In this Update we take a look at key developments for SIPP and SSAS providers over the past few months. These include abolition of the lifetime allowance, publication of the FCA's Value for Money consultation, and a number of significant court and tribunal decisions including a decision by the First-Tier Tribunal in which it overturned HMRC's decision to withdraw registration of two pension schemes and considered the limitations on HMRC's power to deregister schemes.
SIPP and SSAS Update - August 2024
Abolition of the lifetime allowance
The lifetime allowance (LTA) was abolished with effect from 6 April 2024. On 9 June 2024 the FT reported that it had been told by "allies" of Rachel Reeves that Labour had abandoned plans to bring back the LTA. There has been no official announcement from Labour on this point. The Labour party manifesto did not mention the LTA. For more detail, click here.
Consumer Duty in force for closed products from 31 July 2024: FCA issues Dear CEO letter
The FCA's Consumer Duty, which has applied to open products since 31 July 2023, applies to closed products from 31 July 2024. In May the FCA published a "Dear CEO" letter setting out the following priority issues that are particularly acute or widespread in closed products and services:
- gaps in firms' customer data. Where a firm has material gaps in its customer records that affect its ability to comply with the requirements of the Duty, the FCA expects it to be able to evidence that it has taken proportionate steps to either address the gaps or proactively work around those limitations to ensure it is achieving good outcomes for customers;
- fair value: the FCA says firms should consider whether they have applied their fair value framework consistently to open and closed products and services and should be able to justify any difference in approach. The FCA suggests firms should consider the expected total price to be paid by retail customers and consider whether this is reasonable relative to the potential benefits provided by the product or service;
- treatment of consumers with characteristics of vulnerability: the FCA flags that the challenges of working with closed products and services, for example inflexible legacy systems may create a particular risk of harm to customers with characteristics of vulnerability. It suggests firms should consider whether any enhanced action, monitoring or support is needed for potentially vulnerable customers of closed products compared to open products;
- gone away or disengaged customers: the FCA says that firms should identify less engaged and gone away customers of closed products and services and take appropriate action. The FCA says firms should consider whether it has followed all reasonable and proportionate avenues to contact gone away or unresponsive customers. This might include enhanced tracing activities, including through specialist third parties;
- vested contractual rights: the FCA says that firms are not expected to give up any "vested contractual rights". However, where harm is being caused to an existing customer, the FCA expects firms to consider whether there are alternative ways to prevent or manage any harms. The FCA says that vested rights include a pre-existing contractual right to which a firm already has legal entitlement (eg annual fees that are due) and rights to payments falling due in the case of a contractually-specified event such as exit charges. Where a customer can terminate a contract without an exit charge, firms have no more than an expectation of the customer continuing the contract. In that case the future payment of charges is not a vested right.
FCA expectations for areas of non-compliance
For any areas of non-compliance, the FCA's expectations are that:
- firms should prioritise taking action where there is the greatest potential for harm. This should include considering where such harm might be affecting vulnerable customers;
- where firms identify that remedies are needed, they should have clear, timebound, resourced plans for implementing remedies;
- firms should put in place clear mitigations to protect customers from known or possible harms in the period until they have fully implemented identified improvements;
- firms' governing bodies should challenge their businesses on all of the above; and
- firms should consider assurance work via an independent function, such as their internal audit function, on how they implement the Duty in due course.
Pensions dashboard connection dates published
In March the government published guidance setting out the dates by which it expects pension schemes to connect to the pensions dashboard. Legally the deadline for connection is 31 October 2026, but trustees and pension providers are required to "have regard" to the guidance, which stipulates earlier dates, with the specific date dependent on type of scheme and number of relevant members. For more detail, see our e-bulletin.
In a separate but related development, the FCA has modified its rules to enable firms to connect to the dashboard before 31 October 2026 in cases where they are not yet able to comply with the rules on pensions dashboards for 100% of their relevant members. The FCA says that if a firm connects in advance of 31 October 2026 in reliance on the modification, the FCA would generally expect the firm to be in a position to comply with all of the provisions of COBS 19.11 (the rule dealing with pensions dashboards) in respect of at least 80% of its relevant members.
New company law requirements
The Economic Crime and Corporate Transparency Act 2023 has introduced a new requirement for a company's registered office to be "appropriate" and for a company to have a registered e-mail address. A registered office will be appropriate if a document addressed to the company and delivered by hand or by post would be expected to come to the attention of a person acting on behalf of the company, and the delivery of a document to that address is capable of being recorded by obtaining acknowledgement of delivery. This test means that it is no longer permissible for a company to use a PO box as its registered office. The requirement came into force on 4 March 2024.
Companies will also be required to have a registered e-mail address, meaning that an e-mail sent to that address will come to the attention of someone acting on the company's behalf. For companies already in existence on 4 March 2024, the registered e-mail address will need to be included when the company's next annual confirmation statement is submitted to Companies House.
FCA Value for Money consultation
On 8 August 2024 the FCA published a consultation on the introduction of a "Value for Money" (VfM) framework. The key idea behind this is to provide a consistent framework for assessing the performance of DC arrangements, and to require pension providers to take action where an arrangement fails the VfM test. The consultation relates to firms operating personal pension schemes, but ultimately it is intended that equivalent frameworks will apply across the DC workplace pensions market (ie to occupational pension schemes too). For more detail, click here.
New Pension Schemes Bill to include measures on small pots and decumulation options
The King's Speech announced that the Government will introduce a new Pension Schemes Bill which will include measures to:
- automatically bring together deferred small pension pots;
- place duties on trustees of occupational pension schemes to offer a retirement income solution or range of solutions, including default investment options, to their members; and
- introduce a standardised test that trust-based defined contribution schemes will need to meet to demonstrate that they deliver value. The FCA will ensure the framework is applied to contract schemes and therefore consistently across the market.
Our thoughts
The pensions measures announced in the King's Speech do not represent "brand new" thinking on pensions policy. The previous Conservative government had been progressing measures in relation to all the areas covered above. It remains to be seen whether the current government will follow the previous government's thinking on these issues in all respects or whether it will take a different approach to some of the detail. Regarding the standardised "Value for Money" test for DC schemes, the FCA has since published a consultation on this. (See separate item "FCA Value for Money consultation"). Regarding the duty on occupational scheme trustees to offer decumulation and default investment options, SSASs would appear to be an obvious case for an exemption, but the detail of the legislation has not yet been published.
General Levy: Government abandons plan for £10,000 premium
In a consultation response published in April, the Government announced that it has abandoned its plan to add a premium of £10,000 to the General Levy for schemes with less than 10,000 members. The Government had originally proposed to increase levy rates for all schemes by 4% per year and, as of April 2026, add a premium of £10,000 to schemes with memberships under 10,000. However, the vast majority of consultation responses favoured the option of no premium and a 6.5% increase in levy rates for all schemes. The Government has made regulations giving effect to this option with effect from 1 April 2024.
Carey Pensions: Court of Appeal dismisses challenge to Financial Ombudsman decision
The Court of Appeal has dismissed a claim for judicial review in the case of Options UK Personal Pensions LLP v Financial Ombudsman Service Ltd (the "Carey Pensions" case). The judgment is an important one for the SIPP industry, as it clarifies the extent to which SIPP providers may be held liable for a failure to carry out due diligence on SIPP investments that are entered into on an "execution only" basis. The judgment illustrates that it is not possible for SIPP providers to use their T&Cs to absolve themselves of all responsibility for unsuitable investments. For more detail, see our e-bulletin.
Tribunal overturns HMRC's decision to withdraw registration of two schemes
In the case of NBC (Administration Services) Limited v HMRC, the First-Tier Tribunal (FTT) allowed an appeal against HMRC's decision to withdraw the registration of two pension schemes. For more detail, click here.
Scheme administrator liable for scheme sanction charge where it failed to question valuation
The First-Tier Tribunal has dismissed a scheme administrator's appeal against liability for a scheme sanction charge where the administrator unquestioningly accepted valuations provided by a third party valuer without applying "commercial common sense" to the question of whether the valuations were realistic (Morgan Lloyd Trustees Limited v HMRC). For more detail, click here.
Court claim where benefit statements sent to wrong address
The case of Farley v Paymaster (1836) Limited involves data protection claims brought by a group of over 400 pension scheme members against a scheme administrator that inadvertently sent the members' annual benefit statements to their old addresses. The High Court initially struck out those claims where the letters had been returned unopened or where there was no positive evidence that the letters had been opened and read. However, the Court of Appeal has now granted permission to appeal in those cases. The Court of Appeal said that it was clear in principle that an individual may establish that personal data has been processed in breach of the individual's data protection rights without proving that information or data has in fact been read or otherwise communicated with anyone. It accepted that there was an arguable case that the members they were entitled to compensation for the distress caused by infringement of their data protection rights.
In most of the cases where the members were able to produce evidence that the wrongly addressed letter had been opened and read, the letter had been opened by a family member still living at the old address. None of the members produced evidence of further unauthorised use of the information. The High Court judge considered that these claims appeared to be "very far from being serious cases", but decided that they should nevertheless be allowed to go to trial rather than being struck out without a full hearing.
Our thoughts
The courts have not yet ruled on whether the claimants in this case are entitled to compensation. The judgments given so far have dealt with the question of whether the claims should be struck out as having no prospect of success or allowed to proceed to trial. Whatever the eventual outcome of the case, this case illustrates that data protection breaches may give rise to claims that are costly and time consuming to defend.
Court holds that appointment by trust corporation of related investment manager gave rise to conflict of interest
The Court of Protection has ruled that a trust corporation acting on behalf of an individual who lacked mental capacity breached its fiduciary duty by appointing an investment manager within the same group as itself to manage the individual's funds (Irwin Mitchell Trust Corporation v PW). Whilst the trust corporation had adopted certain processes designed to address conflict of interest issues, eg going through a tendering process before making an appointment, the fundamental point was that the investment manager did not waive its fees. The group which included the trust corporation and investment manager therefore benefited financially from the appointment and this gave rise to an actual conflict of interest.
The court has the power to ratify a transaction that would otherwise be in breach of the "self-dealing rule". However, the judge was not satisfied that there was sufficient evidence before the court to determine whether the appointment should be ratified, and held that a further court hearing would be needed in order for the court to make a decision on whether to ratify the appointment.
Our thoughts
Where, as in this case, the relationship between two parties is legally classified as a "fiduciary" relationship, various legal consequences flow from that, in particular strict rules regarding conflicts of interest. A trustee of a pension scheme acts as fiduciary in relation to the pension scheme's members and other beneficiaries, so the court's decision in this case is relevant to a pension scheme trustee who is considering appointing another party within the same commercial group to perform services for the pension scheme in return for a financial benefit.
In a pension scheme context, a first point for a trustee to consider is whether the scheme's trust deed and rules allow the trustee to make appointments in which the trustee may have a financial interest. If they don't, any such appointment will almost certainly breach the rules governing conflicts of interest, meaning that it could be set aside by the courts. However, even where the scheme rules do in principle allow the trustee to make appointments in which it has a financial interest. the nature of the fiduciary relationship between trustee and beneficiary means that the trustee must still be able to justify any appointment decision as being in the interests of beneficiaries.
SIPP operators or scheme administrators that are not trustees may well also be acting as fiduciaries depending on the extent of the powers reserved to them under the trust deed and rules. If that's the case, the same considerations would apply regarding the exercise of their powers.
Loan triggered unauthorised payments charge even where terms not expressly linked to pension scheme
The First-Tier Tribunal (FTT) has held a loan may be "connected" with a scheme investment for the purposes of the unauthorised payments legislation notwithstanding that the loan was not expressly conditional on any investment by the scheme and the member was unaware of the connection (Foulkes v HMRC).
The member (Mr F) had transferred his pension fund from the Local Government Pension Scheme to a registered pension scheme known as the Alderley Wealth Management Pension Scheme ("Alderley") on the advice of a Mr D on the understanding that his fund would be invested in a company known as Haimachek. Mr F also received advice from Mr D about the possibility of obtaining a bridging loan. The transfer value to Alderley was paid on 20 June 2017. On 26 June 2017 Mr F received a payment of £11,819 which was part of a loan from a company called Lendtech Limited. In November 2017 Mr F was contacted by the police who were investigating whether he and others may have been the victims of fraud, though no charges were brought following the investigation. HMRC subsequently assessed Mr D to tax on the basis that the loan was an unauthorised member payment.
The FTT concluded that there had been a causal link between the loan from Lendtech and the fund's investment in Haimachek. The FTT said that in reaching its conclusion, it relied in particular on the following facts and matters:
- the investment in Haimachek and the possibility of a loan had first been discussed by Mr F and Mr D at the same meeting;
- the funds had been made available to Mr F after he had given instructions for Alderley to invest his pension fund in Haimachek but before he had signed the loan agreement;
- the loan agreement itself identified that Mr F had an account balance with a company owned by an individual who was promoting investment in Haimachek;
- an e-mail from Mr D identified that he had been assured that investors in Haimachek could receive a loan if required; and
- Alderley had transferred a sum of £355,000, including Mr F's fund, to an account in the name of Xtend. The loan payment to Mr F four days later came from an account of Xtend.
The FTT considered whether it was just and reasonable for Mr F to be liable to the unauthorised payments surcharge, noting that the burden was on Mr F to establish that liability would not be just and reasonable. The FTT said it was prepared to accept that Mr F did not know that the loan was connected with the investment of his funds in Haimachek, but noted that the presence or absence of negligence on Mr F's part was not the deciding factor as to whether it would be just and reasonable for him to be liable for the unauthorised payments surcharge. The FTT noted that Mr F had signed an indemnity to the scheme administrators which stated that he would not take a loan as a result of the pension transfer. The FTT commented that, "It was unwise to negotiate a loan at the same time as dealing with the pension transfer". The FTT concluded that Mr F had failed to satisfy it that it would not be just and reasonable for him to be liable for the unauthorised payments surcharge.
Our thoughts
This case shows that when considering whether a loan is "connected" with a scheme investment, the FTT will focus on what appears to be the reality of the situation, and that a loan may be considered "connected" even where the scheme member may not have considered the investment and loan to be connected. This case also illustrates that the FTT may consider it just and reasonable for an unauthorised payments surcharge to be imposed notwithstanding that the member appears to have already suffered a loss as a result of falling victim to a pension scam.
Court of Appeal hearing in Manolete Partners PLC v White
In our May 2023 Update we reported on the High Court judgment in the case of Manolete Partners PLC v White in which the claimant sought to enforce a judgment debt against the assets of the debtor's SSAS. The High Court judge rejected the argument that this was prevented by section 91(2) of the Pensions Act 1995 which prevents a court from making an order which has the effect of restraining a member from receiving a pension under an occupational pension scheme. The debtor appealed the judgment. The case has now been heard by the Court of Appeal and judgment is awaited. Addleshaw Goddard LLP's Restructuring team (Tim Cooper) acted for the claimant in the case.
Failure to properly disclose commission meant introducer required to pay all commission to investor
In the case of McHale v Dunlop, the High Court held that an introducer who promised an investor a one third share of commission payable for investing his pension fund in specific loan notes had assumed a fiduciary duty towards the investor as his agent and was therefore liable to account to the investor for all commission which the introducer received, not just a one third share.
The background to the case was a decision by Mr McHale to transfer his existing pension funds into a SSAS and then use the funds from that SSAS to invest in loan notes in an overseas investment scheme known as the Dolphin Trust. The companies involved in the Dolphin Trust subsequently entered preliminary bankruptcy proceedings in Germany and Mr McHale suffered substantial losses.
Mr Dunlop had acted as an introducer for Dolphin Trust. The brochure for the Dolphin Trust made clear that commission was payable to introducers, but not the amount of that commission. The judge accepted on the evidence that Mr Dunlop and another individual (Mr L) had promised that any commission payable as a result of Mr McHale's investment would be split equally between Mr McHale, Mr Dunlop and Mr L. However, Mr Dunlop and Mr L had agreed with each other not to disclose the full amounts actually being paid in commission in order to pay Mr McHale less than a one third share.
There were two main elements to the claim brought by Mr McHale against Mr Dunlop. The first and higher value element of the claim was a claim for damages on the basis that Mr Dunlop had assumed the duties of reasonable care, skill and good faith to be expected of an adviser acting within the "Code of Conduct" under the Financial Services and Markets Act 2000. This claim failed on the evidence, with the judge rejecting Mr McHale's claim that Mr Dunlop had held himself out as being an FCA-regulated financial adviser and that Mr McHale had understood him to be such.
The second element of the claim was that Mr Dunlop had breached a fiduciary duty to Mr McHale in respect of "half-secret" commissions. In relation to this aspect of the claim, the judge found that by offering Mr McHale a one third share in any commission paid as a result of his investment in, Mr Dunlop had taken on a role as an agent for Mr McHale in respect of the commission payable and thus assumed a duty to Mr McHale that was classed in law as a fiduciary duty. This put him under a duty of good faith which required him to accurately disclose the amount of commission payable and account to Mr McHale for his share. Given the judge's finding that Mr Dunlop had deliberately misled Mr McHale regarding the total commission payable, the judge held that the appropriate remedy for Mr Dunlop's breach of duty was that he should be liable to Mr McHale for the total commission paid.
Our thoughts
Where a person is classed as acting in a fiduciary capacity in relation to another person (which will be the case for a trustee in relation to a beneficiary), the law imposes particularly strict duties on the fiduciary. Even where, as here, the fiduciary has been authorised to receive a commission, it is incumbent on the fiduciary to be honest in disclosing the extent of any commission. A failure to do so could result in the fiduciary being required to account to the beneficiary for the whole of any commission received.
SIPP or SSAS providers that earn commission from acting as such (eg from banks for placing cash on account) must ensure that they have sufficient legal authority to do so, and that their customers have had adequate disclosure about it. If they fail to do this, they risk falling foul of the law on fiduciaries and FCA/FSMA requirements.
FCA final guidance on Anti-Greenwashing Rule
In April the FCA published its finalised guidance on its Anti-Greenwashing Rule. The FCA's anti-greenwashing rule in the Environmental, Social and Governance (ESG) Sourcebook (ESG 4.3.1R) requires firms to ensure that any reference to the sustainability characteristics of a product or service is accurate and is fair, clear and not misleading.
The key principles set out in the guidance are that sustainability references should be:
- correct and capable of being substantiated;
- clear and presented in a way that can be understood;
- complete – they should not omit or hide important information and should consider the full lifecycle of the product or service; and
- fair and meaningful as regards any comparisons to other products or services.
The guidance expands on these principles and includes examples of good and bad practice.
Ombudsman rules on measure of loss in transfer value delay case
In a case involving a delay in the payment of a substantial transfer value, the Pensions Ombudsman has accepted the member's argument that, had the transfer value been paid without delay he would have invested in a named fund which invested in Japanese smaller companies (the "Japanese Fund"), and that the loss suffered as a result of the delay should therefore be calculated on that basis (Mr R CAS-60559-J2R8). This was despite the fact that (a) the member had originally told the SIPP provider that he intended to invest in Japanese Yen, and (b) when he eventually received his transfer value, the member did not invest in the Japanese Fund. For more detail, click here.
AMPS warning regarding rejected SSAS applications
It has been reported that the Association of Member-directed Pension Schemes (AMPS) has warned that HMRC is rejecting an increasing number of applications to register SSASs. According to reports, HMRC is giving few details about why applications are being rejected, but AMPS believes the rejection is often due to members not keeping their tax records up-to-date and that an out of date address on the member's personal tax account may result in a scheme registration application being rejected.
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