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.
- 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 will still apply post-Brexit. It is, however, unclear how the pensions of EU citizens living in the UK (and those of UK nationals living in continental EU countries) will be affected. Broader economic developments as a result of Brexit are also likely to have an effect on pension legislation after the UK officially withdraws from the EU: if the market crashes, so do many people’s pensions.
- The government is currently facing a huge deficit in pensions. Superfunds aren’t regulated by the Prudential Regulation Authority but instead by The Pensions Regulator – this means they won’t face solvency 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 compulsory retirement age of 65 has been abolished, and from 2019 the state pension age (SPA) will increase for both men and women to 66 by October 2020. The government is planning further increases, which will raise the SPA to 67 between 2026 and 2028 and then to 68 between 2037 and 2039. The SPA is going to be kept under review and could change again in future.
- The above ruling led to a class action court case brought by a group of public sector workers. The workers won the case that stated the changes to their pension schemes were classed as age discrimination. The ruling also found that this is in theory true for all public sector pension schemes, putting the government £4 billion out of pocket to cover the pensions.
- 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. 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. Despite protests, October 2019 saw a High Court ruling that it does not constitute discrimination.
- 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. The government announced a consultation to help tackle the problem in the 2016 Autumn Statement. 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.
- Gig economy workers such as Uber, Deliveroo and Hermes drivers have historically been considered self-employed and thus ineligible for company pension contributions, but this could change in the near future following a court ruling that Hermes couriers should be classified as workers rather than self-employed. Although, as of 2020, there was no word on their pension scheme, Hermes did pay its gig workers if they had to self-isolate, indicating a move to more robust employee benefits. Various businesses may need to start setting aside money for pensions if this trend continues.
- The Supreme Court ruling that heterosexual couples can form civil partnerships will have an impact on pensions going forward, as pension schemes provide survivor benefits to those who outlive their partners. Arranging this could be simpler in future for couples who live together but do not wish to marry.
- In 2018, the European Court of Justice determined that a trans woman should be able to access her state pension at age 60 despite not having annulled her marriage.
- A long-term effect of interest rates being kept low to stimulate the economy during the coronavirus crisis will be pensions being worth a lot less than people assume they’ll be getting. This exacerbates the already difficult problem of the retirement savings gap, leaving people with less than they need to survive in old age.