In the October edition of our Taylor Wessing Pensions Bulletin, we give a snapshot of some of the many recent pensions developments, which include:
Extension of CDC schemes and consultation on CDC as a retirement only option
As indicated in our May pensions bulletin the Government has now published a response to its 2024 consultation about extending CDC schemes to unconnected multi-employers. With that, facilitating regulations have been laid before Parliament. Subject to Parliamentary approval, the regulations look set to come into force from 31 July 2026 along with an updated Pensions Regulator's code of practice.
The regulations aim to:
- remove the exclusions which prevent unconnected multiple employer CDC schemes from operating under the CDC legislation
- set out what CDC schemes that are whole-life unconnected multiple employer schemes must do to become authorised, to operate effectively under regulatory oversight, and what happens if changes need to be made to these schemes.
The Government has also published a consultation on policy proposals for a new type of CDC scheme only for pensioners. This could help make CDC a retirement option for Defined Contribution (DC) pension schemes carrying out their new guided retirement duties, as proposed in the Pensions Schemes Bill 2025. In short, as the Government says, guided retirement will involve placing 'duties on trustees to provide one or more default pension benefit solutions for their members, from which the member can choose to opt-out. Each member will be assigned a specific default solution, but there may be multiple solutions within a scheme depending on the aspirations of the membership as a whole.'
As part of that framework, DC schemes subject to these duties would allow individuals to transfer their DC savings pots at retirement into a collective fund that provides a trustee managed income for life, adjusted annually based on investment performance and scheme sustainability.
Guided retirement is expected to be implemented in phases. The Government has provided a useful indicative roadmap for delivery, building on the broader workplace pension roadmap published in June (subject to various caveats which include that this is illustrative and subject to change).
These recent developments reflect the Government's clear intent to implement CDC as part of the wider pension savings landscape both as 'whole life' and 'at retirement' arrangements. Though the changes will not come into force immediately, given the timelines, trustees of DC schemes should include CDC developments as part of considering what their guided retirement obligations will be under the Pension Schemes Bill. Employers may also wish to monitor the development of CDC as an option for alternative pension provision.
Proposed actuarial guidance on Virgin Media remedies
In our last pensions bulletin we mentioned the proposed remedies in the Pension Schemes Bill for the issues arising from the decision in Virgin Media for certain defined benefit pension schemes. These remedies allow for the validation of 'potentially remedial alterations' provided that certain conditions are met which include the scheme actuary giving certain confirmations. The Financial Reporting Council has confirmed it is developing technical guidance for actuaries about these provisions which will be made available when the Bill comes into force. This will also be helpful for schemes in understanding what the scheme actuary will require in this process.
Discretionary increases case – no employer maladministration found
The Pensions Ombudsman has recently dismissed a complaint by a pensioner about an employer's failure to exercise its discretion, under the scheme rules, to award increases to pre-97 benefits (which, unlike post 97 benefits, do not attract statutory increases). The pensioner alleged, amongst other things, that the employer had ignored recommendations from the trustees and actuary for 18 years and not awarded such increases for that period. The employer argued that under the scheme rules it only had an obligation to review whether or not to award increases and it in fact had done so in 2004, 2008 and latterly in 2022. The discretion was also considered in the light of case law (Prudential Staff Pensions Limited v The Prudential Assurance Company from 2011). Based on that, the employer argued that, as it had an absolute discretion, it was able to consider its own interests, was not required to negotiate with the trustees and was not bound by previous exercises of its discretion.
In dismissing the pensioner's complaint the Pensions Ombudsman determined that the discretionary benefit was just that. It did not place an obligation on trustees or the employer to pay relevant increases to members consistently. As long as the employer and/or the trustees (as appropriate) properly apply any discretion in accordance with the scheme rules and follow a proper process there can be no finding of maladministration. Here, the employer stated that it had fulfilled its obligations under the rules (and there was no evidence to the contrary). In light of that, the Ombudsman considered that the employer had adhered to the rules and met its duty of good faith and there had been no maladministration in the employer not consistently applying increases to pre-97 benefits.
The case, whilst obviously on its own facts and scheme rules, will be reassuring for employers in the midst of an ongoing political debate about whether or not statutory increases should be imposed for pre-97 benefits also. It confirms that a discretionary power is just that: as long as scheme rules are complied with and proper processes followed it will be difficult to challenge how it is exercised.
Capita fined £14 million in respect of 2023 data breach
The Information Commissioner (ICO) has fined Capita a total of £14 million for 'failing to ensure the security of personal data' in 2023 that saw hackers steal the information of millions of people. This included sensitive information such as details of criminal records, financial data and special category data. The ICO's investigation found that Capita had failed to ensure the security of processing of personal data which left it at significant risk, as well as lacking the appropriate technical and organisational measures to effectively respond to the attack. The report says that Capita Pension Solutions Limited (one of the entities involved) processes personal information on behalf of over 600 organisations providing pension schemes, with 325 of these organisations also impacted by the data breach.
There were a number of technical failings around and in response to the cyber incident which triggered the attack (it appears that an employee unintentionally downloaded a malicious file). The failings included not responding appropriately to security alerts (for example although a high priority security alert was raised within ten minutes of the breach, Capita took 58 hours to respond appropriately, against a target response time of one hour).
The ICO had originally intended to fine Capita £45 million for the breach. Capita made representations, including about improvements that had been made after the attack, which meant that the agreed penalty, with admission of liability by Capita is £14 million.
The ICO's statement sets out a number of key areas where organisations should be taking proactive steps to reduce security risks. These include regularly monitoring for suspicious activity, responding to initial warnings and alerts in a timely manner and checking agreements and responsibilities between data controllers and data processors.
With cyber attacks continuing to be a threat, this fine reinforces the need for trustees to be aware of cyber risks and have their own processes in place to deal with any data breaches. They must also ensure that those that administer schemes on their behalf have appropriate and up to date processes in place to do the same. There should be clear wording in any administration agreements to deal properly with this issue. We have run cyber security training for a number of our trustee clients and reviewed administration agreements. We would be happy to assist with any requests for support in this regard.
Pension Schemes Bill – further amendments and trustee investment powers
A number of further amendments have been tabled to the Pension Schemes Bill. One of the most significant is changes to trustee investment duties under s36 of the Pensions Act 1995. The proposed amendment seeks to add to the matters which trustees may consider when assessing what is in the best or sole interests of members when exercising their investment powers. These new matters include '(i) system-level considerations, (ii) the reasonably foreseeable impacts over the appropriate time horizon of the assets or organisations in which the trust scheme invests upon prescribed matters, including upon members’ and beneficiaries’ standards of living, and (iii) the views of members and beneficiaries'. It also suggests that the matters in (i) and (ii) must be considered where they are financially material.
'System-level considerations' are defined as being, 'over the appropriate time horizon, risks and opportunities relevant to the scheme that – (a) cannot be fully managed through diversification alone, and (b) arise from circumstances at the level of one or more economic sectors, financial markets or economies, including but not limited to those relating to environmental or social matters'.
The amendments suggest that these provisions must come into effect no later than one year after the passing of Pension Schemes Bill and that in complying with the requirements trustees must have regard to guidance prepared by the Secretary of State from time to time.
The amendment is clearly trying to spell out that trustees may (and in some cases must) take into account wider factors in their investment decision-making. It is likely to be subject to much discussion and is not certain to be in the final legislation (it has not been tabled by Government ministers). It is an area we will be monitoring closely.
