Pensions update | April 2024

• DC master trust schemes with 20,000 or more members.
• FCA-regulated operation of personal pension schemes, stakeholder schemes, retirement annuity contracts, pension buy-out contracts or FSAVC with 5,000 or more members.

• DC schemes used for automatic enrolment with 5,000 or more members.
• DC master trust schemes with 5,000 to 19,999 members.
• Other DC schemes with 20,000 or more members.
• Hybrid schemes with 20,000 or more members.
• Schemes without DC benefits other than public service or parliamentary pension schemes with 20,000 or more members.

• DC master trusts with 1,000 to 4,999 members.
• DC schemes used for automatic enrolment with 1,000 to 4,999 members.
• Hybrid schemes with 5,000 to 19,999 members.
• Other DC schemes with 5,000 to 19,999 members.
• Schemes without DC benefits other than public service or parliamentary pension schemes with 5,000 to 19,999 members.

• DC schemes with 2,500 to 4,999 members.
• Hybrid schemes with 2,500 to 4,999 members.
• Schemes without DC benefits other than public service or parliamentary pension schemes with 2,500 to 4,999 members.

• Collective DC schemes with differing member sizes.
• DC schemes with 1,500 to 2,499 members.
• Hybrid schemes with 1,500 to 2,499 members.
• Schemes without DC benefits other than public service or parliamentary pension schemes with 1,500 to 2,499 members.

• Public sector pension schemes and parliamentary pension schemes with differing member sizes.

• Schemes without DC benefits with 1,000 to 1,499 members.
• Hybrid schemes with 1,000 to 1,499 members.
• Remaining DC schemes with 1,000 to 1,499 members.

• Relevant occupational pension schemes with 750 to 999 members.
• FCA-regulated operation of personal pension schemes, stakeholder schemes, retirement annuity contracts, pension buy-out contracts or FSAVC with 5,000 or more members.

• Relevant occupational pension schemes with 600 to 749 members.

• Relevant occupational pension schemes with 400 to 599 members.

• Relevant occupational pension schemes with 320 to 399 members.

• Relevant occupational pension schemes with 250 to 319 members.

• Relevant occupational pension schemes with 195 to 249 members.

• Relevant occupational pension schemes with 155 to 194 members.

• Relevant occupational pension schemes with 125 to 154 members.

• Relevant occupational pension schemes with 100 to 124 members.

The Pensions Regulator (TPR) published its climate-related disclosure review on 11 April 2024 revealing that pension schemes are heading in the right direction in order to achieve net-zero emissions standards in their portfolios through updated investment strategies and increased use of low-carbon funds.

The UK government aims to achieve net-zero by 2050 and TPR urged trustees to action the guidance, even though it is not currently a legal requirement, in order to transition their investment portfolios to net-zero emissions standards.

What steps can schemes take?

TPR’s review praised examples of good trustee practice including:

• Updating DC default lifestyle funds to include sustainable funds.
• Increasing allocation to low carbon tracker funds or companies with high levels of ‘green revenue’.
• Exploring opportunities such as forestry, green bonds or committing funds to private market renewables.
• Encouraging fund managers to engage with top carbon dioxide emitters.
• Encouraging fund managers to get information about the levels of emissions produced by different types of assets.

The case of Miss D 

Miss D (CAS-58806-H1J6) was employed by the London Borough of Sutton and became a member of the Local Government Pension Scheme. She became a deferred member in March 2006 and the scheme administrator told her at the time that her deferred pension would be “payable from March 2020 (age 60)”.

Miscommunication and misunderstanding 

From at least 2016, the scheme administrator repeatedly provided Miss D with annual deferred benefit statements which erroneously stated that she was entitled to her benefits, without an early payment reduction, at age 60. The statements also contained the following disclaimer:

“This letter has been prepared based on the understanding of the current legislation governing the [Scheme] and associated overriding legislation. We make every attempt to ensure the accuracy and reliability of the information in our letters, however, this information is intended for general use and cannot cover every personal circumstance. It should not be treated as a complete and authoritative statement of the law. In the event of any dispute over the pension benefits, the appropriate legislation will prevail as this letter does not confer any contractual or statutory rights and is provided for information purposes only.”

Early retirement and financial decisions

Miss D was made redundant in 2017 and decided to retire at this point and not seek further employment, believing that her redundancy pay and savings would be a sufficient financial provision until 2020 when she understood her unreduced benefits from the scheme would come into payment.

Upon reaching age 60 in March 2020, Miss D contacted the scheme administrator to query her expected benefits but was informed that her pension would only be payable without reduction from 15 September 2024. This was followed up by correspondence which apologised for previous communications incorrectly referring to Miss D’s normal retirement age being 60, instead of 65.

Miss D claimed that had she been informed of her correct NRA from the outset, she would not have retired in 2017 and instead would have taken up a better paid job to build up her savings. As a result of the initial misinformation and lack of correction during the intervening 14 years she claimed a loss of income for the period of 2017 to 2020.

Her IDRP complaint was dismissed by the scheme administrator and the employing council. They did not dispute that an error had been made on several occasions but relied on the statements having a disclaimer. Further, despite the misinformation, under the scheme’s governing regulations, Miss D’s benefits were always subject to a reduction for earlier payment. The administrator offered a payment of £500 for any distress and inconvenience suffered as a result of its error.

Escalation to the  Pensions Ombudsman

Miss D rejected the offer and escalated her complaint to the Pensions Ombudsman, leaving her deferred benefits in the scheme. She added in submissions that it was impractical for her to have mitigated her financial loss by taking other employment due to her outdated professional skills, deteriorating health and the COVID-19 pandemic. She asked for compensation of £2,000 instead of £500 for non-financial injustice, as well as her loss of earnings.

The Ombudsman’s decision

The Deputy Ombudsman only partly upheld Miss D’s complaint, stating that whilst there was no dispute that there had been maladministration on the part of the administrator regarding the provision of incorrect information, the starting point had to be that Miss D was only entitled to the benefits provided by the scheme’s governing regulations.

The Deputy Ombudsman determined that the deferred benefit statements did not amount to negligent misstatement because the information had been caveated by the disclaimer and was not guaranteed. However, it was entirely reasonable for Miss D to have relied on this information and she could not have been reasonably expected to know the “85 Year” rule that had been mistakenly applied in the miscalculation of her eligible periods of employment. On the issue of mitigation, it was determined that it was probably not possible for Miss D to have returned to employment, but it was unnecessary for Miss D to have delayed taking any benefits pending her complaint being investigated. While he expressed sympathy for Miss D, the Deputy Ombudsman found that she had only suffered a loss of expectation, not an actual financial loss. Her distress and inconvenience were recognised with an increased award of £1,000 compensation.

As we reported last month, TPR’s new General Code came into force on 28 March 2024. Since then, TPR’s speakers at various events have stressed that it did not expect schemes to be fully compliant as of 28 March 2024 but it does expect that most schemes will already be compliant with what is in most of the Code and that schemes should be undertaking gap analysis as quickly as possible to identify any gaps or weaknesses.

What do schemes need to do?

• Ensure you have an effective system of governance (ESOG) in place, and identify any gaps in any existing ESOG in the light of the new General Code.
• Undertake and document an own-risk assessment (ORA) (which must be published within 12 months of the last day of the first scheme year beginning after the General Code came into force).
• Audit scheme policies against the new elements of the General Code to see what additional policies are required and if any updates or amendments are needed to existing policies.