Pensions

In a nutshell

Pensions law revolves around long-term management of large sums of money. Pensions lawyers advise on the creation, structuring and funding of pension schemes, their management and the resolving of any associated disputes. Often created under the form of a trust, pensions are highly regulated and governed by a vast amount of complex and ever-changing legislation. Solicitors typically advise employers, trustees of pension funds and pension providers.

There are several different types of pension scheme that individuals may buy into; broadly these can be divided into 'occupational pensions' and 'personal' or 'individual' pensions. All employers will soon be required to offer their employees membership of a pension scheme – roll-out of this system began in October 2012 with the biggest employers, and everyone in a job will be covered by 2018. An overwhelming majority of individuals who contribute to this form of retirement saving will be members of an employer-sponsored occupational pension scheme.

Most pensions are subject to specialist tax regimes, which makes them very attractive as long-term investments. Members are entitled to tax relief on contributions and a tax-free allowance applies to pension income. Solicitors structure pension funds to take maximum advantage of the tax regime and advise on compliance with the law and regulations in this area.
Pensions teams also work very closely with a firm's employment and corporate departments. Mergers and acquisitions of businesses may involve the movement of employees from one company to another, alongside the assets etc of the target company. This change of ownership will have implications regarding who has responsibility for funding the pension schemes, and raise questions over which employees (old or new) can become members of a scheme and whether the target company's pension scheme will even continue to exist or if it will be merged into or amended to mirror that of the bidding company.

Pension funds need to be well funded, managed and invested for the money to grow and support the fund's members in their retirement. Pensioners are living longer than had been predicted or planned for, and some companies are struggling to find the resources to keep paying members’ pensions for longer periods of retirement alongside funding the scheme for current employees. Such issues affect the public sector just as much as private enterprise – for example, Royal Mail was relieved of its £38 billion pension deficit by the government in 2012. Pensions lawyers help companies with restructuring and re-funding their pension schemes where there is such a shortfall and advise on the particular issues arising where companies collapse. Public sector occupational pensions are also subject to the will of the government, and lawyers have to be able to anticipate and negotiate amendments to schemes.

Most pension schemes are set up in the form of a trust and therefore strict rules apply to those in charge of administering the money. Trustees often seek legal advice on the discharge of their duties and litigation frequently occurs where they or other parties have failed to administer the funds diligently.

What lawyers do

  • Draft documentation relating to the creation, amendment, closure or freezing (closing funds to new members) of pension funds.
  • Advise employers on their obligations towards members and pension funds.
  • Advise on who can become a member of a pension fund and when to pay out of a fund.
  • Advise on restructuring or securing pension funds which are underfunded or in financial difficulties, including on issues associated with the Pension Protection Fund.
  • Advise on regulatory and legislative compliance with tax regimes.
  • Handle disputes and litigation related to pension schemes.
  • Advise trustees of pension funds on their duties.
  • Advise companies, pensions providers and trustees on their interactions with the Pensions Regulator, which regulates UK work-based pension schemes.
  • Assist the corporate teams on M&A deals by undertaking due diligence on potential liabilities.
  • Negotiating amendments to pension plans with clients.

Realities of the job

  • If you're working to corporate deal timetables then the hours can be long.
  • Pensions law is technical, highly regulated and often closely intertwined with tax law, which means a lot of time spent reading and interpreting complex statute books. A keen eye and ability to understand very technical information is essential.
  • Pensions lawyers need to think long-term and anticipate what policy decisions and legislative proposals the government may make in the area.
  • Contentious negotiations with employee/trade union representatives often arise over proposed amendments to employees' pension plans (especially in the public sector).
  • Clients call every day for advice on small issues such as when to pay funds out of a pension scheme.
  • Pensions lawyers need to be personable and able to explain complex law in layman’s terms.

Current issues

  • While a large amount of the UK's pensions legislation has its roots in the EU, the majority of this is written into UK law, and would not cease to apply if Brexit came to pass. A complete withdrawal from the EU would give Parliament the power to repeal these laws, but major changes are unlikely to occur as it is widely felt that the current scheme funding regime is a big improvement on previous arrangements, and many of the laws regarding equality and discrimination are fundamental to modern society.
    In 2014 Parliament passed the Pensions Act, which radically reformed the state pension. From April 2016, the existing range of different state pensions and tax credits were consolidated into a single rate (currently set at £155.65 per week). Experts predict that this will encourage more people to save towards their pensions and boost the introduction of auto-enrolment for company pension schemes.
  • The compulsory retirement age of 65 has been abolished and the age at which an individual can access a state pension will be raised to 67 by 2028. The retirement age will also be reviewed every five years.
  • The planned equalisation of the state pension age (SPA) comes into force in November 2018, two years earlier than initially planned and will bring women's retirement age in line with that of men's. The move has drawn fierce criticism from several quarters because the change coincides with the SPA raise for both sexes, meaning women will see their pension age increase faster than that of their male peers. Many women affected by the change (it will predominantly hit those born between 1953 and 1955) have complained they were not properly informed of the accelerated timetable and will subsequently be left thousands of pounds worse off as a result, prompting a debate in Parliament and calls for compensation.
  • By 2028, it is expected that the UK will house 626,900 people over the age of 100, with 21,000 of them aged 110 or above. This is more than 53 times greater than the current number of centenarians. As the UK population is living longer, defined benefit (or final salary) pensions are becoming unsustainable for employers to fund, with most new entrants to the workforce joining 'defined contribution' pension schemes, where the final benefit is unknown until retirement. The Pension Schemes Act 2015 introduced the 'defined ambition' pension, which seeks to provide savers with some indication of their eventual income while also being affordable for employers.
  • In March 2014, chancellor George Osborne unleashed a 'pensions revolution' in the budget. People are now no longer required to buy an annuity (a financial product that converts a retiree's pension pot into a guaranteed retirement income); instead those over 55 can access their pension savings and spend them however they want. While Osborne insisted that pensioners could be trusted to organise their own finances, others (like then pensions minister Steve Webb) worried that they would instead blow it all on Lamborghini sports cars. To help prevent this, the government launched Pension Wise in March 2015 to give free advice to savers on how to make the most of their new pension freedoms.
  • Pension liberation scams have become increasingly prevalent since the pension freedoms were introduced in April 2015. Scammers target individuals with offers of one-off investments, higher returns or the ability to access their pension pot before the age of 55. The Pensions Regulator has revealed that almost half a billion pounds has been lost by victims of pension scams.