HL UK Pensions Law Digest 13 October 2025

Welcome to our latest update, in which we cover: 

KO UK Pension Trustees Ltd v Barker

• Approval from the High Court for a transaction to access surplus;

Pension liberation: conditions for a statutory transfer

• A new approach by the Deputy Pensions Ombudsman;

Virgin Media: statutory remedy

• Guidance expected from the Financial Reporting Council;

Pensions dashboards: low volume testing

• An update on the latest phase of testing.

High Court approves mechanism to access surplus

In a recent decision (KO UK Pension Trustees Ltd v Barker), the High Court has approved a proposed transaction and subsequent distribution of surplus by the trustee of the Coca-Cola Company Pension and Assurance Scheme.

Hogan Lovells acted on behalf of the representative beneficiary.

Background: scheme and insurance arrangements

• The scheme was a defined benefit (DB) scheme, which closed to new members in 2006.
• Five members remained in active service.
• The scheme’s liabilities were almost entirely secured by a buy-in policy with a well-known insurer. The liabilities were then reinsured with a “captive insurer” (RLR) within the Coca-Cola corporate group. RLR was regulated in Bermuda and was required to hold substantial capital in respect of its reinsurance obligations. The insurance and reinsurance arrangements were known as “PenCap II”.
• The Court was told that the back-to-back insurance arrangements were relatively unusual in the pensions industry.

Scheme funding

• As well as the buy-in policy, the trustee held about £46m of additional assets, which largely represented surplus.
• Termination of the buy-in policy would result in a large termination payment being made to the trustees. It was estimated that, after using the termination payment to buy a replacement buy-in policy covering the same liabilities, the surplus in the scheme would increase to between £118m to £128m.

Termination provision and relevant scheme rules

• Under the terms of the PenCap II arrangement, the trustee could only terminate the agreement in specific circumstances. The relevant circumstance in this case was if the scheme had commenced winding up.
• Under the scheme’s trust deed and rules, the trustee would have unilateral power to augment benefits from surplus on the winding up of the scheme. However, termination of the scheme could only be triggered by the principal employer.
• The trustee had no power under the scheme rules to augment benefits unilaterally while the scheme was ongoing.

Proposed transaction and augmentation

Following negotiations, the principal employer and the trustee agreed in principle to the following.

• The trustee would agree to the variation and termination of the PenCap II arrangement, with the termination payment reduced to the amount necessary to purchase a replacement buy-in policy covering the same liabilities. The termination of PenCap II would release regulatory capital held by RLR, for the benefit of the corporate group.
• In return, the principal employer would exercise its power to terminate the scheme.
• The trustee would then trigger the winding up of the scheme and would use the surplus to augment all beneficiaries’ benefits equally (expected to be up to a 27% uplift for all beneficiaries).

Arrangements for active members

• The heads of terms of the prosed transaction provided for the five active members to receive additional augmentations, to mitigate the effect of ceasing active membership. The terms included that the trustee’s agreement was required to any mitigation package offered.
• The heads of terms could not define the additional augmentations in advance, as this would pre-judge the outcome of the statutory consultation process which must be undertaken with the active members.
• To protect other beneficiaries, a cap was set on the additional augmentation which could be funded out of the surplus assets. However, it was open to the principal employer to agree mitigations outside of the scheme, such as enhanced defined contribution arrangements for future service.

Trustee decision-making

The Court followed principles from case law when considering the trustee’s application and found that:

• The trustee had in fact formed the opinion that it should act in the manner for which it sought approval, both in relation to the variation of the termination payment and the power to augment benefits;
• The position of active members was presently under active consideration and regard would be had to their interests;
• The trustee’s opinion was one which a reasonable trustee, correctly directed, could properly have reached;
• The trustee had taken into account all relevant considerations and no irrelevant considerations; and
• The trustee’s opinion was not impaired by any conflict of interest.

Court decision

In relation to the proposals, the Court commented that:

• The proposed deal involved the trustee swapping its existing insurance asset for a replacement policy with an equivalent present value.
• The trustee would be gaining a “bird in the hand” (the present surplus in the scheme) while giving up the contingent possibility of a greater surplus in future, when there might be fewer beneficiaries to share in the surplus.
• It was relevant that the principal employer could simply wait until the last beneficiary died, when any remaining surplus would pass to it under resulting trust. In contrast, members with finite lifespans could not wait matters out in the same way.
• The deal proposed prevented the scheme becoming a sort of tontine, under which a decreasing cohort of long-living members could potentially “scoop the pool”.

The Court approved the decision to undertake the transaction and to distribute surplus assets as proposed.

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Pension liberation: conditions for a statutory transfer 

The Deputy Pensions Ombudsman (DPO) has rejected a member’s complaint that the trustee of her occupational pension scheme transferred her benefit to a scheme which subsequently turned out to be a scam (Mrs T (78486)).

The arguments hinged on whether Mrs T’s transfer request met the conditions for a statutory transfer under the Pension Schemes Act 1993. She argued that it did not and that consequently the trustee should not have transferred her benefit.

Background

• Mrs T was approached via an unsolicited call, suggesting that she transfer her rights in a defined benefit (DB) occupational pension scheme to a small self-administered scheme (SSAS).
• Mrs T requested a cash equivalent transfer value (CETV) and subsequently applied to transfer to the SSAS. Her application included a copy of the Pensions Regulator (TPR)’s Scorpion leaflet signed by Mrs T, plus a letter from her confirming that she was aware of pension liberation and had carefully considered her decision to transfer to the SSAS.
• Following completion of the transfer to the SSAS (in early 2015), Mrs T signed an instruction to invest the funds into two Cape Verde investments. She later realised that the investments were worthless with no market for resale.
• Mrs T complained that:
  • She did not have a statutory right to transfer, so the trustee should not have transferred her benefits out of the scheme; and
  • The trustee did not exercise its duty of care to protect Mrs T’s interests and had exposed her to loss because it did not follow TPR’s guidance.

Did Mrs T have a right to a statutory transfer?

• Mrs T had requested a transfer from one occupational pension scheme to another (the SSAS) and had made the request within the statutory time limit of three months from the issue of the cash equivalent transfer value (CETV).
• The DPO found that Mrs T therefore had a statutory right to require the transferring trustees to use her CETV to acquire “transfer credits” in an occupational pension scheme, such as the SSAS.

Would Mrs T acquire transfer credits in the receiving scheme?

• Legislation defines “transfer credits” as “rights allowed to an earner under the rules of an occupational pension scheme” by reference to a transfer from another pension scheme.
• Paperwork submitted to the trustee at the time of the transfer request included confirmation by Mrs T that she was employed by the sponsoring employer of the SSAS and that she was receiving income from her work as a foster carer.
• However, Mrs T subsequently argued that she could not acquire transfer credits in the SASS, as she had not been in employment at the time of the transfer and had therefore not been an “earner”. She claimed that her income as a foster carer was not employment income.

Meaning of an “earner”: employment income

• In the case of Hughes v Royal London, the High Court had previously been asked to consider whether, to be an “earner”, an individual needed to have employment income from employment with a sponsoring employer of the receiving scheme, or whether it would be enough if the individual had employment income from any source.
• The Court had found that employment income from any source was sufficient.

Was it necessary for Mrs T to be an “earner”?

• Both sides in Hughes had proceeded on the assumption that an individual who wished to exercise their statutory transfer right had themself to be an “earner”. This point was not argued either way before the Court and did not form part of the judge’s decision.
• The judge in Hughes had commented that “transfer credits” were “rights which have the character of rights which were allowed to persons who were earners” but that an individual applicant for a transfer did not themself have to be an earner. These comments were “obiter” and did not form part of the Court’s decision.
• The DPO adopted the judge’s approach to interpreting “transfer credits” and concluded that the correct interpretation was that an individual applicant for a statutory transfer did not themself have to be an earner.
• The DPO concluded that Mrs T had a statutory right to transfer and that payment to the SSAS was a permitted use of her CETV to acquire transfer credits.

Were the transferring trustees under a duty to investigate, issue warnings or telephone Mrs T?

• The DPO concluded that the trustee had no duty of care to protect Mrs T from, or advise her or warn her, about potential scams or fraud by third parties.
• In reaching this conclusion, the DPO noted that:
  • At the time of the transfer, there was no legal requirement for the transferring trustees to investigate any warning signs that the proposed transfer might be a scam;
  • The Scorpion documentation issued by TPR in 2013 and 2014 was designed to raise awareness of pension liberation but it only constituted non-statutory guidance; and
  • There was also no general legal duty on the trustee to protect Mrs T from or warn her about potential fraud.
• The DPO noted that she was not bound to follow the previous decisions of any previous Pensions Ombudsman (PO) or DPO, but that her reasoning in Mrs T’s case was consistent with the current PO’s recent decision concerning Mr D (to read our article on this determination please click here).

Readers should note that the DPO’s decision was based on the law as it applied in 2014/15, when the trustee was processing Mrs T’s transfer request. Since then, the law has been tightened to put stronger protections in place for members, in particular: the requirement for independent financial advice when transferring from a DB arrangement; and the system of red and amber flags under the Transfer Conditions Regulations 2021.

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Virgin Media: technical guidance for actuaries promised

The Financial Reporting Council (FRC) has announced that it will develop technical guidance for scheme actuaries, to support them in confirming that schemes continued to meet the contracting-out reference scheme test after historic rule amendments were made.

Provisions introduced into the Pension Schemes Bill will allow retrospective confirmation of rule amendments where their validity was thrown into question by the decision in Virgin Media.

The FRC intends to make its guidance available when the Virgin Media provisions come into force (expected to be two months after the Bill receives Royal Assent).

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Pensions dashboards: low volume testing 

The Pensions Dashboards Programme (PDP) has issued a blog, explaining that it is moving to the next phase of testing, starting with a low volume of individuals using a real dashboard and real pensions data.

• The intention is to conduct several rounds of testing over the following few months, involving up to 300 users.
• Only State pension and simple defined contribution (DC) and simple defined benefit (DB) pensions will be displayed initially.
• The testing will include looking at what support users need while using the system and how they respond to error messages.
• After the conclusion of low volume testing, the following phase will scale up testing to include thousands of users.

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Authored by Jill Clucas.