Pensions and actuaries

In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 with regards to pensions and actuaries.

Key developments in 2017

2017 was another year of intense scrutiny for pensions: by the press, the Government, the Financial Conduct Authority (FCA), The Pensions Regulator and the courts. In relation to the latter, we saw a wealth of new case law on issues such as closing schemes to future accrual, employer debt, exoneration clauses, over payments and more.

One area of particular attention has been the issue of retail prices index (RPI) v consumer prices index (CPI) in revaluation of deferred pensions and indexation of pensions in payment. We saw three judgments on this issue alone. Certainly the statutory change to the use of CPI in 2011, which can apply retrospectively (subject to scheme rules), has given rise to numerous claims that we have seen and can affect a range of professionals involved in pension schemes, including: actuaries valuing benefits; solicitors amending scheme rules; auditors verifying administration and scheme deficits; and administrators calculating and paying benefits.

In relation to personal pensions, Self-Invested Personal Pension (SIPP) administrators and trustees continue to face complaints and claims in respect of non-mainstream investments. With the collapse of many introducer firms that advised on transfers into SIPPs, the FCA and Financial Ombudsman Service appear to have turned their attention well and truly to SIPP firms. In this context, the notorious case of Berkeley Burke,which perhaps began this particular focus on SIPP firms’ potential liability for a client’s investment choices held within a SIPP, is still under challenge in the courts. One decision went against Berkeley Burke earlier in the year but its primary judicial review challenge is apparently still ongoing.

What to look out for in 2018

2018 looks set to be the year of The Pensions Regulator. 2017’s Green Paper proposed various new powers for The Pensions Regulator, including: a power to separate schemes from the sponsor or wind schemes up in certain circumstances; increased powers in the area of corporate restructuring; the imposition of an overall duty to co-operate with The Pensions Regulator; and a power to interview parties supported by sanctions for non-compliance. In addition to the Green Paper proposals, The Pensions Regulator’s corporate plan identifies an intention to deliver more interventions more quickly where defined benefit(DB) schemes are underfunded or avoidance is suspected. The Pensions Regulator has actively targeted a 90% increase in the number of schemes with which it will formally engage ahead of formal valuation and a 25% increase in DB enforcement cases. The Pensions Regulator is very clear that it will use its powers more frequently, more quickly.

In the personal pension space, 2018 is set to see pension transfers return to the top of the FCA’s agenda.There has been a huge increase in pension transfer advice, driven by the introduction of the pension freedoms and historically high transfer values from DB schemes. The results of the FCA’s review of pension transfer advice files has indicated that only 47% of transfer advice was demonstrably suitable.The combination of these two factors means we can expect increased scrutiny of pension transfer advice,as well as a revamp of the FCA’s rules on pension transfers in the early part of 2018. Will we see another industry-wide Pension Review? We suspect not, but anticipate that the FCA will carry out further targeted investigations into individual firms – and that section 166 reviews and/or past business reviews for those firms may well follow.