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: TPR ESG campaign; Tribunal: assessing value of assets for authorised employer payments; High Court: accessing pensions to pay member debts; The Gender Pensions Gap: what it is and how to fix it – 23 May 2023.
TPR ESG campaign
The Pensions Regulator (TPR) has launched a campaign intended to ensure that trustees are meeting their Environmental, Social and Governance (ESG) reporting duties. TPR will check whether trustees of schemes with 100 or more members have published (i) a statement of investment principles (SIP) which details the policies for how the scheme invests, including consideration of financially material ESG factors; and (ii) an implementation statement, showing how the principles in the SIP have been implemented. TPR will also be checking that schemes in scope for Taskforce for Climate-Related Financial Disclosures (TCFD) reporting on climate change have published their annual report and, from October 2022, included a Paris alignment metric and, where trustees are reporting for the second time, considered scope 3 emissions. TPR warns that enforcement action may be taken against non-compliant schemes and, in relation to TCFD reporting, schemes face a mandatory fine for failure to comply.
The blog post announcing the campaign emphasises that reporting is not a box-ticking exercise or an end in itself: trustees might consider developing a climate action plan setting out what actions (if any) they expect to take and when, and targets should be ambitious. It also discusses approaches to climate scenario analysis. The blog post notes that updated covenant guidance relating to DB schemes will be published this year and will include information on assessing climate impact on the employer covenant.
Read more.
Tribunal: assessing value of assets for authorised employer payments
The First Tier Tax Tribunal recently considered the valuation of assets transferred from a number of employers to their self-administered pension funds, to establish whether they were authorised payments under tax legislation: Morgan Lloyd Trustees Ltd & Ors v Revenue and Customs. The arrangements in which the transfers were made included loans from pension schemes to employers (note that trustees of larger schemes are not permitted to make such loans), secured by employer assets, and sales of assets from employers to pension schemes with a lease or licence back to the employer. The assets included various types of intellectual property (IP).
Under the Finance Act 2004 (FA04), for a loan to an employer to be an authorised payment it must be secured by a charge of ‘adequate value’, with the assets under charge being valued at ‘the price which those assets might reasonably be expected to fetch on a sale in the open market’. For the sale and lease/licence back arrangements to be authorised, the scheme must not have paid more than ‘the amount which may be expected to be paid to a person who was at arm’s length’.
The case discusses how the assets should be valued for the purposes of the above FA04 tests. As well as including guidance specific to the valuation of IP rights, the judgment gives some helpful broader guidance. In particular, it stresses the need to consider the commercial reality of what assets are worth. This must take into account the market in which the assets would need to be sold, including who would be likely to buy the assets and how those buyers would reasonably behave. For example, in the case in question, would it be more economically efficient for a buyer to recreate the IP assets themselves rather than buy the asset in question?
Schemes should also carefully scrutinise and question information provided to them when valuing assets. In this case the trustees were not able to claim a defence to the scheme sanction charge based on having ‘reasonably believed’ that the unauthorised payment was not a scheme chargeable payment. This was because they had not sufficiently questioned various pieces of information, to justify a reasonable belief. They could not rely on valuations they received because they had failed to ensure the parties giving them had the relevant expertise and failed to scrutinise them. Trustees are expected to apply at least basic commercial acumen i.e. considering whether the valuations seemed reasonable using commercial common sense (without requiring technical expertise). A factor in this decision was that the trustees were professional pension providers.
Read the case.
High Court: accessing pensions to pay member debts
The High Court has held, following other recent cases, that a member’s pension could be accessed to satisfy debts owed: Manolete Partners PLC v White. Mr White had been a director of a company which had gone insolvent. He was subject to a court judgment finding that, before the insolvency, he had made various payments in breach of the fiduciary duties he owed to the company (including buying himself a number of expensive cars and holidays). Mr White was ordered to repay around GBP1 million to the company but had not made any payments.
This subsequent case was concerned with whether Mr White’s rights in his occupational pension scheme could be accessed to pay the amounts owed. Confirming the 2022 decisions in Bacci v Green and Lindsay v O’Loughnane, the judge held that it was within the court’s power to grant an injunction requiring Mr White to exercise his rights under his pension scheme rules to draw down his pension, to enable him to satisfy his judgment debt and that it was just, equitable and convenient to do so. The judge did not find that section 91 of the Pensions Act 1995, which restricts the circumstances in which pensions can be assigned, commuted, surrendered, subject to a charge or lien or set-off, prevented this. The judge found that the order would not contravene section 91 because it would not restrain Mr White from accessing his pension; it would ensure that the pension was paid to him, rather than remaining within the Scheme wrapper, and it did not matter that the order was motivated by the objective of enabling that pension pot to be applied in satisfaction of a pre-existing judgment debt.
An important factor in the judge’s decision was that the principal asset in Mr White’s pension scheme was derived entirely from funds provided by the company and the judgment debt was the result of Mr White’s misfeasance and breaches of fiduciary duty. This may distinguish this case from others where access to a member’s pension pot is being sought. However, this continues a line of cases where the courts have been willing to allow pension pots to be accessed for the purpose of settling debts.
Read the case.
The Gender Pensions Gap: what it is and how to fix it – 23 May 2023
The Gender Pensions Gap – the difference between the pension incomes that men and women can expect at retirement – is estimated to be twice the size of the Gender Pay Gap. Why is that, and how can we close the gap? Join us at our offices on Tuesday 23 May 2023 when we will be welcoming Legal & General Investment Management’s (LGIM) Stuart Murphy, Co-Head of DC, and Alexandra Miles, Senior DC strategist, to discuss the gap and what can be done to address it.
Sign up here.
