Insolvency-law changes affect DB schemes

The Corporate Insolvency and Governance Act 2020 gained Royal Assent on 25 June 2020. It is intended to help businesses in financial difficulty avoid insolvency. Most of its provisions came into force on 26 June 2020, but with retrospective effect in some cases. Although sometimes portrayed as a response to the current economic uncertainty, some of its reforms are permanent, and were under discussion long before the SARS-CoV-2 outbreak. Some - particularly a moratorium during which creditor activities are restricted, and a new type of court-sanctioned restructuring arrangement capable of overriding the objections of company stakeholders - gave rise to concerns about potential adverse implications for DB pension schemes; however, eleventh-hour Government amendments appear to have alleviated (but not entirely eliminated) the ill effects.

FCA action on DB transfers

The Financial Conduct Authority (FCA) has decided to proceed with a ban on ‘contingent charging’ for advice on transfers from defined benefit (DB) to defined contribution (DC) pension schemes. The prohibition is one of several measures intended to improve the suitability of financial advice about such transfers. Most of the changes will come into effect on 1 October 2020.

PPF compensation cap unlawful

In a 22 June 2020 judgment the Pension Protection Fund (PPF) was told that the compensation cap in its governing legislation is an example of unlawful discrimination on grounds of age.14 The ruling contains a qualified endorsement of the method that the PPF has adopted to ensure that its compensation is adequate under EU law, but may nevertheless complicate the task of compliance (even though few scheme members are affected by the cap). Trustees of schemes that are under assessment for entry into the PPF will need to take the judgment into account when paying benefits.

HMRC update June 2020

Her Majesty’s Revenue and Customs (HMRC) has published Pension Schemes Newsletter 121.