Cases
Beckmann v Dynamco Whicheloe Macfarlane (High Court, Chancery Division)
21 January 2000
Ms Beckmann was a member of the NHS Superannuation Scheme. Her contract was transferred to a private company in 1995 and she was made redundant in 1997. Under the NHS Scheme, she would have been entitled to certain benefits on redundancy. Her new employer did not provide these benefits.
It was argued that the right to the redundancy benefits had not transferred under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) because (a) redundancy benefits were actually paid in the NHS pursuant to statute, rather than under the employee's contract of employment and therefore there was no contractual obligation to transfer under TUPE and (b) even were this not the case, the benefits were provided under the pension scheme and qualified as "benefits for old age" under the exemption in Regulation 7(2) (notwithstanding the fact that they were paid before retirement age).
Application for referral to the European Court of Justice was granted.
Ewing v Stockham Valve Pension Scheme Trustees and Arthur Cox (Northern Irish Court of Appeal)
4 February 2000
A member and trustee of the scheme had her benefits bought-out with an insurance policy and signed a declaration that she no longer had any rights in the scheme. In error, she subsequently did receive a pension and lump sum from the scheme. Solicitors instructed by the trustees wrote to her demanding repayment with 7 days. The Pensions Ombudsman decided that the member had known that she was not entitled to the money. However, he also considered that the letter from the solicitors was unnecessarily abrupt and failed to take into account her circumstances. The Ombudsman decided that the solicitors were persons concerned with the administration of the scheme and therefore fell within his jurisdiction over "administrators" and ordered them to pay GBP 200 to the member for distress.
The solicitors appealed. The Court held that the nature of solicitors' actions depended on their retainer. Here they were simply acting on the trustees' instructions and therefore were only the trustees' agents. Any maladministration was therefore on the part of the trustees. The solicitors were not "concerned with the administration of the scheme" as that was a matter for their principal.
As to whether there had been maladministration, a peremptory tone was to be expected where a person had grave suspicions about someone's good faith. However, although the Court would not have categorised the sending of such a letter as maladministration, the decision of the Ombudsman was a finding of fact which could not be appealed. Nevertheless, the court thought that injustice flowing from the maladministration was "impossible" in these circumstances as the member knew all along that she had been overpaid. No reasonable tribunal could have said there was injustice, so it was not necessary to remit the case to the Ombudsman.
R v Secretary of State for Employment ex p Seymour Smith (House of Lords)
17 February 2000
This case involved a claim for unfair dismissal where the employees did not have two years service (the minimum necessary to qualify for unfair dismissal). Female employees claimed this amounted to indirect sex discrimination as fewer women than men could comply with the two year requirement. The claim went to the European Court of Justice which held that awards in relation to unfair dismissal constituted "pay" for the purposes of Article 119 of the Treaty of Rome. For there to be sex discrimination under Article 119, it needed to be shown that a significantly larger proportion of one sex was disadvantaged as compared to the other sex. The case was remitted to the national courts to consider whether or not there had in fact been sex discrimination.
It was found that for every 10 men who satisfied the test, only 9 female employees could do so. Therefore there was a significant disparity between the treatment of men and women. However, any disparity could be objectively justified because the Government could show that the legislation implemented a legitimate aim of social policy unrelated to discrimination based on sex and it was reasonable for the Government to believe that the order was a suitable means for attaining that aim.
Clark v British Telecom Pension Schemes (Court of Appeal)
24 February 2000
The Inland Revenue considered that sub-underwriting certain issues of shares by the British Telecom Pension Scheme amounted to trading and as such was taxable. The trustees of the BT Scheme appealed this decision and the Special Commissioners of the Inland Revenue reversed the finding. The Revenue then appealed and the High Court overturned the decision of the Special Commissioners and decided that in arriving at their decision they had made a mistake of law and that in fact the BT Scheme was trading.
The trustees again appealed and the Court of Appeal held that the Commissioners had made a finding of fact and it was not for the court to intervene and make its own independent evaluation of the evidence. A court could only do this where the facts were so heavily weighted one way or another as to make it clear what the decision should have been. Whether or not sub-underwriting amounts to trading is a question of fact to be decided in each case.
Wakelin v Read (Court of Appeal)
17 March 2000
A pension scheme had purchased an office building from its sponsoring employer which turned out to be a bad investment. The group became insolvent in 1995 and the trustee company was replaced. Mr Read (the chief executive of the company and a director of the former trustee company) retired in 1995 and the new trustee withheld his pension on the basis that he was liable as constructive trustee for all the monies that the scheme had lost as a result of his assistance in the misapplication of scheme money through the purchase of the office building.
Mr Read complained to the Pensions Ombudsman. The new trustee argued that there had been a breach of trust by the old trustee company, and Mr Read had been dishonest, although the other directors had not. The Ombudsman held Mr Read could not be liable as a constructive trustee. The new trustee had conceded that the other trustee directors had not been dishonest and they had not established that Mr Read's conduct was in any way worse than that of the other directors. However, the Ombudsman went on to say that he could not find in favour of Mr Read as he did not have "clean hands"
The High Court ruled that the Ombudsman did not have power to refuse relief on the basis that Mr Read did not have "clean hands". However, the absence of any allegation of dishonesty against Mr Read's co-directors did not preclude a finding of dishonesty against him.
On appeal by Mr Read to the Court of Appeal, it was held that the findings of law by the High Court had been correct but the case should be remitted to the Ombudsman for him to reconsider. Whether or not Mr Read had acted dishonestly was a finding of fact to be determined by the Ombudsman and the Court should not substitute its own view.
Outram v Academy Plastics (Court of Appeal)
19 April 2000
A member left employment after 20 years of service and then subsequently started to work for the employer again. However, he did not rejoin the pension scheme. He later became ill and subsequently died. His spouse claimed that the employer should have advised the member that he should rejoin the scheme. The employer was also trustee of the scheme.
It was held that in its capacity as trustee, an employer has no duty to advise a member that he is eligible to rejoin the scheme. In addition, the employer acting as an employer had no express or implied contractual duty to advise the employee that he should do so. There was no assumption of responsibility by the employer to provide such pensions advice.
Lesser v Lawrence (Court of Appeal)
6 April 2000
Two former accountants were made bankrupt. They had taken out personal pensions and retirement annuity contracts, the benefits from which were not in payment during the bankruptcy. The policies at issue contained specific provisions preventing assignment.
The court held that the provisions against assignment did not prevent the rights under the policies vesting in the trustee in bankruptcy. The property passed to the trustee in bankruptcy by operation of law not by assignment and therefore the prohibitions were not relevant. In addition, an attempt to provide that benefits would be inalienable on bankruptcy would fail as contrary to public policy. As the policies had vested already, even after discharge of bankruptcy, the rights remained subject to the control of the trustees in bankruptcy.
Leave has been given to appeal to the House of Lords.
Preston v Wolverhampton Healthcare NHS Trust (European Court of Justice)
16 May 2000
The ECJ ruled that the two year limit on backdating part-timers benefits under the Equal Pay Act was invalid because it breached the "effectiveness principle" of EC law, as it rendered virtually impossible or excessively difficult the exercise of a community law right (i.e. the right to equal pay). The ECJ did not, however, comment whether or not membership could be backdated as far as 1976 (the date of the Defrenne case, which is a long-stop for retrospective Article 119 claims). This is a question to be determined by the House of Lords.
The ECJ held that the requirement to bring such claims within six months of leaving service did not breach the effectiveness principle. However, it was also necessary to ensure that this time limit was no less favourable than comparable domestic time limits. As a result, the issue has to be considered by the House of Lords who must review the six month limit in the light of what it considers to be an appropriate comparable domestic time limit. The most obvious possible comparisons are to six years for breach of contract claims and three months (with a discretion to extend) for Sex Discrimination Act claims. The case has been heard by the House of Lords but at the time of going to press judgment is still awaited.
Blake v Pensions Ombudsman (High Court, Chancery Division)
17 May 2000
Mr Blake was already entitled to a pension from his previous employer, a County Council. In 1989 he wanted to take up work again but wished to make sure it did not affect his existing pension. He had offers of a full time job in the private sector and a part time job with the County Council. The Council said he could earn around GBP 12,000 without his pension being affected and he then accepted the part-time job with the County Council. As it turned out, this was wrong. Any public sector earnings would reduce his pension.
Mr Blake complained to the Pensions Ombudsman. Following an oral hearing, the Ombudsman found that the misinformation amounted to maladministration, but there had been no injustice as there was no evidence that Mr Blake had relied to his detriment on the representation that his pension would not be affected. Mr Blake appealed on the basis that the Ombudsman had breached rules of natural justice, his determination was contrary to Article 6(1) of the European Convention on Human Rights and he failed in his duty of fairness because he had not given any indication that he would not accept Mr Blake's claim that he had relied on the misinformation prior to his decision.
The appeal was dismissed. Article 6(1) of the Convention added nothing to the familiar rules of natural justice which required the Ombudsman to ensure that the claimant knew what issue was being decided and that he needed to prove reliance. The Ombudsman did not need to explain that he might not accept Mr Blake's evidence. It was not perverse of the Ombudsman to conclude that Mr Blake would have taken the less stressful part time job, even if it did affect his pension.
Equitable Life v Hyman (House of Lords)
20 July 2000
This case dealt with various policies issued prior to 1988 which gave policyholders the option of a guaranteed annuity rate (GAR). In 1993 when the GAR rose above normal rates, Equitable proposed to pay lower terminal bonuses to members who opted for the GAR. Their overall intention was to place an equal value on annuities regardless of whether a policy offered a GAR or not. Equitable argued that a provision in its articles gave the directors an absolute discretion as to the basis on which terminal bonuses would be allocated.
The High Court agreed with this conclusion. However, the Court of Appeal (in January 2000) and the House of Lords disagreed and found in favour of the GAR policyholders. It was not open to the directors to declare differential terminal bonuses. The discretion in the articles was subject to an implied restriction that it would not be exercised in a way which would override or undermine members' reasonable expectations.
Wirral Borough Council v Evans & Pensions Ombudsman (High Court, Chancery Division)
8 November 2000
Mr Evans had accrued benefits under the BT Pension Scheme. In 1994 he changed jobs and had the option to transfer his accrued benefits to the Local Government Pension Scheme. He was provided with written information concerning the scheme and transfers to it and was invited to contact the administrators if he required any assistance. He did not understand the material and telephoned the administrators of the scheme who allegedly gave advice about the transfer credits he would receive. Mr Evans proceeded with the transfer but it soon became evident he would have been better off leaving his accrued benefits with the BT Pension Scheme.
The Pensions Ombudsman held that the information given to Mr Evans was inadequate and misleadingand that this amounted to "maladministration". He did not need to decide whether or not the alleged subsequent telephone conversation took place.
The court upheld the appeal and confirmed that there was no general duty to provide advice even where, as here, that advice would have prevented a transfer of benefits on unfavourable terms. The information provided was correct, even if not easy to interpret. Therefore, there was no breach of duty to advise carefully and the Ombudsman could not find maladministration.
However, if the alleged telephone conversation had taken place, it was arguable that the letter inviting Mr Evans to contact the administrators for assistance was the basis of an assumption of a duty to advise Mr Evans competently. Since in those circumstances there could have been a breach of duty constituting maladministration, the factual issues of whether the telephone conversation took place, and, if it did, what was said, were remitted to the Ombudsman for further consideration.
Barclays Bank v Holmes (High Court,Chancery Division)
21 November 2000
Barclays Bank introduced a money purchase section to its final salary scheme by a deed of amendment in 1997. Mr Holmes complained to the Pensions Ombudsman that the bank was using the surplus from the final salary scheme to cover employer contributions in respect of the money purchase members. The Ombudsman, following the decision in Kemble v Hicks, found that the bank could not do this.
Barclays Bank appealed to the High Court which overturned the Ombudsman's decision. The court decided that where there is provision of both money purchase and final salary benefits, there may be a presumption that there are separate trusts for each, but if so, it is not a particularly strong one and can readily be overcome.
There were no terms in the deed of amendment that suggested there should be anything other than one trust. Even the contribution provisions referred to employer money purchase contributions being "credited" rather than "paid". There is no general principle that money purchase benefits cannot be funded from a surplus in respect of final salary benefits.
A more recent deed of amendment, re-emphasising that there was only one fund and that money purchase contributions could be set off against the surplus, was therefore quite unnecessary. However, if it had been necessary, it would not have breached Section 67 of the Pensions Act 1995 (which prevents changes which might adversely affect members' accrued rights or entitlements without their consent). An interest in having surplus preserved for one's benefits cannot constitute an "entitlement or accrued right".
AMP (UK) v Barker (High Court, Chancery Division)
8 December 2000
NPI proposed to change its pension scheme rules to increase benefits for employees leaving service because of incapacity. The amendment power allowed the trustees to alter the rules with the consent of the principal employer. The changes were approved by a sub-committee of the NPI board and the trustees. Later, it was realised that the way the amendment had been drafted had the effect that deferred pensions drawn early would receive the same increases as incapacity retirements from service. NPI was taken over by AMP. AMP claimed that the impact of the amendment on deferred members was a mistake and the rules should be rectified to confine the effect of the changes to incapacity retirement from active service or that the amendments should be set aside.
The court held that to obtain rectification the parties had to show a common intention that the amendments should apply only to active members. The right to rectification was not affected by the fact that the trustees and sub-committee intended to pass or consent to the very wording in the resolution. The fact that the amendments had an effect going far beyond their intentions did not prevent rectification but was a ground supporting it. The court ordered rectification.
Had it been necessary, the court would have exercised its equitable jurisdiction to set aside the amendments for mistake.
The court would also have held the amendments void on the basis that the trustees failed to give any consideration to the effect of the amendments on deferred pensions and might not have passed the resolution if they had (applying the rule in the Hastings Bass case).
Pensions Ombudsman determinations
Horwood v Trustees of the Dixons Retirement & Employee Security Scheme (J00013)
Lump sum death benefits
A member died and the trustees decided to pay one third of the lump sum to his mother despite having sight of a draft will found on his computer which made no provision for the mother. The member's wife complained. The Ombudsman held that it was perverse for the trustees not to have taken the draft will into account in their deliberations. In addition, the member's mother and others had made various adverse comments about the wife and the trustees were criticised for not giving the wife a chance to respond to these comments.
Williamson v Sedgwick Group Pension Scheme Trustee (H00177)
GMP equalisation
A former employee complained about a transfer value. The complaint included an argument that GMPs under the scheme had not been equalised between men and women. The trustees argued that under section 63(4) of the Pensions Act, only an industrial tribunal or court can deal with equalisation cases. The Ombudsman did not believe that this was the case as he had jurisdiction over any dispute of law.
The trustees argued that the exception to the general equal treatment rule in section 62 of the Pensions Act where the inequality arises as a result of differences in state pension age applied. They went on to argue that the Ombudsman could not rely on Hansard to determine what section 62 was intended to mean. The Ombudsman disagreed and said that he could rely on Hansard and, in the course of the Pensions Act's passage through Parliament, Lord Mackay had said that GMPs should be equalised but the then Government was not going to dictate solutions to schemes. Therefore in the Ombudsman's view, section 62 did not apply to equalisation of GMPs.
The Ombudsman also said that in Coloroll, discriminatory provisions in domestic legislation were not found to be a defence to discrimination and ECJ rulings take precedence over national legislation.
In addition, as a matter of construction, section 64(2) (which permitted differences in prescribed circumstances) only applies to bridging pensions: it is not specific enough to apply to GMPs. The trustees also argued that GMPs and SERPS interact in a way that achieves overall equality, because the more GMP a member has, the less SERPS benefit. However, the Ombudsman pointed out that SERPS is in itself discriminatory and it was not the overall package which should be considered for the purposes of discrimination, but each separate component. The trustees also tried to argue that GMPs were not pay.
The directions given by the Ombudsman were to equalise GMPs in a way which does not adversely affect any member i.e. levelling up benefits. The trustees appealed and the case was heard in December 2000. Judgment is awaited at time of going to press.
Jones v Kent County Council (J00213)
Mistake
Kent County Council reduced the member's pension because of an error in the original calculation. The member claimed financial loss on the grounds that he entered into a contract for work to be done on his house on the basis of the unreduced pension figure.
The Ombudsman did not accept the member's claim that he had suffered financial loss as there was insufficient evidence to show that had he been receiving his correct pension entitlement from the outset, he would not have had the work in question done to his house.
Thomas v British Alcan Pensions Trustees (J00276)
Ill-health benefits
The member alleged maladministration on the basis that his applications in 1995 and 1996 for an ill-health early retirement pension were wrongly refused, because a later application in 1997 was approved without any further medical evidence having been obtained.
The Ombudsman held that he was unable to interfere with the exercise of a discretionary power by the trustees unless the wrong question had been asked, or if the decision maker had misdirected itself in law or if the decision was perverse, and none of those circumstances applied.
Guise v Equitable Life Assurance Society (H00468)
Death benefits
The complainant alleged maladministration by a trustee and administrator of a personal pension plan. The complainant had been the member's partner for a number of years and the member had signed a nomination form in her favour. She claimed that the trustee had acted perversely and contrary to the member's wishes in paying half the proceeds from the pension plan to the member's wife (from whom he had been separated for 9 years).
The Ombudsman held that both the complainant and the member's wife qualified for consideration as potential beneficiaries and he therefore had to consider if the trustee had acted improperly or perversely in coming to the decision it did. He referred to Edge v Pensions Ombudsman and found that the decision was perverse as the trustee received and considered prejudicial allegations about the complainant without testing their truth or giving her an opportunity to respond.
Allen v Capita Business Services (J00112)
Overpayment
The member's pension was overpaid and the scheme tried to recover the overpayment shortly after. The member argued she had spent the money on a new car and washing machine and a visit to a relative in South Africa.
The Ombudsman found that there was no mal-administration in seeking to recover the overpayment. Such recovery is a legal entitlement as confirmed in Scottish Equitable v Derby. The member would have to demonstrate that there was a causal link between the overpayment and the expenditure. No such evidence was produced and the Ombudsman found that whilst the member's expenditure might be a reason for allowing her time to repay, the scheme was entitled to recover the full amount of the overpayment.
Royal Society for the Prevention of Accidents v William M Mercer (J00226)
Investment
RoSPA wanted to change investments. The actuarial firm instructed to effect the change delayed doing so. RoSPA complained that the firm's delay in carrying out this task amounted to maladministration. The Ombudsman agreed and ordered the firm to pay compensation for any consequential loss of investment return over a two month period which constituted an unacceptable delay.
Simmonds v Trustees of the Municipal Mutual Insurance Superannuation Scheme (J00313)
Surplus
The complaint concerned the distribution of scheme surplus on a winding-up. The trustees had discretion to augment members' benefits with the balance going to the employer. They decided to augment benefits by 30 percent, but one member did not benefit from this as his benefits had reached revenue limits. He complained that the trustees should have been more imaginative in formulating their proposals. The Ombudsman rejected the complaint.
Holmes v Barclays Bank (H00530)
Subsidising money purchase section from final salary section surplus
Barclays had set up a money purchase section of their scheme for new members from 1 July 1997. There were no clear cross subsidisation provisions in the rules, which allowed the final salary surplus (of over GBP 1 billion) to be used to fund employer contributions in the money purchase section. However, this was clearly the intention when the money purchase section had been set up.
The Ombudsman relied upon the decision in Kemble v Hicks to find that, in the absence of an express provision on cross subsidisation of the two sections, funding employer contributions to the money purchase section from a surplus in the final salary section was not acceptable. The Ombudsman's determination would require Barclays to retrospectively pay employer contributions into the money purchase section.
The Ombudsman, reiterating Hillsdown Holdings, said that in certain circumstances, a trustee may be guilty of maladministration even if acting on the advice of an appropriately experienced solicitor. However, in this case the trustee took legal advice on two occasions and here the Ombudsman found that it was reasonable for the trustee to rely on the independent legal advice it received.
Barclays successfully appealed to the High Court (see the report of Barclays Bank v Holmes in the case notes section of this Update).
Grindrod v Community Health South London NHS Trust (J00106)
Backdating membership
An employee became eligible to join the NHS Scheme in 1975 but did not do so. He claimed that he should have been told that he was eligible. The trustees said that they had told the employer to inform the employees and the employer claimed that it had done so. The Ombudsman was convinced that on a balance of probabilities the employee had never received the relevant information and was therefore entitled to have backdated scheme membership if he paid the relevant arrears of contributions. The employer was not able to provide adequate evidence in relation to what it had or had not communicated to employees.
Hancock v Trustees of the Air Products Pension Plan (J00351)
Ill-health benefits
A member was told that he did not qualify for a disability pension. The member asked to see the scheme rules, which said that all active members qualified for consideration for disability benefits. However, the trustees argued that the member had been in a separate section and there was no intention that members in that section should qualify for such benefits and all the literature reflected this. The trustees subsequently obtained a Section 67 certificate and amended the rules accordingly.
The Ombudsman held that the trustees could have gone to court for a rectification order and that was the only proper thing for them to have done in the circumstances. The Ombudsman said (without explanation) that his statutory remit did not extend to rectification of rules. The member was therefore eligible to be considered for disability benefits.
Duffus v TSB Group Pension Trust Limited (J00454)
Part-time members
Lloyds TSB allowed active part-time employees to buy back benefits to 1976. A former member asked why the option was not open to them. The Ombudsman held that the backdating was in the nature of an augmentation. It was not a legal requirement or in satisfaction of a legal liability. Therefore it was open to the scheme to limit as it had done the benefit of this option to active members.
Mangum v Trustees of the Adams Limited Pension and Assurance Scheme (J00405)
Early retirement
The trustees had thought that employer consent was required to pay a deferred pension before normal retirement date when in fact it was not. In practice the scheme had never granted early retirement pensions and it would have represented a significant drain on the funding to do so. The Ombudsman held that it was relevant and proper for the trustees to consider the interests of the employer and funding of the scheme and it would not in any event have been appropriate for them to make the decision without considering the employer's interests.
As a matter of best practice, letters to members should have contained a warning that early retirement was subject to trustee consent.
Kelly v Railways Pension Trustee Company (J00618)
Ill-health benefits
The definition of ill-health referred to a member being incapacitated "other than temporarily". The Ombudsman held that this wording did not amount to a requirement for permanent incapacity but, rather, incapacity that was “other than for a limited time”.
Thomas v Rio Tinto Pension Fund Trustees (J00540)
Scheme merger
Following a scheme merger, the member wrote in and asked whether he would have been better off under his old scheme. He had been told on the merger that he would not be adversely affected in any way. His old scheme provided discretionary increases only, but had a reasonable track record of such increases. The new scheme provided for LPI (i.e. RPI up to 5 percent). The Ombudsman held that the change to the pensions increase provisions did not amount to something which adversely affected the members' benefits.
Gaskin v Trustees of the Becker Pension Scheme (J00597)
Ill-health benefits
The scheme rules contained no definition of incapacity so the trustees used the Inland Revenue definition which is:
"physical or mental deterioration which is sufficiently serious to prevent the individual from following his or her normal employment, or which seriously impairs his or her earning capacity. It does not mean simply a decline in energy or ability".
The Ombudsman thought that using this definition was acceptable but held that the Revenue definition did not require any evidence of permanent incapacity, it only required that the member be unable to do their own job. As the medical report said that the member was "not able to follow her normal occupation currently", the trustees must reconsider the matter.
Gurney v Elsevier Science (J00249)
Part-time members
A part-time employee claimed that he had not been told he was entitled to join the scheme. The scheme was unable to demonstrate to the Ombudsman's satisfaction that it had communicated with the member. Even though they had found announcements dating from the relevant period, they failed to show that the announcements had actually been sent to or were seen by the member.
Hadley v South Yorkshire Pension Authority and others (J00552)
Transfer payment
The scheme had paid a transfer value to a New Zealand arrangement by cheque which took some weeks to arrive. The member claimed loss of investment return and loss arising from currency fluctuations. The member had specifically asked that the transfer payment be sent by wireless transfer. The Ombudsman said that sending the transfer payment overseas by cheque was maladministration. It would have been perfectly appropriate to ask the member to bear the extra cost of making the transfer by electronic means.
European developments
Draft Pensions Directive
This is aimed at harmonising the prudential and regulatory regimes that apply to occupational pension schemes in member states. No definite date is given for when it will become law but it forms part of a Financial Services Action Plan which the heads of government wish to be implemented by 2005.
Some of the key provisions are:
- Legal separation between the fund and the sponsoring employer.
- Schemes must be authorised by a responsible authority.
- Scheme members must receive certain information.
- More information is to be provided to the relevant supervisory authority including the scheme's annual report and accounts.
- The supervisory body will have powers to investigate and intervene.
- There will be investment rules which require investment in a "prudent manner" together with limits on self-investment.
The Directive will not apply to state schemes and unfunded schemes.
Fixed Term Workers Directive
This will require employers not to discriminate against fixed term workers. An objective justification defence will exist in the same way that it does for part-time employees.
The Government will have the option of excluding employees who are undergoing vocational training or apprenticeships from the application of the Directive. In addition, it seems that service qualifications will also be permissible, provided that they are not more onerous than those for workers not on fixed term contracts.
The date for implementation is 10 July 2001. The DTI have indicated that the current intention is for a consultation paper to be published in the near future and the UK should comply with the implementation date.
Directive establishing a framework for equal treatment in employment
The Directive introduces the principle of equal treatment on grounds of religion or belief, disability, age or sexual orientation. Direct or indirect discrimination on these grounds as regards employment and occupation (including promotion, vocational training and employment conditions) will be prohibited.
A defence of "genuine occupational requirement" will be permitted, provided the objective is legitimate and the requirement proportionate. Age discrimination will also be permissible if it can be objectively and reasonably justified by a legitimate aim.
The Directive should be implemented by 2 December 2003, although member states will be allowed a further 3 years to implement the provisions on age and disability discrimination if necessary.
Miscellaneous
Staff transfers in public sector, statement of practice (January 2000)
In transfers from Central Government and the National Health Service, the receiving employer will have to provide future service benefits which are broadly comparable to those provided under the relevant public sector scheme. For past service, a service credit will need to be offered on a day for day basis.
Personal Pension Misselling Review, Second Stage (March 2000)
After the protracted first stage of the review which dealt with priority cases (those who had retired, died or were close to retirement), the timetable for the second stage has begun. The date by which investors have to notify firms that they wish to take part passed on 31 March 2000. The FSA expect 100 percent of cases to be completed by 30 June 2002.
Appeals from Pensions Ombudsman determinations (May 2000)
A new civil procedure rule (Rule 52) was issued to cover appeals from determinations made on or after 2 May 2000. Prospective appellants have to file notice of appeal within 14 days (unless the Ombudsman allows more time; in practice he has allowed 28 days for appeals in England) and must serve this on the other side within 7 days. The time limits cannot be extended simply by consent between the parties.
The Court of Appeal's consent will be needed for appeals from the High Court. Consent will only be given if the case raises an important point of principle or practice or there is some other compelling reason to hear it.
The notice of appeal does not act as a stay of the Ombudsman's determination. If the successful complainant is pressing for his rights under the determination, the other party will need a court order to stay the determination.
FSAVC Review Model Guidance (May 2000)
The instructions to firms on how to undertake the review of FSAVCs sold between 29 April 1988 and 15 August 1999 were issued. The sales in issue are those where matched AVCs (or other subsidised AVC arrangements) were available, where FSAVCs were converted from personal pensions and where investors request a review. The review is intended to be completed by 30 June 2002.
Report by the Institute and Faculty of Actuaries on the Minimum Funding Requirement ("MFR") (September 2000)
The terms of reference for the report had been restricted to technical questions on how best to reflect the original MFR objective that pensioner benefits should be secure, but other members should have only a reasonable expectation of receiving their benefits. The actuaries recognised that the current basis for reflecting market movements does not work adequately and suggested that the MFR should move towards a market based method deriving yields from a basket of investments. The investments chosen would include corporate bonds, broadening the current concentration on long term gilts. Recognising that this would increase the volatility of results for schemes with substantial equity holdings, it was proposed that schemes should be allowed longer periods to deal with any shortfalls.
The actuaries were also concerned with misconceptions of security caused by the MFR. They suggested additional figures should be provided to members showing what cover benefits would have in the case of a winding up.
Although the report recognised that the current MFR had become more difficult for schemes to satisfy since it was originally designed, it recommended short term changes to the current calculation method which would increase still further the value of assets schemes need to hold.
MFR consultation (September 2000)
To coincide with the report it commissioned from the Institute of Actuaries, the DSS produced a consultation paper on the future of the MFR. This widened the debate to ask whether, rather than amending the current legislation, the DSS should replace the MFR with some other structure to provide security for members. In particular, the options of a central discontinuance fund and insolvency insurance were mentioned. Responses have been requested by 31 January 2001.
Myners Review (November 2000)
This review was initially set up to consider ways in which investment in venture capital by institutional investors including occupational pension schemes could be encouraged.
Although the main report will be completed in 2001, Mr Myners was asked to report his conclusions on certain aspects in advance. In November 2000, he recommended:
- a change to legal investment restrictions on pension funds, making it easier for them to invest in private equity limited partnerships
- that the MFR should be replaced by a combination of independent custody, tougher checks on fraud and a regime of transparency and disclosure.
The Government welcomed the first proposal and said that it intends to incorporate changes in secondary legislation under the Financial Services and Markets Act. The second proposal will be considered as part of the joint Treasury and DSS consultation exercise presently underway.
FRS 17, Retirement Benefits (December 2000)
FRED 20 finally bore fruit, much to the concern of some parts of the pensions world, not to mention finance directors. Financial Reporting Standard 17 (FRS17) provides that costs shown in company accounts will in future be calculated on a more market-based approach. Fluctuations in the market value of scheme assets will be shown in the statement of recognised gains and losses, but the cost of augmentations may need to be shown in the profit and loss account even where they can be met from existing surplus. This may reduce the likelihood of employers agreeing to benefit improvements. The new standard comes into force fully for accounting periods ending on or after 22 June 2003, although additional disclosures will be required for periods ending on or after 22 June 2001.
Equitable Life (December 2000)
Equitable announced that having failed to find a buyer it was closed to new business with immediate effect. To remain solvent, it will need to restructure investments in its with-profits fund which will involve switching more to bonds from equities. This could reduce investment returns in the long term.
Equitable does not expect to be able to reinstate the loss of growth in policy values during the first part of 2000.
Developments in 2001
During 2001 it is expected that many of the following will happen:
- many of the provisions of the Child Support, Pensions and Social Security Act 2000 will be implemented
- practical problems with the legislation on pension sharing and divorce will emerge
- changes to TUPE which may require new employers to give some kind of commitment in relation to future service benefits will be proposed
- changes to the MFR will be proposed
- employers will designate stakeholder arrangements
- action will be required in relation to part-time employees in the wake of the House of Lords decision in Preston
- Opra will continue to use its new civil powers to fine more employers and trustees over late payment of contributions and production of accounts
- changes will be made to investment rules to reflect the recommendations in the Myners review
- schemes may have to offer membership to fixed term workers (if the Fixed Term Workers Directive is implemented on time i.e. by 10 July 2001)
- a new Pensions Ombudsman will be appointed
- restructuring of Equitable Life
- possible referral of GMP equalisation issue to European Court of Justice
There may of course be a change of government later in the year which could affect the reforms which are put in place.
