Pensions Essentials - July 2025

Almost twenty years ago, a pensions commission was asked by the then government to consider whether private pensions were likely to deliver adequate incomes in the future. The commission concluded that although pensioner income compared well to that of previous generations (because of the prevalence of final salary benefits), private pension provision was in “serious and probably irreversible decline”. The commission also recognised that there were behavioural barriers to people saving more without compulsion and that employers no longer believed that a generous pensions offering was necessary for recruitment.

The recommendation of the commission was that workers should be automatically enrolled into a pension scheme and that total contributions should be 8%, with 3% coming from the employer. These proposals were enacted in the Pensions Act 2008 and a phased introduction was started in October 2012. Minimum contributions under the auto-enrolment regime are currently 8% of qualifying earnings (between £6,240 and £50,270) with 3% from the employer. 

An analysis of auto-enrolment issued by the Government earlier this month shows that more than 22 million people are now saving into a private pension scheme, up from 10 million in 2012. However, the report also shows that 50% of those earning between £10,000 and £20,000 are only saving at the auto-enrolment minimum level and that average DC contribution rates fell sharply when auto-enrolment was introduced. 

The terms of reference for the new Pensions Commission says: “private pension income for individuals retiring in 2050 could be 8% lower than those retiring in 2025”. It also refers to figures from the PLSA which suggest that 3 out of 4 people are not on track to have a moderate income in retirement and that the gender gap in pensions remains high. A separate policy paper examines the impact of auto-enrolment in more detail together with why future pensioners remain at risk of poverty. 

The Pensions Commission is tasked with considering the long-term future of the pensions system, including:

• outcomes and risks for future pensioners through to 2050 and beyond;
• how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty;
• the role of private pension provision and wider savings;
• the long-term challenges of supporting an ageing population; and
• proposals beyond the current Parliament to ensure financial security in retirement.

It is not clear whether the state pension system is within the scope of the review or not, but it would seem an opportunity lost if it was not. There is certainly no mandate to review whether the triple lock remains affordable or appropriate. 

Clearly, auto-enrolment could be a mechanism for delivering change. However, nowhere is there a reference to the 2017 review into auto-enrolment which also concluded that it would not deliver an adequate retirement income for many and recommended dropping the age of eligibility to 18 (from 22) and removing the lower earnings limit for contributions so that they were paid from the first £1 earned. Legislation to facilitate these proposals was enacted in 2023 but the required regulations were never issued. As a result, it is tempting to wonder whether asking the same questions 8 years on will actually lead to different outcomes, or indeed any outcomes at all.

The legal position: Generally, the courts can only intervene in the exercise of discretionary powers by trustees in very limited circumstances and cannot substitute their own views for those of the trustees. 

Historically, one of the circumstances where the court could intervene was where “it [was] clear that [the trustees] would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account” (Sieff v Fox). This was referred to as “the rule in Hastings-Bass” and it allowed trustees to apply to the court where, for example, they had failed to properly understand the consequences of a decision they had made. 

In 2011, the Supreme Court concluded in Pitt v Holt that the rule in Hastings Bass was somewhat narrower than it had previously been interpreted, particularly in a pensions context.  The court held that for it to apply, “the inadequate deliberation on the part of the trustees must be sufficiently serious as to amount to a breach of fiduciary duty… It is not enough to show that the trustees’ deliberations have fallen short of the highest possible standards, or that the court would, on a surrender of discretion by the trustees, have acted in a different way.”

Where a trustee has taken professional advice in relation to an issue (and is not acting outside the scope of their powers or in breach of general legal requirements), the court is unlikely to find the trustee in breach of any duty to take relevant matters into account if the failure arises only because the advice was incorrect.  Trustees do not have a duty only to act on correct advice.  Furthermore, they do not have a duty to be “right”, only to act properly.

If there is a breach of duty, the court can intervene and declare an exercise of a discretionary power void.  The Supreme Court considered in Pitt v Holt the circumstances in which it would be appropriate for the court to intervene and whether it would do so only if it could be shown that the trustees “would” have acted differently if they had properly considered the issues or if it was enough to show that they “might” have acted differently.  The court concluded that “as a matter of principle there must be a high degree of flexibility in the range of the court's possible responses… To lay down a rigid rule of either 'would not' or 'might not' would inhibit the court in seeking the best practical solution...” 

Dawson-Damer v Grampian Trust Company: The Privy Council was asked to apply Pitt v Holt and consider whether the trustees of a family trust were in breach of trust in failing to properly consider the financial position of a potential beneficiary when disposing of trust assets and what the consequences of any such failure should be. 

The Privy Council held that following Pitt v Holt, there are two separate stages in considering the application of the rule in Hastings Bass:

• Was there a breach of fiduciary duty in failing to consider relevant information or considering irrelevant information? Any alleged inadequate deliberation must be sufficiently serious as to amount to a breach of fiduciary duty.  It was not enough to show that the deliberation fell short of the highest possible standards.
• What were the consequences of that breach?  The court has a discretion how to respond to any breach of trust and as part of this will consider the causal effect of the breach on the decision made.

In this case, the Privy Council concluded that the trustee had not properly taken into account the needs and wishes of the relevant beneficiary so there was a breach of trust.  However, it could not be said that had the trustee taken them into account “the decision would have been, or even might have been, different”.  As a result, the Privy Council did not set aside the dispositions of trust assets.

Relevance to pension schemes: Both the Privy Council decision and the older Supreme Court decision show the importance of making sure that trustees identify all relevant factors when reaching a decision and ignore irrelevant ones.  They also illustrate the importance of taking advice when necessary as part of a proper decision making process.

Corporate plan: TPR has updated its 2024-2027 corporate plan to reflect the Pension Schemes Bill and the need to prepare for it. The core things that TPR intends to deliver are fairly familiar and include: 

• Good governance: Raising standards of trusteeship through a new trustee strategy, expanding market oversight to the largest professional trustee firms and working to bring trusteeship into line with other professions and corporate governance standards. 
• Investment:  Improving investment governance and systemic risk management, including through updated ESG strategies as well as helping government understand and prioritise the kinds of growth opportunities that UK pension schemes will find attractive. TPR has separately announced that it will work with industry to develop and test a voluntary net zero transition plan template that can be used by occupational pension schemes. 
• Data: Making sure that trustees are ready for the dashboards and challenging schemes who may not meet expectations. A recent blog says that only around 50% of schemes are confident about the data they hold for the dashboards and TPR intends to launch a campaign urging schemes to do more.  It will also streamline data requirements for scheme returns and work on ensuring trustees have effective cyber resilience in place.
• Enforcement: The shift towards a more prudential style of regulation will continue, “addressing risks not just at an individual scheme level, but also risks that impact the market and wider financial ecosystem”. TPR will be clearer on the outcomes it wants and use swift enforcement action if schemes ignore warnings. 
• Value for members: Working with the FCA to complete a new value for money framework as well as ensuring that small DC schemes (with assets of less than £100 million) comply with the requirement to undertake a detailed value for members assessment. 
• Retirement outcomes: Helping to deliver new retirement options for DC members and to address the issue of small DC pots via appropriate information on the dashboards. On the DB side, supporting the development of a clear framework for the return of surplus to employers “to enhance member outcomes”.
• Consolidators: Defining a clear framework for DB superfunds, delivering a risk-based approach to the supervision of master trusts and reviewing “the regulatory capital reserving requirements to ensure they are proportionate”.

Trustees of master trusts and occupational pension schemes with assets of £1 billion or more are required to identify, assess and manage climate-related risks and opportunities in relation to their scheme.  They must also report on what they have done  online and make various public disclosures.  This includes reporting on how the scheme’s investment portfolio aligns with the Paris Agreement goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels.

In addition, a scheme’s statement of investment principles must cover the trustees’ policies in relation to financially material ESG considerations (including but not limited to climate change).  Trustees must also prepare an implementation statement, which provides information around engagement and describes voting behaviour by or on behalf of the trustees.  The implementation statement must be made public.

The Government has issued three consultation papers which look at corporate reporting in relation to sustainability, one of which focuses on requiring financial institutions and larger companies to put in place transition plans setting out their strategic plan to get to net zero. 

The consultation suggests that transition plans will be useful for pension schemes as they are exposed to climate-related risks through their investments and trustees should consider “understand the different implications of transition risks and physical risks for their portfolios.  Information from transition plans has the potential to be transformative for pension funds… particularly in supporting governance bodies, trustees and managers (as well as their investment service providers), to integrate financially material risks and opportunities into investment considerations, thereby enabling better informed decisions.”

In addition, the consultation paper says that DWP will undertake a review of the climate change reporting regime for occupational pension schemes later this year and will consider the impact of the current climate disclosure regime and potential next steps on climate change reports.

DWP has also asked TPR to assess the practicalities of transition plans for pension schemes.  TPR is convening an industry working group and will present findings to DWP later this year.