Pensions not yet in payment are safe from bankruptcy proceedings
In a long awaited judgement, the Court of Appeal has upheld the ruling made in December 2014 (see Pensions Bulletin 2015/02) by the High Court in the case of Horton v Henry that an Income Payment s Order (IPO) could not be made to force a bankrupt person of pensionable age (in this case Mr Henry) to start taking his pension in order to pay off his debts.
Although this had in fact been the perceived wisdom for many years, the waters were muddied by the 2012 ruling in the case of Raithatha v Williamson in which, somewhat controversially, the judge ruled that “a bankrupt does have an entitlement to a payment under a pension scheme not merely where the scheme is in payment of benefit but also where, under the rules of the scheme, he would be entitled to payment merely by asking for payment”.
Although the 2014 ruling in Horton vs Henry was reflected in guidance issued by the Insolvency Service shortly thereafter (see Pensions Bulletin 2015/15) thereby giving some comfort to bankrupt individuals (particularly in light of the DC flexibilities that came into force in April 2015) the outcome of the appeal has been anxiously awaited. The unequivocal statement within this ruling that:” it would drive a coach and horses through the protection afforded to private pensions and rights ….. if, by the simple expedient of an application for an IPO, a trustee …. could in effect obtain payment of the entirety (or almost the entirety) of a bankrupt's pension fund into the bankrupt's estate so as to meet the claims of his creditors, notwithstanding that the pension was not in payment.” will therefore be most welcome.
Comment
This ruling brings clarity and certainty in this contentious area of how pension benefits should be treated in bankruptcy – and in particular to bankrupt individuals with DC pension savings who may have been fearful that they could be required to cash out their entire pension pot as soon as they were legally able in order to make good their debts.
Lock v British Gas Trading – invalid treatment of variable pay upheld
In May 2014 the Court of Justice of the European Union ruled in Lock v British Gas Trading (a case referred to it by Employment Tribunal) that a salesperson’s holiday pay cannot be limited to their basic salary and that where such a worker is paid commission calculated on the basis of the sales that they make, that commission must also be included in the calculation of holiday pay.
This ruling could have implications for the administration of pension schemes as reported in Pensions Bulletin 2014/24.
Since then, the case returned to the Employment Tribunal and then the Employment Appeals Tribunal and now the Court of Appeal. In all three instances British Gas lost. However, in the latest judgment, the Court of Appeal noted that it does favour an amendment to the Tribunal’s judgement to more clearly confine it to the specific circumstances in Mr Lock’s case, particularly in terms of the type of commission covered.
Comment
Unless there is further appeal it seems that some pension schemes will be impacted, but only in the narrow circumstances implied by this case.
A one stop shop for government sponsored money advice and pensions guidance?
Having considered concerns raised by industry and consumer groups to the proposals made at the Budget to set up a two body delivery model for government sponsored financial and pensions advice to the public (see Pensions Bulletin 2016/11) ministers have now decided that a single body would be better able to respond to the different financial guidance needs of consumers.
The next step appears to be that a further consultation will be launched on how best to design such a single body model and so, contrary to expectations (see Pensions Bulletin 2016/20), legislation to create new public financial guidance bodies will not be included in the forthcoming Pensions Bill.
Comment
This announcement is a surprise, but quite possibly a welcome one. However, creating a one-stop shop is unlikely to be a straightforward task and it is important that the success that has been the Pensions Advisory Service over many decades is not lost within a merged organisation.
Over 90% of smaller firms support a law change allowing pension increases to be moved to CPI
The first Interim Report of the Association of Consulting Actuaries’ 2016 Smaller Firms Pension Survey has found that 92% of firms with fewer than 250 employees support legal reforms that would allow DB schemes to move to CPI indexation of benefits, albeit with caveats (as opposed to RPI or any other higher indexation provision in scheme rules).
28% of the firms surveyed placed no caveats on this option being available, with 64% preferring it to be subject to the agreement of trustees or, only if the employer was otherwise likely to declare its insolvency.
In this Interim Report, the ACA also suggests that it would be helpful for the Government to introduce a facility whereby DB schemes could convert historic benefit scales to a single simplified benefit structure on the basis of fair value, opening the way for smaller schemes to merge with each other, potentially leading to greater efficiency and cost savings.
Further Interim Reports on the survey’s findings are likely to be published in early November, with a final report at the turn of the year.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
