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. 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 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 enough to 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

October 2023

• 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 still applies post-Brexit. 
• The new tax year 2023/34 saw the reintroduction of the ‘triple lock’ in alignment with September’s inflation rate of 10.1%. Contextually, low interest rates to stimulate the economy exacerbated the retirement savings gap, leaving people with less than they need to survive in old age. This measure seeks to protect the value of state pension in real terms, such as the inflated cost of living and current income levels. 
• The Pension Dashboards Programme will permit millions of workers to access their pension information with the click of their mouse to a centralised online system. The dashboard will connect more than 3,000 providers and schemes and aims to reunite savers with lost pension pots. In June, this year, an amendment to the Pension Dashboard Act 2023 was proposed specifying a statutory connection deadline for occupational scheme trustees by 31st of October 2026. 
• In May, this year, the Pension Dashboard Act (Prohibition of Indemnification) Act made it a criminal offence for occupational or scheme trustees who were penalised under the Pension Dashboard Regulations 2022 to reimburse themselves with pension scheme assets. 
• In June, this year, the High Court passed judgement on Virgin Media v NTL Pension Trustees II Limited and concluded that amendments to contracted out schemes from 6 April 1997 without actuarial confirmation, are void. It is unknown whether the decision will be appealed. However, as reported by Sackers and Partners LLP, for such schemes the issues will be whether compliance with Section 37 of the 1993 Act, (otherwise known as statutory actuarial compliance) can be demonstrated when amendments occurred. This impact of this is yet to be seen! 
• The government is currently facing a huge deficit in pensions. A new pension innovation Superfund Consolidators, or so-called ‘Superfunds’ are the highest consolidation of different schemes. Superfunds aren’t regulated by the Prudential Regulation Authority but instead by The Pensions Regulator (TPR) – this means they won’t face solvency capital requirements at all. There’s understandably much consternation over superfunds, both politically and financially, as the delay in reaping what you sow is very long. The proposed reasons for continued deficits include the increase in life expectancy and underperforming currencies. 
• In 2021, the government increased the state pension age (SPA) to 66 for both men and women. Further increases are planned, which will raise the SPA to 68 between 2037 and 2039, seven years earlier than initially planned. The changes are designed to reflect the reality of the UK’s ageing population
• The equalisation of SPA came into force in November 2018, two years earlier than initially planned, and brings women's retirement age in line with men's. 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. Despite protests, the High Court ruled that it did not constitute discrimination. 
• February 2021 saw the enactment of the Pension Schemes Bill, which gives more power to the regulator to dole out sanctions (both civil and criminal). The changes mean corporates that don’t comply with strict pension guidelines can be hit harder than ever with fines of up to £1 million. The bill looks to punish corporates that are irresponsible with their pension schemes, as well as those that embezzle from pension funds. It also seeks to make pensions more eco-friendly, making corporates report any investments made with pension funds that are a ‘climate risk.’ 
• As of this year, Royal Mail has become the first authorised provider of a Collective Defined Contribution (CDC) pension scheme by the TPR. In August, 2022, the CDC schemes were launched, and, according to the government, these aim to “offer an alternative to the UK’s two primary pension scheme models, Defined Contribution (DC) and Defined Benefit (DB).”The hope is that CDCs will offer “improved retirement returns for savers.”
• In August 2022, the TPR announced a three-year scam strategy in response to concerns that vulnerable people will become more suspectable to pension liberation scams during the cost-of-living crisis. Since the 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. Which.co.uk estimates that the average money lost per pension scam in 2018 was £82,000. A report published by the University of Portsmouth in 2020 found that pension fraud scams cost pension schemes £6 billion a year on average, hence with the cost-of-living crisis the TPR seeks to educate about potential threats.
• As of June 2022, many gig employers are still not offering pensions, despite Uber’s Supreme Court ruling. Gig economy workers such as Uber, Deliveroo and Hermes drivers have historically been considered self-employed and thus ineligible for company pension contributions. However, following a court ruling that Hermes couriers and Uber drives should be classified as workers rather than self-employed, Uber announced it would be offering UK employees pensions – though only for time spent transporting a passenger, not time spent on shift waiting for a ride. They also need to work at least 22 hours a week in order to meet the criteria for gaining a pension. TPR has suggested that the definition of ‘workers’ may have to be revisited to urge such employers to offer pensions. 
• In 2023, drawing upon Uber’s Supreme Court ruling, two academics are suing Oxford University on the cases foundations. After 15 years employed on fixed term contracts as personal service providers, they're claiming that Oxford University employed them as gig economy workers, and wish to have their worker status recognized so fundamental workplace rights such as workplace pension, holiday pay and minimum hours. This case is currently pending.