Year in review: As if Brexit didn’t pose enough challenges, regulators, lawyers and two successive pensions ministers have had a lot on their plate in 2016.
Many of those burning platforms, such as the government’s seemingly impending decision to change pensions tax relief, or the size of the British Steel Pension Scheme’s deficit, look set to cause policymakers headaches well into 2017.
But the year has also seen encouraging progress, with Richard Harrington now looking to build on the successes of auto-enrolment.
From discrimination battles to departing employers, here are our top five legal and regulatory stories from 2016.
Bushfire of pension discrimination cases spreads to firefighters
August 16
The Fire Brigades Union’s legal challenge against sponsoring employers and the government was the culmination of a steady stream of pension discrimination cases brought over the year, and focused on inequality brought about by a transitional protection arrangement.
Fire brigade staff were moved into a new Firefighters’ Pension Scheme, providing career average revalued earnings benefits instead of the previous final salary arrangement, in 2015.
Transitional arrangements offered greater protection to those closer to retirement age, regardless of length of service, which the union said constituted age discrimination.
It also mentioned equal pay issues, gender discrimination and racial discrimination in its challenge, which was brought on behalf of 6,000 members of the FPS.
A technical hearing was held in May 2016, with a preliminary listed case management hearing in August 31 2016. A November update from the FBU stated that the union has now submitted all of the relevant documentation to the courts.
Other discrimination cases over the year included a similar case affecting judges’ pensions, and a Lloyds Bank trade union challenging the gender pay gap.
British Steel pensions rule change proposals shelved
September 15
The government rejected proposals for a legislative carve-out that would allow the British Steel Pension Scheme to modify accrued benefits without the consent of members, opening up debate on whether industry-wide changes to inflation protection should be permitted.
The BSPS had proposed changes to benefits in June, after a decision by steel conglomerate Tata to put its UK business, the scheme’s sponsor, up for sale in March.
People close to the negotiations told the Financial Times that the proposals, which intended to allow the scheme to become self-sufficient and separate from Tata UK, had been abandoned for a number of reasons, including the departure of Sajid Javid, then business secretary.
The story ignited the debate around indexation and revaluation of accrued benefits, with several industry figures arguing that balancing the ‘rules lottery’ on the retail price index and consumer price index would ease the strain of defined benefit pensions on corporate sponsors and address intergenerational fairness concerns.
In December Tata announced that it would consult with members on the closure of the scheme, with a defined contribution scheme offered as a replacement. Trustees said the most likely outcome for the legacy DB scheme would be entry into the Pension Protection Fund.
Tax relief off the table but Budget could still bring surprises
March 7
George Osborne’s last Budget announcement as chancellor of the exchequer did not deliver the change to pensions tax that many commentators had predicted, allowing the industry to breathe a sigh of relief.
Just over a week before the official announcement, the Times reported that Obsorne had called off, or at least delayed, his ‘raid’ on pensions tax relief.
Meanwhile speculation abounded that the decision not to introduce a flat rate of tax relief on pensions was intended to appeal to those middle and higher-income workers who the government hoped would deliver a ‘remain’ vote in the June Brexit referendum.
Those reports were proved mostly correct on Budget day itself, when Osborne stayed silent on tax relief, although he did announce the controversial lifetime Isa – a step towards the pension Isa and the end of upfront tax relief.
Pensions minister outlines plans, warns of AE challenges
October 19
It took a few months’ induction in the pensions world before minister Richard Harrington, who replaced Ros Altmann as part of Theresa May's cabinet reshuffle, began to outline his views on the challenges faced by the industry.
At the Pensions and Lifetime Savings Association’s annual conference in Liverpool we reported on how Harrington struck a measured tone, balancing the early successes of auto-enrolment with a series of upcoming hurdles.
He said less jargon and industry marketing might help to smooth transitions, as employee and employer contributions are increased, and small employers reach their staging dates.
He also introduced the Pension Schemes Bill, currently passing through parliament, which aims to bring the regulatory framework surrounding mastertrusts in line with that of other savings products.
The minister spoke of his support for DB investment in residential property, and also hinted at his distaste for employers rewarding shareholders over supporting their pension schemes.
Plumbing scheme plans to seek guidance from Scottish courts as government drags feet on s75
July 25
In July we highlighted the flaws in section 75 debt legislation with regards to non-associated multi-employer pension schemes, in relation to a drawn-out dispute between Plumbing Pensions and an employer exiting the scheme.
Exiting employers are required to pay a section 75 debt, to cover their share of the scheme’s deficit, and a share of orphan liabilities, which relate to the benefits of members who were employed by companies that subsequently left the scheme.
By having to pay both these debts, employers wishing to leave a scheme for non-associated companies can incur liabilities built up by companies with which they have no connection, and which might even be competitors.
The scheme complained that legislation had failed it in not distinguishing between non-associated multi-employer schemes and schemes where the employers are connected.
Experts sympathised with the plight of the unusual scheme, but highlighted the failure of the trustees to collect previous debts. Plumbing Pensions is yet to announce an update on its progress.
