Pensions promises – General Election manifesto round up
The main national parties have now published their manifestos for the General Election a fortnight today. In this article we take a quick look at the various promises made relating to pensions.
The Labour Party plan to conduct a comprehensive review of the pensions landscape. Related to this they will act to increase investment from pension funds in UK markets, and adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC.
Labour also intend to compel pension schemes to develop “credible transition plans” to align with the 1.5°C goal of the Paris Agreement. On state pensions they will maintain the triple lock, ensuring annual increases by the highest of price inflation, average earnings, or 2.5%.
As expected (see Pensions Bulletin 2024/22), the manifesto is silent on the reintroduction of the Lifetime allowance.
The Conservative and Unionist Party will introduce a “triple lock plus”, being a commitment to ensure that pensioners’ personal income tax allowances will not be less than the (triple locked) state pension. They also pledge not to increase new taxes on pensions, maintaining the 25% tax-free lump sum and tax relief on pension contributions at members’ marginal rates.
The Liberal Democrats will develop measures to end the gender pension gap in private pensions and ensure working-age carers can save properly for retirement. They will improve the state pension system by investing in helplines to ensure quicker responses to queries and resolution of underpayments and end lost top-up payments to the state scheme by overhauling the processing system and providing proper receipts. Finally, they will require pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement.
Reform UK promise a review of the UK pension system and pension fund ownership of 50% of nationalised utilities.
Comment
Possibly the most notable new pensions commitment that may materialise is Labour's to mandate climate transition plans. We support policies that reduce systemic climate risk to members' benefits through helping to align the economy with the 1.5°C goal. However, we expect this proposal will generate considerable debate about how it can be implemented in a way which is practical and consistent with trustees' fiduciary duties to members.
Elsewhere it seems that the triple lock is here to stay, at least for the term of the next Parliament, and that the new government of whichever complexion will continue Jeremy Hunt’s enthusiasm for pension funds to invest in UK productive assets.
Former BHS Directors suffer substantial wrongful trading award
In a case brought by the liquidators of BHS, the High Court has found two of the former directors, Lennart Henningson and Dominic Chandler, liable for wrongful trading under the UK’s insolvency law, making awards adding up to around £10.5m and £8.2m against them respectively. In addition, the judge chose not to limit the awards by reference to the former directors’ insurance cover, making clear that to limit awards by reference to ability to pay would "...send a green light to risk-taking or, even, dishonest directors".
What makes this lengthy judgment of particular interest is how the deficit in the BHS pension schemes contributed towards a “knowledge condition” that (amongst other things) needs to be met for a Court to conclude that the directors were wrongfully trading. The directors in question were appointed on 11 March 2015 and the Court examined six potential “knowledge dates” over the next six months at which the condition could have been met, concluding that it was met by 8 September 2015.
The Court stated that notional directors carrying out their functions at this date “would have believed and concluded that [BHS] had no reasonable prospect of avoiding insolvent liquidation or administration” for a number of reasons, one of which was the pensions deficit. On this, the absence of a plan or strategy by the directors to deal with the schemes meant that they should have understood that BHS could not afford to pay increased deficit repair contributions or the increased PPF levy once the triennial valuation had taken place. Moreover, by 8 September 2015 the directors had had sufficient time to engage with the trustees, Arcadia and the Pensions Regulator and to develop a plan.
(The notional director test applied to Messrs Henningson and Chandler is based around applying the standard of a reasonably diligent person having both the general knowledge, skill and experience reasonably expected of a person carrying out the same functions, but also the general knowledge, skill and experience of the individuals themselves.)
The liquidators’ claims against a third director, Dominic Chappell, are to be considered separately.
Comment
In this case it was not the existence of a pension scheme deficit, but the failure to put in place a plan to tackle it which, along with other factors, resulted in the two directors being found to have enabled BHS to wrongfully trade at the expense of its creditors. Although the circumstances in the BHS case were unique, this rare wrongful trading case highlights the risks that directors can run when faced with a substantial pension scheme deficit.
Reducing the gender pensions gap – a guide
The Pensions Equity Group that was set up in May 2023 to tackle gender-based pensions inequalities (see Pensions Bulletin 2023/22) has published its first guide.
“Mind the Gap: Reducing the gender pension gap”, which has been written in the context of DC retirement provision, aims to help employers identify and reduce the gender pensions gap by means of four steps.
After understanding an employer’s own gender pension gap through statistical investigation, employers are encouraged to go beyond the statutory minimum when it comes to paying pension contributions (where limitations particularly bear down on women), raise awareness with employees on issues that may result in inequalities arising and make meaningful employee benefit and policy changes that will assist women in particular. Actions in each of these four areas are divided into bronze, silver and gold.
Comment
This is a useful introduction to the subject, written to assist employers who may be unaware of the gender pensions discrimination that can result through operating workplace policies that, on the face of it, appear to be gender neutral.
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.
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