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Pensions Insights – September 2022

28 September 2022

In our monthly e-alert, Pensions Insights, we give you our take on the latest highlights in the world of pensions law and policy.

If you have any queries about any of the issues covered, or you require advice on a pensions related matter, please do not hesitate to contact your usual contact.

Case Law 

Judicial Review re changes to RPI fails - R (BT Pension Scheme Trustees and others) v (1) UK Statistics Authority & (2) Chancellor of the Exchequer [2022] EWHC 2265 (Admin)

The central issue raised by this claim for judicial review was whether the UK Statistics Authority (“UKSA”) has acted unlawfully by deciding that the United Kingdom General Index of Retail Prices (“the RPI”) will in future import the methodology and data sources of the Consumer Prices Index including owner occupiers’ housing costs (“the CPIH”), altogether referred to in the case as the "RPI Decision".

In addition the Chancellor decided that the Government would not pay compensation to the holders of index-linked gilts (“the Compensation Decision”).

The Decisions were challenged on 3 grounds broadly that:

  • The RPI Decision falls outside the scope of the power of the UKSA to amend an Index under the Statistics and Registration Service Act 2007 and is therefore ultra vires;
  • UKSA failed to have regard to the impact of the RPI decision on holders of RPI index-linked gilts and bonds and persons entitled to index-linked pensions and the Chancellor failed to have regard to the interests of legacy users in relation to the Compensation Decision; and
  • UKSA and the Chancellor were under a duty to consult the public on the RPI Decision and the Compensation Decision respectively and failed to do so. 

The financial implications for certain pensions schemes were outlined including that the first claimant has 82,000 members who are entitled to have their pensions increased in line with the RPI and that it is estimated that the effect of the RPI decision has been to reduce the present value of their pensions by £2.8 billion.  In addition as at September 2019 the first claimant held over £20 billion of index-linked gilts, inflation swaps and RPI-linked corporate bonds which it is estimated reduced in value by £3.7 billion as a result of the RPI Decision.

Finding that both the UKSA and the Chancellor had acted lawfully the application for judicial review was dismissed

It is reported that the trustees are considering whether to appeal the judgment.

New Law  

Simpler Annual Benefit Statements from 1 October 2022

The Occupational and Personal Pension Schemes (Disclosure of  Information) (Statements of Benefits: Money Purchase Benefits) (Amendment) Regulations 2021 come into force on 1 October 2022.

These Regulations amend the Disclosure Regulations, in relation to the provision of annual pension benefit statements and will require auto enrolment schemes to provide members (except pensioner members), who are entitled to money purchase benefits, with a statement in relation to those benefits that must not exceed one double-sided sheet of A4-sized paper when printed.   Statutory guidance includes an illustrative template 

The regulations make provision for an exception where a member requests the information in an alternative format. 

News

Draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023 published for consultation

On 26 July 2022 the DWP published the draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023 (Funding and Strategy Regulations) for consultation.

The expectation is that schemes should be in a state of low dependency on the sponsoring employer by the time they are "significantly mature" and that schemes that are maturing "will be required to manage their risks carefully".

The consultation closes on 17 October 2022. No date is specified for when the Funding and Strategy regulations will come into force.

The draft Regulations require trustees to prepare a statement (to be submitted to TPR as part of the scheme valuation process) on long-term funding and investment strategy. If the scheme has not reached significant maturity, it will need to contain information including: 

  • The level of investment risk the trustees intend to take; 
  • An estimate by the actuary of the scheme's maturity at the valuation and if relevant how the scheme's maturity is expected to change over time; 
  • The trustees' assessment of the strength of the employer covenant and how long it is reasonable for them to rely on this assessment;
  • A statement on the scheme's liquidity, addressing how it is expected to meet cash flow requirements; and 
  • The main risks in implementing the funding and investment strategy and any steps the trustees intend to take to mitigate these risks.

Further details on various aspects are expected to be included in the next Scheme Funding Code. TPR has confirmed that the second consultation on that Code will not be published until autumn 2022.

Single Code of Practice – Own Risk Assessments

After publishing an interim response to consultation in relation to the single code of practice in August 2021, little more has been heard about TPR's single code of practice with TPR at that time noting that it did not yet have a firm final publication date for the new code, pending its further consideration of the consultation responses and that the final version of the new Code was unlikely to take effect until summer 2022. 

If implemented in line with previous drafts, in addition to consolidating other TPR guidance the code will require occupational pension schemes with 100 or more members to carry out and document an own risk assessment ("ORA") of their system of governance which is intended to be an assessment of how well the scheme's governance systems are working and the way in which potential risks are managed. It should cover:  

  • How the governing body has assessed the effectiveness of each of the policies and procedures covered by the ORA. 
  • Whether the governing body considers the operation of the policies and procedures to be effective and why. 

Current drafting requires trustees to prepare and document the scheme's first ORA within one year of the Single Code coming into force and subsequently review that ORA every 12 months (or sooner if there is a material change in the risks facing the scheme or to its governance process). 

Further Reading