Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover the following topics: TPO’s first decision on Transfer Regulations and overseas investment flag; Economic Crime and Corporate Transparency Act and ban on corporate directors; Court of Appeal rules TPO not a ‘competent court’ for purposes of enforcing set-off; TPR speech on delivering investment returns; Dashboards update; TPR report on employer-related investment prosecution.

TPO’s first decision on Transfer Regulations and overseas investment flag

The Pensions Ombudsman (TPO) has published its first decision in a case involving an overseas investment amber flag under the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (the Transfer Regulations).

Under the Transfer Regulations, an amber flag is raised where the member asks to transfer to a scheme which includes overseas investments, meaning that the member must be referred for MoneyHelper guidance before they can transfer. In practice, schemes have taken different approaches to interpreting this requirement, with some – including the trustees in this case - applying a strict interpretation that any overseas investment (including where not unusual or suspicious) triggers the need for guidance.

The facts of the case were that the member requested a transfer to a UK registered personal pension that made various global funds available as investment options. The trustees identified the presence of overseas investments as an amber flag under the Transfer Regulations and referred the member to MoneyHelper; he complained that the delay this created in his transfer process had caused him loss and that the trustee had not correctly interpreted the Transfer Regulations.

The decision considers both the Transfer Regulations and TPR’s guidance, and notes debate in the industry on how the Transfer Regulations should be interpreted. TPO’s view is that:

• whether or not there are overseas investments in the receiving scheme is a decision for the trustees of the transferring scheme to make;
• the wording of the Transfer Regulations and their intended practical application ‘may not be aligned’; and
• the trustee was entitled to decide that there were overseas investments in the receiving scheme and ‘its literal interpretation of the Transfer Regulations is not unreasonable’, and therefore there was no maladministration.

On this basis, TPO did not uphold the complaint – he found that there was no action by the trustee that caused an unreasonable delay to the transfer. The decision does not attempt to resolve the lack of ‘alignment’ identified, but will be reassuring to trustees who have adopted a similar approach (without negating other approaches).

Read the case.

Economic Crime and Corporate Transparency Act and ban on corporate directors

The Economic Crime and Corporate Transparency Act has been given Royal Assent. The Act sets out a range of reforms intended to prevent the use of corporate entities for criminal purposes (a summary is linked below). A number of these reforms will affect corporate trustees, as well as limited partnerships (LPs) and Scottish limited partnerships (SLPs) used in certain pension scheme structures. The changes include:

• company directors, Persons with Significant Control (PSCs) of an entity and members of partnerships will need to verify their identity with Companies House;
• there will be new restrictions on who can file information with Companies House;
• changes to corporate record-keeping requirements will be introduced; and
• there will be tighter requirements on LPs and SLPs, including a requirement to maintain a link with the UK and increased transparency obligations.

It is anticipated that it will be at least a year before many of these provisions take effect; most of the measures introduced by the Act will require secondary legislation, guidance and the development of new systems before they come into force. There are a number of areas of uncertainty around the application of these new requirements which should be addressed in secondary legislation and guidance.

In the policy papers accompanying the Act, the government has confirmed that it will implement a ban on corporates acting as company directors. Provisions for the ban were set out in the Small Business, Enterprise and Employment Act 2015 but have not yet been brought into force. Regulations are expected to set out the ‘principle based’ exception to the ban that was consulted on in December 2020 (read more): corporate entities with a ‘legal personality’ can be appointed as a corporate director; the directors of these companies will need to be, in turn, natural persons who have been subject to an appropriate identity verification process. There will be a transitional period of 12 months to enable companies with existing corporate directors to comply. Corporate trustees with corporate directors will need to review their structures to ensure compliance in due course.

Read the Act.

Read our summary of the Act.

Court of Appeal rules TPO not a ‘competent court’ for purposes of enforcing set-off

The Court of Appeal has ruled that the Pensions Ombudsman (TPO) is not a ‘competent court’ for the purposes of enforcing set-off of pensions in accordance with section 91 of the Pensions Act 1995: TPO v CMG Pension Trustees Ltd and CGI IT UK Ltd.

Section 91 imposes conditions on recouping overpayments from pensions, including that where a member disputes the amount, the trustees must get an ‘order of a competent court’ to enforce the payment. In September, in the case of CMG Pension Trustees Ltd v CGI IT UK Limited, the High Court found, amongst other things, that TPO is not a competent court for these purposes. TPO (not a party to the original case) appealed this part of the decision, but the Court of Appeal has agreed with the High Court’s findings.

In practice, this will make recouping overpayments more difficult for trustees - where a member disputes recoupment, a decision by TPO that recoupment should be allowed will not be enough for enforcement; an order from a ‘competent court’, such as the county court, will be needed.

Read the case.

TPR speech on delivering investment returns

The Pensions Regulator (TPR) has published the transcript of a speech given by its CEO, Nausicaa Delfas, on pension scheme investment. The speech was given at a summit discussing the Mansion House proposals, which promoted pension scheme investment in ‘productive finance’ (read more). Ms Delfas welcomed the proposals and noted that TPR is “clear that having fewer, larger, well-run schemes that facilitate investment in a diverse range of assets, will help to achieve [the best possible retirement income for members]”.

TPR expects:

• “Sophisticated investment governance practices in all schemes and diversified investments made with due care and attention”. TPR “will not be telling schemes how to invest… [but] will be challenging decision-making”. By the end of the year, TPR will provide new guidance on investing in private markets, and in due course it will be updating its existing investment guidance for DB and DC schemes. The speech also says that the new DB funding code will clarify that there are no limitations on what may constitute suitable assets in which to invest.
• An efficiency mindset: “delivering ever better services for a fair price, recognising the economies of scale that size provides”. TPR suggests this requires a cultural shift, with focus moving away from cost to quality; TPR believes its upcoming value for money framework (read more) will help with this.
• Highly qualified trustees, who are willing to challenge advisers to do better and make sure all savers get the best possible returns for their pensions.

The speech also reiterated the message given at another recent speech (read more): that TPR is moving to a “more assertive” regulatory approach. It will also expect trustees to disclose more information and to analyse, interpret and act to spot and mitigate risks before they materialise.

Read the speech transcript.

Dashboards update

The Pensions Dashboards Programme (PDP) has published a progress update report, setting out recent developments in its preparation for pensions dashboards.

The update states that engagement with industry on guidance setting out connection staging deadlines will take place in autumn 2023. The aim is to publish this guidance in time to provide at least 12 months’ notice of the first connection deadline. Schemes are required to have regard to the staging deadlines in this guidance and will be expected to evidence how they have done so.

Further engagement on standards – rules set by the PDP which facilitate ongoing connection to the dashboards ecosystem - will take place over winter 2023/24, ahead of final publication and approval by the Secretary of State. It is intended that data standards will be made available ahead of other standards, timed to coincide with publication of guidance on the staged connection timetable.

Read the update.

TPR report on employer-related investment prosecution

TPR has published a report on its prosecution of the former owner of Norton Motorcycles for breaching employer-related investment (ERI) rules. Breach of the ERI rules is a criminal offence that carries an unlimited fine and/or a prison sentence of up to two years. In this case, the former owner was given a suspended prison sentence and, in separate enforcement action, banned from being a trustee or a company director.

The report outlines TPR’s approach in investigating and prosecuting the case and working with other organisations. TPR believes it ‘demonstrates our risk-based approach. It shows we will use the powers that we have to stop wrongdoing that puts savers most at risk, taking enforcement decisions which offer the best opportunity for justice and ultimately financial redress for victims’.

Read the report