21st century trusteeship: new guidance

Value for members (VFM) is the latest topic to be addressed by the Pensions Regulator’s 21st Century Trusteeship campaign. The guidance does not go into detail about conducting a VFM assessment – this information is contained in the existing ‘How to’ guide accompanying the DC Code. However, it does contain some new case studies of good behaviour and reminds trustees of the risks of failing to carry out the assessment. It underlines that there is no ‘one size fits all’ approach to VFM assessments and that trustees should adopt a proportionate approach, based on the characteristics of their scheme.

The guidance contains a strong recommendation that trustees of DB schemes should also assess VFM to help ensure good member outcomes. The Regulator also indicates that the proposed Chair’s statement for DB schemes is likely to include a requirement for a VFM assessment (to read more about the proposal, see our eAlert of 20 March 2018), and includes a link to a DB scheme costs comparison tool.

The case studies involve trustees (in various scenarios): sending a survey to members when conducting the assessment; deciding to wind up a scheme after comparing costs and charges; carefully communicating the VFM findings to members using plain English, and continuously monitoring service levels and horizon scanning for developments that could affect VFM (including changes in legislation and technology).

Government announces autumn pensions consultations

The government has announced that we can expect two new consultations this autumn, on the consolidation of DB pension schemes and establishment of ‘superfunds’, and on collective DC schemes. It hopes to publish its response to the recent consultation on the Pensions Regulator’s powers towards the end of 2018 (to read more about the consultation, see our eAlert of 28 June 2018).

Can poor systems amount to disability discrimination? Dunn

The Court of Appeal has recently rejected a claim that the way in which an ill-health early retirement application was handled amounted to disability discrimination: Dunn v Secretary of State for Justice.

In this case the employee (Mr Dunn), who suffered from depression and a heart condition, had been successful before the Employment Tribunal (ET) in his claim of disability discrimination – one of the successful grounds related to the handling of his ill-health early retirement application, which had been subject to delays and took almost 14 months to decide. The decision was overturned by the Employment Appeal Tribunal (EAT) and Mr Dunn appealed to the Court of Appeal, arguing that the EAT should have remitted the case back to the ET for re-hearing rather than dismissing it.

The ET had originally found that there had been direct discrimination and discrimination arising from disability – it referred to the unreasonable delay, lack of proper management of the process and an unwieldy system, as well as the failure to provide Mr Dunn with additional support and sensitivity because of his depression. Before the Court of Appeal, it was argued that systemic failures in the application process for ill-health retirement amounted to ‘unfavourable treatment’, and that since Mr Dunn had entered the process ‘in consequence of his disability’, the system itself gave rise to discriminatory treatment.

The appeal was unsuccessful because the Court of Appeal was satisfied that there was only one outcome that could properly have been reached (the dismissal of the claims), which meant that the EAT was right not to remit the case. This was effectively because of how the case had been argued before the ET. Although the case was dismissed on this procedural ground (rather than purely on its merits), the Court of Appeal did express doubt that a disability discrimination claim based on the mishandling of an ill-health retirement application could be successful without some discriminatory motivation on the part of the decision-maker, or the treatment in question being inherently discriminatory. It commented that ‘if the ill-health retirement process was inherently defective in the ways found by the ET, it does not follow that it was inherently discriminatory’.

Although Mr Dunn was unsuccessful in his discrimination claim, both the Court of Appeal and the EAT were critical of the employer’s ill-health processes, which ‘by definition are applied to people who are to a greater or lesser extent vulnerable’. Employers and trustees should be careful to ensure that the application process for ill-health retirement is operating properly and without undue delay. In particular, the Pensions Ombudsman may award compensation for maladministration where applications have not been properly handled, and compensation thresholds for such payments have recently been increased – further guidance on this is expected shortly (to read more, see our latest Pensions in Dispute briefing). You can also read more about handling ill-health early retirement applications on our Pensions in Dispute website.

A decision is also expected from the Supreme Court in another case where disability discrimination is alleged in relation to ill-health early retirement – a member reduced his hours due to his disability prior to taking ill-health early retirement, and is claiming that a failure to calculate his enhanced pension based on his previous full-time salary amounts to unfavourable treatment linked to his disability (to read more, see WNTW of 31 July 2017).

Master trusts: new publications

TPR has published a ‘lessons learned’ document giving feedback based on the draft master trust authorisation applications received as part of its readiness review project. The process was designed as a ‘dry run’ before the period for formal applications opens, to help potential applicants improve their documentation. TPR has also published a number of new forms for the application process, and a new facts and figures document, on its website.

In addition, the government has published regulations bringing the new master trust regime as set out in the Pension Schemes Act 2017 into force on its anticipated start date (1 October 2018) (some elements are in force before that date for the purpose of making regulations).

To read more about the new master trust regime, see our briefing Master trusts 2018/19: a regulatory revolution.

Adequacy of PPF compensation: CJEU rules in member’s favour

The Court of Justice of the European Union (CJEU) has ruled in favour of a member in a long-running dispute about the adequacy of Pension Protection Fund (PPF) compensation: Hampshire v PPF.

Mr Hampshire argued that the level of PPF compensation to which he is entitled is in breach of European law because, under the European Directive on the protection of employees on employer insolvency, he is entitled to compensation equivalent to at least 50% of his pension benefits (you can read more about the history of the claim in WNTW of 12 January 2015). In 2016 the Court of Appeal referred the issue of the necessary level of compensation to the CJEU, as well as the question of whether Mr Hampshire was entitled to rely on the Directive against the Board of the PPF.

The CJEU has now decided that:

• The Directive requires that each employee must receive old age benefits equivalent to at least 50% of the value of his or her accrued entitlement. The PPF had argued that compensation of at least 50% was only required on average (and not as an individual minimum).
• Article 8 of the Directive has direct effect (meaning that Mr Hampshire can rely on it in an English court).

The matter will now return to the Court of Appeal. The PPF has stated that, for those members affected, it will work to implement the judgment as quickly as possible, and is currently considering what action it can take before legislative change and/or the conclusion of the UK court proceedings. We will report further on the implications of the decision in due course.