The trustee agenda: key developments from May 2023 onwards

Key cases

Scheme amendments made to contracted-out DB scheme without section 37 actuarial confirmation void

In Virgin Media Limited v NTL Pension Trustees Limited [2023], Mrs Justice Bacon ruled that amendments made in March 1999 to the revaluation provisions of a contracted-out defined benefit (DB) scheme, if made without written actuarial confirmation under section 37 of the Pension Schemes Act 1993, were void and ineffective. The voidness extended to both past and future service pension benefits and applied to all alterations not just to those that were or might be adverse.

Section 37 and associated regulations at the time of the alterations provided that the rules of a salary-related contracted-out scheme relating to ‘any section 9(2B) rights’ could not be altered unless the scheme actuary confirmed in writing that, after the alterations, the scheme would continue to satisfy the statutory contracting-out ‘reference’ scheme test (that applied between 6 April 1997 and 5 April 2016 when contracting-out was abolished). Section 9(2B) rights are broadly rights (and accrued rights) to pensions relating to contracted-out service.

The section 37 regime was changed from 6 April 2013 to restrict the requirement to provide written actuarial confirmation to future service benefits, with different requirements in respect of past service being introduced.

The judgment has potentially wide-reaching consequences for schemes which have been amended without the required actuarial confirmation. There may be a further Court hearing which could consider further issues such as whether it would be possible for the scheme actuary to provide section 37 confirmation retrospectively. The case may also be appealed. Aside from this, the Government could legislate under an existing statutory power to introduce regulations retrospectively validating amendments that would otherwise be void because section 37 confirmation was not provided. 

Action

At present, the list of planned EU law revocations does not include EU-related pensions law, but this may well change so keep an eye out for any developments in this area.

Consultations, enquiries and statutory reviews

Department for Work & Pensions (DWP) review of transfer regulations

The DWP’s review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 review concludes that the regulations seem to be working as intended to protect against transfers to scam arrangements whilst permitting most transfers to proceed without unfounded interruption. Nevertheless, the review notes concerns with how the regulations apply to overseas investments and incentives (see Gateley’s Insight) and confirms that the DWP will work further with the industry and the Pensions Regulator (TPR) to determine if changes are required to deal with these issues.

WPC DB with LDI report

The Work and Pensions Committee (the WPC) 23 June 2023 report on DB pensions with liability-driven investment (LDI) contains a number of key recommendations, primarily for the DWP and TPR:

• the DWP, TPR and the Pension Protection Fund (the PPF) should produce an “account of the impact on pension schemes of the LDI episode” by the end of 2023;
• TPR to collect LDI data and engage with relevant schemes afterwards where appropriate;
• the DWP needs to respond to its 2018 consolidation consultation by the end of October 2023 (given consolidation should improve governance);
• the DWP and TPR should consider how to improve scheme governance and whether LDI use should be restricted;
• the inclusion of investment consultants within the FCA’s regulatory perimeter should be completed before the current Parliament ends;
• the DWP and TPR should report to the WPC on how they will monitor LDI resilience and maintenance (by the end of October 2023) and consult on whether LDI disclosure requirements should be required in a scheme’s annual report or investment statement;
• the revised DB scheme funding regime should not be introduced until at least a full impact assessment has been undertaken;
• the DWP should tell the WPC by the end of January 2024 how it plans to take forward the Financial Policy Committee’s recommendation to extend TPR’s statutory remit to include financial stability considerations.

Action

If unsure, trustees should check that they have produced and published a statement of investment principles and implementation statement where required, and that they include relevant ESG and stewardship disclosures – TPR may take enforcement action where reasonable efforts have not been made on policies. They should also look out for the results of TPR’s review as they will include examples of good practice which schemes will find useful.

Action

Until the new funding and investment regime is in force, trustees should consider their scheme’s long-term funding plans and whether the scheme might adopt the Fast Track parameters or bespoke approach (see Gateley’s In-depth Insight).

Action

The key action for schemes in scope is to assess where they are on the long-term journey plan (or set one if they do not already have one). Gateley’s In-depth Insight provides more detail. 

Action

When a DB scheme sponsoring employer is in distress, schemes should refer to the guidance, take advice where need be, and make sure that they take relevant steps to protect the scheme. Early engagement with key stakeholders and, where appropriate, TPR, can be key in mitigating risk.

Action

Trustees should complete the survey by 4 August 2023. TPR expects to publish the results by the end of 2023. You can read about TPR’s March 2023 EDI guidance here.

Action

DC schemes should satisfy themselves that they are meeting their obligations in respect of value for members and climate change.

The PPF

Expanded Pension Protection Fund (PPF) role – consolidation

The Government is considering whether to extend the PPF to cover smaller stressed DB pension schemes. The PPF has welcomed the opportunity to collaborate on consolidation – legislative change would be needed to extend the PPF in this way.

A 29 May 2023 report from the Tony Blair Institute for Global Change also recommended an expanded PPF role through it becoming the UK’s first ‘superfund: GB Savings One’ (with the potential for this to cover not just smaller DB schemes but also, eventually, other DB, DC and public sector schemes). 

If taken forward, consolidation would significantly change the pensions landscape. Gateley’s Insights (1) and (2) have more information.

Sustainability strategy

The PPF’s first sustainability strategy sets out its plans for “catalysing the growth of a sustainable pensions industry”. You can read about the goals and targets in Gateley’s Insight covering 3 to 10/ 17 July.

Action

Trustees should carry on preparing for dashboards as there is still a lot to be done to be ‘dashboards ready’ – the scheme administrator will be key in this preparation. TPR’s 14 June blog notes how important adequate data is for ensuring a scheme’s readiness (see Gateley’s Insight). 

Other developments

Pensions Ombudsman cyber incident

The Pensions Ombudsman has been investigating a cyber incident – it disabled application forms and LiveChat as a ‘precautionary measure’. It is working with relevant agencies and will provide a further update in due course.