependent upon the individual's income tax band.

This means that in most cases members will be responsible for any tax due rather than a scheme having to deduct tax at source and they should be informed accordingly.

Legal action being taken against Uber regarding Sharia-compliant pension arrangements

The App Drivers and Couriers Union has confirmed that it is going to commence legal action against Uber over a "failure to make Sharia compliant pension arrangements for [the] majority Muslim workforce". The ADCU has asked that Uber take corrective action within 14 days.

This action follows Uber setting up automatic enrolment pension arrangements for its drivers consequent upon the February 2021 decision of the Supreme Court which confirmed that drivers who used the Uber app were 'workers' with statutory employment rights (see our Insight).

The Union's complaint is that the lack of a sharia-compliant investment option "effectively means that the majority will be forced out of participation in the pension scheme and those that do participate are forced to accept a compromise of the tenets of their faith to do so".

Uber has been reported as confirming that it is liaising with NOW: Pensions, the pension provider, to set up a Sharia-compliant fund which should be accessible in the near future.

IIGCC launches net-zero stewardship framework

The Institutional Investors Group on Climate Change (IIGCC) has launched its Net Zero Stewardship Toolkit in order to help investors enhance their stewardship practices and bring about the rapid acceleration in decarbonisation needed to halve emissions by 2030 and achieve net zero for carbon emissions by 2050 or sooner. 

The toolkit provides investors with a framework for achieving net zero stewardship and comprises of six-steps which prioritise:

1. key engagement;
2. establishing a net-zero alignment criteria;
3. developing an engagement strategy for ‘priority companies’;
4. developing a baseline engagement and voting policy;
5. asset owner and manager alignment and engagement; and
6. transparency. 

The toolkit puts an emphasis on companies to develop viable transition plans that can be held accountable by investors. Stephanie Pfeifer, the CEO of the IIGCC, commented in  PensionAge magazine that “the toolkit provides clear parameters and a systematic framework for what good corporate engagement looks like, including escalation actions such as filing a shareholder proposal, to be used when time bound objectives are not met”. The IIGCC have also demonstrated their intention to supplement the net zero stewardship toolkit with additional guides on new strategies and approaches as they emerge.

Latest PPF 7800 Index shows funding has increased

The latest PPF 7800 update setting out the estimated funding position on a section 179 basis as at the end of March 2022 of the eligible 5,215 DB schemes shows that:

• the aggregate surplus of these schemes increased over the month to £176.4bn from a surplus of £133.6bn at the end of February 2022;
• the funding ratio increased from 108.4% at the end of February 2022 to 111.4% at the end of March; and
• the aggregate deficit of the schemes in deficit decreased to £62.9bn from £83.1bn at the end of February 2022.