A review of pension developments in 2020
Whilst many of us will simply want to forget about 2020, it is, at least from a pensions perspective, a year that should be remembered not just because of Covid-19 and the acceleration of a ‘new normal’ in terms of remote working.
Pre-pandemic
Even before the global pandemic led to a three-month lockdown across the UK, in the first quarter of 2021 we saw a new Pensions Bill being introduced into Parliament (although, technically, it was a re-introduction following the dissolution of Parliament at the end of 2019) and a significant milestone for the Pension Protection Fund as The Carillion Rail (GTRM) Pension Scheme became the 1000th scheme to transfer to the PPF since its inception in 2005.
The Courts were kept busy in the first few months of the year, with trustees and sponsoring employers seeking clarification on the correct measure of price inflation for increases to members’ pensions in payment. As we will see, pension indexation, is an issue that arises later in the year too.
The Pensions Regulator (TPR) kicked off 2020 in earnest with the publication of the first stage of a major consultation on its revised Code of Practice for defined benefit pension scheme funding.
And HMRC finally got round to providing guidance on the pension tax implications of addressing inequalities arising from Guaranteed Minimum Pensions (GMPs) following the 2018 Lloyds Bank Pension Scheme case (yes, it really was over two years ago).
The Budget brought further pension tax changes with a reduction in the Tapered Annual Allowance from £10,000 to £4,000.
There were also ‘Brexit developments’ with The EU (Withdrawal Agreement) Bill receiving Royal Assent and paving the way for the UK to leave the EU on Friday, 31 January, at 11pm, subject to a transition period until 31 December 2020.
This was all before the Prime Minister told us to ‘stay home, protect the NHS and save lives’.
First responses
In the second quarter of 2020, TPR’s annual funding statement provided information on the completion of valuations in the Covid-environment and the Regulator also separately provided specific guidance designed to help pension scheme trustees and employers cope with the financial and practical impact of Covid-19.
New legislation was another response to the pandemic. In particular, the Corporate Governance and Insolvency Act, designed to give struggling employers some breathing space, had important implications for pension schemes and the security of members’ benefits.
‘Superfund guidance’, setting out TPR’s expectations for DB consolidators was prompted, in part, by the pandemic too.
And the High Court held, in the Hughes case, that the PPF compensation cap was age discriminatory.
A ‘new normal’
This was all before the second half of 2020, where some semblance of normality resumed (at least for a period) after a three-month lockdown.
From a pensions perspective, the key development in the third quarter of 2020 was probably the consultation on taking action on climate risk and improving governance and reporting by occupational pension schemes. Climate change is an issue which trustees will be hearing a lot about over the coming months and years.
Turning to the current quarter of 2020, The Pension Schemes Bill, mentioned at the start of this article, is close to Royal Assent. Trustees and employers should already be thinking about its provisions on funding, new powers for The Pensions Regulator and ‘climate change’ (see the paragraph immediately above).
TPR asked us to “pledge” to combat pension scams and, on a related note, the High Court clarified how the legislation governing the Fraud Compensation Fund should be interpreted, providing some hope of redress for pension scam victims.
In probably the last significant case of 2020, the High Court also told us, in the second Lloyds Bank Pension Schemes case, that trustees of DB schemes, which provide GMPs, are required to revisit and, where necessary, top-up historic cash equivalent transfer values that were not already equalised for GMPs.
And, in the final substantive development at the time of writing, the Government confirmed that the Retail Prices Index will be reformed to align with the Consumer Prices Index, including owner occupiers’ housing costs, but not before February 2030.
Winds of change
What can we expect in 2021? Well, that question probably warrants an article in its own right (and I am sure it will get one) but, as we reflect on the year that was, it seems evident that, in the pensions world, the one thing we can be sure of is change.