PENSIONS LITIGATION: An Introduction to UK-wide

Pensions Litigation Overview 

The economic environment has remained challenging in the last 12 months and, although many corporates have remained remarkably resilient despite Brexit and COVID-19, it has clearly been a difficult period. Pensions are a long-term proposition but there are many shorter-term challenges to deal with, and the pensions litigation landscape continues to reflect this dynamic.

Activity in the High Court has probably taken most of the headlines. But the most significant piece of pensions legislation in over a decade also hit the statute books in early 2021, and it looks certain to have a very significant impact on the investigatory and enforcement action taken by the Pensions Regulator (“TPR”). Not to be outdone, the pensions lifeboat, the Pension Protection Fund (“PPF”), has also been busy, as too has the Pensions Ombudsman (“TPO”) whose brief is to handle member complaints or disputes about pensions.

Making changes – and addressing mistakes  

There has been a flurry of cases in recent years concerning the possible switch between the indices (from RPI to CPI) that schemes apply to pension increases. Largely driven by a desire to control costs, the motivation to switch remains for many, but sufficient legal certainty now exists to make further involvement by the Courts in this regard much less likely. However, the decision of the Treasury and UK Statistics Authority to align the calculation methodology of RPI with that of CPIH with effect from 2030 met with considerable concern from the pensions industry and resulted in judicial review proceedings being launched by three large pension schemes – BT, Ford and Marks & Spencer.

The urge to better manage and control costs has resulted in more pension schemes looking to “de-risk” and either begin or accelerate their “journey to buyout”. This often triggers a close review of the wording of, often ancient, pension deeds –sometimes revealing unwanted surprises where the position is unclear or not as intended.

The Court of Appeal provided some helpful clarity in relation to the proper construction of governing documentation in the pensions context (Britvic), but also reinforced the message that everything rests on the specific wording in question.

Additional clarity in the law regarding the legal principles relevant to Court-ordered rectification also delivered positive results with two unopposed rectification cases (SPS Technologies v Moitt, and Iggesund Paperboard (Workington) Ltd v Messenger). Although the necessary evidential threshold remains high, these cases do represent some welcome news for corporates (and, indeed pension scheme trustees) who face a potentially high price to put right the drafting in what are often very technical and long-forgotten documents.

Alongside these steps to address unclear or incorrect language, claims for professional liability continue to be part of the litigation landscape. Although remaining a dark art in the pensions context, with another year having passed without the publication of any notable Court judgments, there have been developments of interest more generally. The application of strict legal time limits is often a very relevant feature of such cases, and the concept of “deliberate concealment” was given some welcome judicial clarity (Canada Square v Potter). Witness evidence can also be a difficult and sometimes controversial feature of pensions litigation where relevant events have often taken place many years ago. So another development of significant interest was the issuing of a new court Practice Direction which seeks to promote and enforce best practice on the preparation of witness statements.

A year of change 

TPR’s powers 

After much anticipation (and time as a Bill), the Pension Schemes Act 2021 (“PSA21”) was finally passed. It bolsters TPR’s supervision and enforcement powers (granting it, amongst other things, new interview and inspection powers). Greater transparency of corporate events will be enforced against a backdrop of potentially onerous penalties and criminal offences. Only time will tell what TPR actually does with these powers, and to what extent it will change the behaviour of those potentially impacted.

Climate change 

More than ever, climate change risk came to the fore this year, with the impact of environmental, social and corporate governance (“ESG”) considerations on scheme investment under the spotlight. In the charity sphere, the High Court examined “responsible investment”, looking at the nature and scope of trustees’ powers of investment and how they might properly discharge those powers where particular investments or policies might be seen to be inconsistent with their charitable objects (Butler-Sloss v Charity Commission for England and Wales). It remains to be seen whether this will impact existing investment guidance and how, if at all, it might carry across to the pensions environment.

And with increasing statutory disclosure obligations (including those that require documents to be publicly available), trustees’ approaches are increasingly likely to be scrutinised and possibly challenged, by both members and activist organisations seeking to hold trustees accountable for their actions (or inaction).

Transfers and scams 

Tougher economic conditions, driving financial anxiety, have provided fertile ground for scammers. Complaints to TPO regarding transfers where members have been the victim of fraud or simply where, with the benefit of hindsight, they have regretted their decision to transfer, continue to rise.

In a recent determination of note, TPO held that “a period of approximately one month” should generally be sufficient for schemes to institute new processes following the publication of significant guidance (here, TPR’s old “Scorpion” materials). Going forwards, schemes will have to react promptly to key changes in this area, including PSA21’s forthcoming restrictions on the statutory right to transfer.

And in an extension to the more familiar topics of pensions litigation, self-invested personal pensions (“SIPPs”) have been more in the public eye this year. In Adams v Options UK Personal Pensions, the Court of Appeal found that a SIPP provider operating on only their clients’ instructions could still be liable if the investments failed. Both TPO and the Financial Ombudsman Service (“FOS”) reported increased queries in relation to these products, with SIPPs being FOS’s most common pensions topic of complaint.

Clarifying member compensation 

Lifeboat funds remain vital given the economic climate. The precise scope and limits of the compensation provided by the PPF was clarified, with the Court of Appeal in Hughes accepting the PPF’s approach to increases, but ruling that its compensation cap constitutes unlawful age discrimination.

The High Court also ruled that members of schemes that were themselves part of a scam are now eligible for the Fraud Compensation Fund. Over £40 million of member claims are now waiting in the wings.

What’s next? 

As always in pensions litigation, the year ahead promises to be busy. The High Court has an increasing number of judges who are familiar with pensions and they will inevitably be called into action again.

TPO continues to deal with an increased number of complaints and, as a result of the pandemic, nearly 30% of its investigations have been open for more than its target 12 months.

With COVID-19-related easements now ended, TPR’s regulatory engagement initiatives are due to restart in earnest. And given TPR’s new powers, increased regulatory investigations and enforcement action seem almost inevitable.