Legal Practice Notes

The Pension Regulator’s moral hazard powers Under the moral hazard provisions of the Pensions Act 2004 ( Pe A 2004), the Pensions Regulator holds authority to impose contribution notices ( CNs) and to require financial support directions ( FSDs). These measures are notably far-reaching and can be severe in practice indeed......

THIS PRACTICE NOTE APPLIES TO OCCUPATIONAL DEFINED BENEFIT PENSION SCHEMES THAT ARE SUBJECT TO EMPLOYER DEBT REQUIREMENTS Since 27 January 2012, it has been open to parties to implement a flexible apportionment arrangement in order to: avoid triggering an employer debt under the Pensions Act 1995, s 75 altogether (for further information on s 75 debts (also known as employer debts), see Practice Note: When is a section 75 debt triggered?), or reduce the amount that may become payable if an employer leaves a multi-employer scheme (or otherwise ceases to employ active members) Flexible apportionment arrangements do not replace other mechanisms for dealing with an employer debt, eg scheme apportionment arrangements or the corporate restructuring easements, and cannot be used where the scheme has entered insolvency or winding up. Introduced chiefly to assist where several employers cease to employ active members in the same scheme at...

Stakeholder pension schemes after 1 October 2012 The duty on employers to nominate and provide access to a stakeholder pension scheme (as set out in section 3 of the Welfare Reform and Pensions Act 1999 ( WRPA 1999)) ended on 1 October 2012, when the requirement to enrol workers automatically into a qualifying scheme (introduced by the Pensions Act 2008) took effect. However, unless a relevant exception applies (eg where an employer is notified that a designated stakeholder pension scheme has commenced winding up), employers remain under a continuing duty in respect of relevant employees to deduct employee contributions to an existing stakeholder scheme from their pay and remit them to the trustees or managers of the schemes. In addition, any existing or new stakeholder pension schemes must continue to be operated in line with the statutory requirements for such schemes, eg...

Criteria for eligibility for the Financial Assistance Scheme The Financial Assistance Scheme ( FAS) closed to notification and qualification of new pension schemes on 1 September 2016. Members already receiving, or holding a deferred right to receive, assistance payments from the FAS are not affected by this closure. For FAS payments to be made, separate yet connected conditions must be met for: the scheme its sponsoring employer(s) the individual members As a rule, underfunded defined benefit schemes that began winding up on or after 6 April 2005 should turn to the Pension Protection Fund ( PPF) to secure members’ promised benefits, rather than the FAS. However, the FAS can be relevant where a scheme entered winding up on or after 6 April 2005 but its sponsoring employer had become insolvent before that date. The eligibility requirements and the route into the FAS are...

If a member is expected to live for less than one year (described as ‘serious ill‑health’), and certain requirements are met, a scheme administrator may commute any pension rights that member holds within the scheme and instead pay the whole benefit due under an arrangement as a lump sum. In statute this type of authorised member payment is termed a serious ill‑health lump sum. Conditions for payment of a serious ill-health lump sum Current conditions Under the Finance Act 2004 ( FA 2004), Sch 29, para 4, a scheme administrator can pay a serious ill‑health lump sum to a member only where the following conditions apply: Before payment, the administrator has received evidence from a registered medical practitioner confirming the member is expected to live for less than one year. A ‘registered medical practitioner’ means a person registered under the Medical Act 1983 or, if the...

This Practice Note offers practical guidance on executing simple contracts and deeds by third-party individuals or bodies corporate (chiefly companies formed under the Companies Act 2006 ( CA 2006)) acting pursuant to a power of attorney, and outlines how such parties should sign in this context. It considers the following: who can grant a power of attorney, who can act as an attorney, the formalities for executing simple contracts or deeds under a power of attorney. It does not cover: the execution of powers of attorney themselves (see Precedent: Power of attorney for commercial transactions); the execution of documents by other authorised signatories of organisations (see Practice Note: Executing documents—deeds and simple contracts). We have created a comprehensive, interactive collection to help users identify and work through the concepts and common issues when executing documents. Each section or phase contains practical guidance, precedent clauses and Q& As relevant to that section, helping users work...

Summary This Practice Note outlines the position of Financial Support Directions ( FSDs) under the Pensions Act 2004 ( PA 2004), with a particular focus on how FSD liabilities rank in insolvency, as clarified by the Supreme Court in Nortel/ Lehman. The ruling offers key guidance on: the priority of FSD liabilities on an insolvency the correct interpretation of the Insolvency ( England and Wales) Rules 2016 ( IR 2016), SI 2016/1024, r 14.1 (previously the Insolvency Rules 1986 ( IR 1986), SI 1986/1925, r 13.12(1)(b)), which defines contingent debts provable in an insolvency the character of insolvency expenses the extent, if any, of the court’s residual discretion to order payments outside the statutory distribution regime The decision also addressed the treatment of contribution notices issued under PA 2004, s 47 (section 47 CNs), which serve to enforce...

FORTHCOMING DEVELOPMENT: On 11 February 2019, the Department for Work and Pensions ( DWP) issued its response to the consultation ‘ Protecting Defined Benefit Pension Schemes— A Stronger Pensions Regulator’, which followed the government’s White Paper ‘ Protection Defined Benefit Pension Schemes’ (19 March 2018). Among other measures, the government proposed working with TPR and the PPF to convert the FSD procedure into a single-stage approach, under which the Determinations Panel would impose a specified form and amount of enforceable financial support on a target. It also confirmed the regime would be retitled Financial Support Notice ( FSN). The regime’s reach would be widened to include individual controlling shareholders of the sponsoring employer. The government would likewise pursue the plan to broaden the potential targets of FSD enforcement activity to ensure pension promises are fulfilled. In addition, it signalled an intention to replace the...

This practice note applies to defined benefit occupational pension schemes. What is the employer covenant? Traditionally, within the context of a defined benefit ( DB) occupational pension scheme, the expression ‘employer covenant’ has been taken to cover: the employer’s legal commitments to underpin and sustain the scheme; and its financial capacity to honour those legal commitments in support of the scheme. A statutory definition did not emerge until the Occupational Pension Schemes ( Funding and Investment Strategy and Amendment) Regulations, SI 2024/462 (the Funding and Investment Strategy Regulations 2024). That definition comprises two limbs: the first mirrors the established understanding set out above, while the second goes further by recognising the backing available from contingent assets......

Statutory framework In England, there are three pension arrangements in place for firefighters, collectively referred to as the Firefighters’ Pension Scheme. These are: Firefighters’ Pension Scheme 1992 ( FPS 1992), which stopped accepting new members from 6 April 2006 and ended future accrual on 1 April 2022 Firefighters’ Pension Scheme 2006 ( FPS 2006, or NFPS – the New Firefighters’ Pension Scheme), which likewise closed to future accrual with effect from 1 April 2022 Firefighters’ Pension Scheme 2015 ( FPS 2015), which commenced on 1 April 2015 FPS 1992 also covered fire and rescue personnel in Scotland and Wales. FPS 2006 did not, and separate new schemes were put in place by the Firefighters’ Pension Scheme ( Scotland) Order 2007, SSI 2007/199, and the Firefighters’ Pension Scheme ( Wales) Order 2007, SI 2007/1072. In 2014 and 2015, distinct successor schemes were also...

While private sector defined benefit pension schemes ( DB schemes) have been dwindling over time, more than 5,000 such schemes still persist within the private arena, collectively covering upwards of nine million members in total. Fears about deficits and attempts by employers to sidestep obligations have notably created an intricate mix of regulation and legislation, increasingly requiring lenders and their advisers to carefully factor DB schemes in from the very start of any deal and throughout both any restructuring and any insolvency process. The Pensions Act 2004 ( Pe A 2004) empowered the Pensions Regulator ( TPR) to issue contribution notices or financial support directions to those connected to or associated with the scheme employer, ultimately rendering them responsible for providing backing or finance to underfunded DB schemes (the so‑called ‘ Moral Hazard’ powers). In addition, Pe A 2004 brought in a...

What is the general levy for? The general levy on occupational and personal pension schemes exists to recover funding supplied by the Department for Work and Pensions ( DWP) for: the Pensions Regulator ( TPR) the Pensions Ombudsman the pensions-related activities of the Money and Pensions Service These bodies receive grant-in-aid from the DWP, which is then repaid via levy income. Put simply, the general levy meets the cost of running these organisations. The rate of the levy is set each year by the Secretary of State for Work and Pensions. The legal basis is the Occupational and Personal Pension Schemes ( General Levy) Regulations 2005, SI 2005/626. Timing of the levy payment The general levy falls due on 1 April each year and is payable for the financial year that starts on that day. It is collected by the Pensions...

This Practice Note explores what fiduciary management services mean for occupational pension schemes, covering, among other aspects, the various models and providers, the reasons for opting for them and the possible hurdles, key points trustees should weigh when selecting a fiduciary manager, and the practical mechanics of delivery. For further detail on obligations placed on trustees of occupational pension schemes by the Competition and Markets Authority ( CMA) and the Department for Work and Pensions ( DWP) when appointing investment consultants and fiduciary managers, see Practice Note: Appointing investment consultants and fiduciary managers—the pensions requirements. What is fiduciary management? The concept first emerged in the Netherlands in the 1990s, with the UK’s initial mandate arriving in the early 2000s. Across the UK, defined benefit ( DB) schemes are the primary adopters, with only limited uptake among defined contribution ( DC) schemes....

Pensions disputes are frequently intricate and expensive, drawing in multiple participants, throwing up a wide range of questions and, in the end, dealing with very large sums. The result can bear upon the rights and interests of scheme members. Because many schemes have large memberships, and different groups may have competing interests in the outcome, it is generally impractical to join every member. In practice, representative beneficiaries (‘rep bens’) are used as a procedural and pragmatic device to simplify pensions litigation and are a routine element of most claims. That label can mislead, since individuals who are neither within the represented class nor beneficiaries at all may act in that representative role. This Practice Note addresses the making of representation orders in pensions litigation... What is a representative party? The representative rule originated in the procedure of the Court of Chancery before the Supreme Court of...

ARCHIVED This archived Practice Note explains how coronavirus affected trustees administering pension schemes, summarising the approaches taken by the Pensions Regulator, the Pension Protection Fund, the Pensions Ombudsman and other regulators. It also outlines the consequences for public service pension schemes, including measures under the Coronavirus Act 2020. The COVID-19 pandemic posed significant challenges for those running schemes, and this Note records the stances adopted by the various pensions regulatory bodies (including the Pensions Regulator ( TPR) and the Pension Protection Fund ( PPF)) alongside the practical issues trustees encountered. It also addresses the effect of coronavirus on public service arrangements, including impacts arising via the Coronavirus Act 2020. TPR’s position TPR consistently indicated it would regulate in a pragmatic and sympathetic manner where breaches arose from COVID-19. It introduced a number of easements, with some ending on 30 June 2020, for...

THIS PRACTICE NOTE RELATES TO REGISTERED PENSION SCHEMES By means of Schedule 4 to the Finance Act 2016 ( FA 2016), the government brought in an allowance protection regime designed to sit alongside the cut in the lifetime allowance from £1.25m to £1m on 6 April 2016. Termed fixed protection 2016 ( FP 2016), it mirrors earlier fixed protection regimes respectively launched on 6 April 2012 (fixed protection 2012, or simply ‘fixed protection’) and 6 April 2014 (fixed protection 2014). This Practice Note focuses on FP 2016, which is the subject of this Practice Note. The original purpose of FP 2016 was to give transitional protection to people who, before 6 April 2014, had already accumulated pension savings above £1m, or who expected to do so on the basis that the lifetime allowance would be maintained at no less than £1.25m. Although the...

THIS PRACTICE NOTE RELATES TO REGISTERED PENSION SCHEMES Through Schedule 22 of the Finance Act 2013 ( FA 2013), the government brought in and implemented an allowance protection framework to accompany and facilitate the reduction in the lifetime allowance from £1.5m to £1.25m on 6 April 2014. This framework, called fixed protection 2014 ( FP 2014), builds on the fixed protection regime first launched on 6 April 2012 (referred to as fixed protection 2012, or simply ‘fixed protection’). FP 2014 is the focus of this Practice Note. The initial, stated purpose of FP 2014 was to provide transitional protection for individuals who, before 6 April 2014, had already accumulated pension savings exceeding £1.25m, or who intended to do so on the assumption that the lifetime allowance would stay at least at £1.5m. Although the lifetime allowance was subsequently abolished with effect from 6 April 2024, FP 2014...

THIS PRACTICE NOTE RELATES TO REGISTERED PENSION SCHEMES Under Schedule 18 to the Finance Act 2011, the government set up an allowance protection framework to sit alongside the reduction in the lifetime allowance from £1.8m to £1.5m on 6 April 2012. That framework, called fixed protection 2012 ( FP 2012), was the first iteration of fixed protection introduced, and it is the focus of this Practice Note. FP 2012 was intended to provide transitional cover for individuals who had already accumulated pension savings on the assumption that the standard lifetime allowance would remain at least £1.8m. Although the lifetime allowance was abolished with effect from 6 April 2024, FP 2012 still offers certain transitional safeguards for a person’s entitlement to: (i) the lump sum allowance; (ii) the lump sum and death benefit allowance; and (iii) a tax-free lump sum. For more detail, see The...

Released on 18 December 2017, this year’s Brexit round-up surveys the major developments of 2017 and signals what to expect in 2018. It offers updates and analysis on: the process and implications of triggering Article 50 TEU progress made in the first phase of Brexit talks the government’s domestic readiness and contingency planning, covering key legislative programmes, devolution questions and ongoing parliamentary scrutiny It also looks ahead to core priorities as both sides prepare to shift negotiations into a second phase in 2018, and provides updates on Lexis Nexis® content—highlighting last year’s developments and what is scheduled over the next 12 months. Reviewing 2017 EU withdrawal process What happened? The UK’s decision to leave the EU is without precedent, creating significant legal and constitutional challenges. With both the UK and the EU navigating uncharted territory, debate has persisted across multiple fronts, including the 2016 EU...

ARCHIVED : This archived Practice Note sets out the principal actions pension trustees and/or scheme sponsors were required to take in the run-up to 25 May 2018 to prepare for the commencement of the General Data Protection Regulation ( EU) 2016/679. It is provided for background purposes only, is not maintained, and should not be treated as current guidance. The General Data Protection Regulation ( GDPR) took effect on 25 May 2018, superseding and building on the pre-existing data protection legislation. It raises expectations to strengthen the protection afforded to individuals’ personal data. As data controllers, trustees and employers must be clear and transparent about what they do with personal data and how they use it. Individuals enjoy stronger rights over their information, and breaches of the law attract substantially heavier penalties. Accountability is fundamental: compliance must be demonstrable by adopting...