We've put together what we think will be the top pensions issues to watch out for in 2020. Check them out to see what you need to know to be pensions ready for the next 12 months!
1. Pension Schemes Bill
This is likely to progress quickly through parliament and brings huge changes. The highlights are:
- Stronger powers for the Regulator. The policy driver behind the new powers is to make sure another high profile scandal like Philip Green's involvement in the BHS schemes cannot happen again. Although not yet legislation, employers involved in commercial activity should make sure they are up to speed on the proposals. The consequences for breach are severe, including an unlimited fine and/or up to seven years in jail.
- Pensions dashboard. Pensions dashboards will allow members to see, at a glance, their entire pension benefits across all their current and historic arrangements. The Bill lays the foundations for dashboards but it is likely to be 2021 at least before dashboards become a meaningful reality.
- Long term funding target. Trustees must put in place a long term funding and investment strategy or "end game" plan, accompanied by a strategy statement. To help trustees, the Regulator is due to publish a new funding code of practice.
2. Sustainable Investment
This will continue to be a big issue in 2020. Many schemes, particularly smaller ones, have not yet complied with the spirit of the changes introduced last year which require trustees to fully integrate environmental, social and governance factors that are financially material into their investment decision making and stewardship. Further regulatory changes come into force this year. Trustees will need to provide details of how they work with their asset managers and will be subject to additional disclosure obligations. Separately, members are demanding information from trustees over how they have mitigated climate change risk and their ESG strategy. Some have taken legal action where they have not received adequate responses and 2020 is likely to bring more of these cases.
3. VAT saving on management services
2020 may reopen the long running saga on VAT on scheme management services. Despite HMRC accepting that employers can, in theory, recover VAT on scheme investment services, no practical solutions are currently available. However, a case involving United Biscuits pension schemes, which is currently at the Court of Justice of European Union for a preliminary ruling, may offer a ray of hope for employers. The arguments are complex and focus on whether supplies of pension fund management services should be VAT exempt. The potential savings are significant so this is one to keep a close eye on.
4. GMP equalisation
Everyone's favourite subject will continue to feature heavily. Despite the Lloyds Bank judgment clarifying that schemes must equalise for the effect of GMPs back in October 2018, many schemes have yet to fully grapple with this challenge. A supplementary hearing expected in 2020 on how past service transfers out should be treated and clarity from HMRC regarding the tax consequences of equalisation will hopefully help move things along.
5. New fair deal for LGPS
Last year the government consulted on introducing new fair deal for outsourcings where the employees are members of the Local Government Pension Scheme (LGPS). Under the proposed changes, employees would remain members of the LGPS through a "deemed employer" approach and the existing pension protection for outsourcings from best value authorities to provide broadly comparable benefits would fall away. A response to the consultation is expected soon.
6. Equitable recoupment
The recent High Court and Court of Appeal judgments in Bic v Burgess have clarified the option of recovery of pension scheme overpayments via the equitable remedy of recoupment. However, further questions remain unanswered. A particularly interesting one is whether the defence of change of position is available when recovering overpayments via recoupment. We expect a view from the Pensions Ombudsman on this during 2020.
7. New kids on the block
It looks like Collective Defined Contribution (CDC) schemes, which allow contributions to be pooled and invested to give members a target benefit level, will become a viable option this year, with the Royal Mail CDC scheme leading the charge. However, it remains to be seen the extent to which employers will take up the opportunity to offer staff these schemes. Sadly for the consolidator business and employers interested in the de-risking they offer, there is no sign of consolidator arrangements being put on a formal legislative footing anytime soon.
8. Brexit
The positive news is that, in the vast majority of cases, we expect that pensions related legislation that originated from the EU will carry on post Brexit. Cross border schemes will need to make sure they keep abreast of developments on what the position will be post the transitional period. A key unknown, however, is the extent to which EU case law will continue to influence the legal framework in the UK. Let's hope 2020 brings some much needed clarity on this.
For further information on the points raised in this bulletin please do contact any of our pensions team, who would be delighted to help.
