Pensions legislation and case law update: the latest developments week ended 13 August 2021

In this week’s update we cover the Public Service Pensions and Judicial Offices Bill guidance, the Pensions Regulator’s intervention report in the Keytec case and its blog on the transition to UK net zero, the latest PPF 7800 funding position, PASA’s supplemental guidance on transfer payments and the ICO’s consultation on international data transfer guidance. We also provide a round-up of recent pensions related sanctions issued by various regulatory bodies. 

Guidance on Public Service Pensions and Judicial Offices Bill published

On 6 August 2021, the Home Office published Guidance on the Public Service Pensions and Judicial Offices Bill which is due to receive its second reading in the House of Lords on 7 September 2021. 

This Bill introduces provisions to remedy the age discrimination identified in the McCloud case (The Lord Chancellor and Secretary of State and another v McCloud and Mostyn and others and Sargeant v London Fire and Emergency Planning Authority and others [2018]) by allowing members a 'deferred choice underpin' when their benefits become payable, of taking either legacy or reformed scheme benefits for service between 2015 and 2022. The Bill also reforms the pension arrangements and increases the mandatory retirement age of judicial office holders to 75 from 70.

The Guidance explains why the Bill is needed, what changes will be implemented and how this will impact upon members' benefits. The Guidance will be kept under review and updated during the implementation process. It is the Government's intention for the 'deferred choice underpin' to be implemented by 1 October 2023, or earlier if schemes can apply the changes before this date.

Regulatory intervention report: Keytec (GB) Ltd and overseas parent, Turbon AG

The Pensions Regulator has published a regulatory intervention report setting out how it worked with Keytec (GB) Limited, the sponsoring employer of a small hybrid pension scheme, its German parent, Turbon AG, and the scheme trustees to arrive at a funding agreement without the Regulator having to use its anti-avoidance powers, to issue a Financial Support Direction.

The case arose following the scheme's 2016 actuarial valuation, when the Regulator became concerned that the scheme was not being treated fairly when compared with Keytec's shareholders. The unfair treatment included payment of a £876,000 dividend in 2015 with no mitigation being provided to the scheme. In addition, Keytec had become a service company and the Regulator had concerns regarding its ability to support the scheme without assistance from Turbon, which prioritised general company cash needs over those of the scheme. Two guarantees that had been provided by Turbon were insufficient being limited in value and one being time-limited.

Following Turbon's failure to engage with the trustees, the Regulator issued a Warning Notice on 23 March 2020 to Turbon, and its majority shareholder, HBT Holdings, seeking financial support for the scheme.

Following negotiations, a funding package was ultimately agreed which the Regulator determined was sufficiently meaningful to allay its concerns and which meant that the Regulator was satisfied that it would no longer need to use its powers. The package included a one-off cash payment of £636,000, agreed deficit repair contributions, a substantial parent company guarantee and an agreed funding framework for future valuations to be carried out on a self-sufficiency basis. 

The report notes that the Regulator will step in to "achieve a strong outcome for savers, regardless of the scheme's size".

PPF 7800 index shows decrease in funding surplus

The latest PPF 7800 Index Report setting out the estimated funding position on a section 179 basis as at the end of July 2021 of the eligible 5,318 DB schemes shows that:

• The aggregate surplus decreased over the month to £62.4bn from a surplus of £99bn at the end of June 2021;
• The funding ratio decreased from 105.8% at the end of June 2021 to 103.5%; and
• The deficit of the schemes in deficit increased to £142.2bn from £117.7bn at the end of June 2021.

PASA supplemental guidance on transfer payments

The cross-industry GMP Equalisation Working Group, chaired by the Pensions Administration Standards Association has published supplemental guidance on transfer payments which updates its September 2019 methodology guidance and reflects the 2020 Lloyds Bank judgment (Lloyds Banking Group Pensions Trustees v Lloyds Bank) concerning GMP equalisation and the payment of transfer values. 

The supplemental guidance looks at the role of both the transferring and receiving scheme, individual and bulk transfers and aims to help resolve outstanding issues in a 'pragmatic and practical way'. Our In Depth Insight provides an overview of the 2020 Lloyds case.

ICO consults on updated guidance and draft ICO international data transfer agreement

On 11 August 2021, the Information Commissioner's Office announced the launch of a public consultation on the protection of personal data transferred outside the UK including updated guidance, a draft ICO international data transfer agreement (IDTA), and an international data transfer assessment and tool.

This follows the ECJ's 16 July 2020 decision in Schrems II (Data Protection Commissioner v Facebook Ireland and Maximillian Schrems (Case C-311/18)) that, although the European Commission Decision on controller-to-processor standard contractual clauses was valid (subject to a case-by-case assessment), this was not the case for the protection given by the EU-US Privacy Shield framework for EU to US data flows.

The ICO consultation covers proposals and plans for international transfer guidance updates, transfer risk assessments and the IDTA.