Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.
This week we cover topics including: High Court ruling on forfeiture and recoupment; TPR blog post on questioning investment strategies; PDP calls for consultation feedback.
High Court ruling on forfeiture and recoupment TPR blog post on questioning investment strategies PDP calls for consultation feedback
High Court ruling on forfeiture and recoupment
The High Court has published a ruling on various questions related to interpretation of forfeiture rules and giving guidance on practical aspects of recouping overpayments: CMG Pension Trustees Ltd v CGI IT UK Limited.
In this case certain benefit changes weren’t properly made when intended, and so didn’t take effect until a number of years later. The scheme had been administered on the basis that the changes had been made on the intended dates, meaning that members’ benefits had been underpaid. The scheme trustee had begun to correct this by making arrears payments to members. The employer challenged the payments being made on the basis that the forfeiture rule meant that benefits that hadn’t been claimed for 6 years should not be paid. The judge found in favor of the employer, meaning members had forfeited any benefits due more than six years before the relevant claim date.
The judge considered a number of interesting points, including:
Was the rule a forfeiture rule, if it didn’t mention forfeiture? The relevant rule said ‘if a benefit or installment of benefits is not claimed by or on behalf of the person entitled to the benefit or installment in accordance with these Rules within 6 years of its date of payment it shall be retained by the Trustees for the purposes of the Scheme’. The trustee argued that this was not intended to be a forfeiture rule for a number of reasons, in particular because it did not mention forfeiture. The judge was not convinced by this argument; following examples in the Lloyds cases on GMP equalisation, he found that the words ‘shall be retained by the Trustee for the purposes of the Scheme’ have the same effect as forfeiture language. The judgment on this point includes helpful discussion of the extent to which the courts will consider broader context, previous iterations of the rules, headings and previous authorities when interpreting scheme rules. The judge also dismissed arguments that the forfeiture rule did not apply to part or installments of a benefit. What counts as a ‘claim’ and what do members have to claim? The judge had to consider whether members could be said to have made a claim that would stop the forfeiture rule taking effect. He held that, because the term ‘claim’ used in the rule was not defined, there was no specific form. He gave the following guidance: it required more than a request for pension to be put into payment; it must be a claim for the unpaid benefit or installment; it involves the assertion of a right or entitlement but can be expressed or implied and doesn’t require the member to know about the entitlement – for example, if a member has general concerns about what she has been paid and asks for all the benefits she is owed, that would be sufficient; and the claim must be made after the benefit has fallen due. Applying this reasoning, he held that completing retirement option forms did not constitute a claim for the unpaid benefits. Did members need to be informed about the benefits they were owed? The trustees argued that it should be implied that the forfeiture rule did not apply where members weren’t informed of their entitlement and had no reasonable means of knowing about it, or that they needed to claim for it. The judge dismissed this argument, deciding that if the intention had been that forfeiture was conditional on the person knowing about the benefit, the rule would have been drafted to say so, and there was no reason to suggest that forfeiture clauses generally require knowledge of forfeited benefits. How do trustees recover the payments made relating to forfeited benefits? The judge was asked to consider specific issues in applying section 91(6) of the Pensions Act 1995, which restricts when and how schemes can recoup amounts owed from future pension payments. He held that section 91 requires trustees to get an order from a competent court where a member disputes both the amount being recouped and the rate of deduction, and that it is sufficient for the order to declare that there has been an overpayment. He also held that the Pensions Ombudsman (TPO) does not constitute a competent court for these purposes, in line with the judgment in Burgess v BIC UK Ltd, but contrary to a statement by TPO. What interest should be paid on arrears? The judge followed the Lloyds cases in applying interest of 1% above base rate to amounts due. He considered whether the recent increase in inflation justified a higher rate of interest but held that, given the periods for which the interest is payable, it did not.
Read the case.
TPR blog post on questioning investment strategies
The Pensions Regulator (TPR) has published a blog post encouraging trustees to question their investment strategy, including asking ‘silly’ questions to stimulate conversations, such as ‘how do you justify that level of risk? What did your advisers have to say about it? How’s the scheme’s ‘plumbing’? If you needed to de-risk the investments quickly, could you? How up-to-date are the signature mandates?’ The post focuses on both strategy and operations and also emphasizes the importance of working well with advisers. It notes that TPR expects trustees to be vigilant to risks and it ‘almost goes without saying’ that trustees are expected to monitor their scheme’s investment, risk management and arrangements on an ongoing basis and take action as appropriate.
Read the blog post.
PDP calls for consultation feedback
The Pensions Dashboard Program (PDP) has published a request for ‘as much feedback as possible’ to its consultation on proposed standards which schemes and dashboard providers will be required to meet as part of their pensions dashboards obligations (read more about the consultation here) . The consultation closes on 30 August 2022 and the consultation response and final standards documents will be published in the winter.
Read the press release.