ML Covered - August 2025

We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

Directors may be required to place greater emphasis on the environment and employees under proposed Bill

The Company Directors (Duties) Bill began its second reading in the House of Commons on 4 July 2025. The debate was adjourned and will be resumed on 12 September 2025. The Bill includes proposals to amend section 172 of the Companies Act 2006, placing greater emphasis on directors’ duties to consider the environment and employees when making decisions.

Under the existing Companies Act 2006, directors are required under section 172(1) to act in the way they consider, in good faith, would most likely promote the success of the company for the benefit of its shareholders. In doing so directors must have regard, amongst other matters, to the interests of the company's employees, and the impact of the company's operations on the community and the environment.

If enacted, the Bill would make it a requirement for directors to act for the benefit of members, employees and the environment, rather than just the shareholders. This elevates environmental impact and employee welfare from matters for directors to consider, to a statutory duty. The definition of 'environment' in the Bill includes both the 'natural environment' and the 'social environment'. Large companies, in their Section 172 statements, will also need to report on their compliance with the Bill.

If the Bill is enacted, the changes will apply from 6 April 2026.

Key Takeaways

Should the Bill be enacted, directors should be mindful that this could potentially increase the risk of claims being brought against them for failing to adhere to their duties under the Companies Act. In order to minimise such a risk, Directors will need to review their internal procedures and policies to ensure decision-making is compliant with the new provisions. Directors may also require training in respect of their new duties, to ensure they are fulling their obligations under the new legislation.

To read the draft Bill, please click here.

Institute of Directors publishes paper of AI governance

On 26 June 2025, the Institute of Directors (IoD) published a business paper on AI Governance in the Boardroom. The paper follows an IoD survey in March 2025 which found that:

1. There is increasing AI adoption, but governance gaps remain.

2. The benefits of AI are being recognised, but scepticism persists; and

3. The biggest barriers to AI adoption include limited expertise or understanding, lack of trust and security risks.

The paper sets out 12 principles to help guide directors on the responsible use of AI throughout an organisation.

The first principle is that directors should understand how national policy, international standards and foreign legislation in respect of AI may impact their business operations, directly or indirectly. To govern AI responsibly, directors also must ensure that all AI systems in use across the organisation - whether developed in-house or sourced from third parties - are identifiable, auditable and measurable.

Additionally, directors should ensure that comprehensive AI impact assessments, including risk assessments, are carried out across the organisation. They should also remember that they are responsible, and should be accountable, for overseeing how AI is used throughout the organisation.

AI within an organisation should be guided by a clear, high-level set of goals that align with the organisation’s values and business objectives. An independent review committee should be established to oversee AI, that is empowered with independence so that it can make principled decisions. Directors must also ensure that staff are trained to use AI effectively and responsibly, and that they are equipped with the tools to question and improve AI outputs.

Boards must ensure that AI systems are adopted, developed and deployed in compliance with relevant data protection laws. Directors must also ensure that AI is designed, developed and deployed with robust security controls in place and that these are regularly updated. The AI systems must also be rigorously tested before being deployed across the organisation or embedded into a decision-making process.

Finally, AI systems must be subject to regular review cycles to ensure they continue to serve their intended purpose, operate safely and fairly, and remain in alignment with the organisation’s values and risk appetite. This is to ensure that boards are demonstrating their regulatory readiness and that they are taking responsibility for long-term stewardship of their use of AI.

To read the IoD's business paper, please click here.

Employment Rights Bill - update

In our October 2024 edition of ML Covered, we provided our initial overview on the Employment Rights Bill (ERB), the landmark legislation due to overhaul and reframe employment and labour legislation in the UK. Nine months down the line, we provide you with a further insight on the recent updates to the ERB, as well as an anticipated timeline of when some of the key reforms will be implemented.

Where has the Bill got to?

The ERB entered the Report stage on the House of Lords on 14 July 2025, that stage is scheduled to last until 23 July 2025.

On 1 July 2025, the Government published its 'roadmap' which includes some anticipated dates for both implementation of certain proposals, as well as estimated consultation periods. It is currently anticipated that the ERB will receive Royal Assent around Autumn 2025, with most of the consultations taking place in either Summer or Autumn 2025, with some falling into Winter / early 2026.

We have set out below an overview of some of the key reforms that we believe should be on the radar, as highlighted in our October edition. For a full breakdown of the anticipated timeframes, we recommend visiting the roadmap on the Government's website or for more information, please reach out to our Employment, Engagement & Equality Team.

Unfair Dismissal Rights

Currently, employees are protected from ordinary unfair dismissal if they have at least two years' qualifying continuous service. One of the key reforms within the ERB, is the proposal to scrap the two-year qualifying period. The Government initially proposed implementing a new statutory probation period (rumoured to be nine months), referred to as an 'initial period of employment' (IPE), which would essentially allow employers a period of flexibility during which they could safely dismiss employees. During the IPE, the standard of reasonableness for dismissals is modified where the reason, or principal reason, for the dismissal is related to the employee's conduct or capability, a statutory restriction, or some other substantial reason. In other words, performance related issues.

In the recent Report Stage, the House of Lords have voted to remove the IPE entirely, and to instead reduce the qualifying period of employment for unfair dismissal claims from two years to six months. The House of Lords commended the Government's intention to protect workers' rights; however, it recognised the inherent risk to hiring, and how the removal of the two-year qualifying period would increase this risk so as to discourage employers from hiring altogether.

The amendment will now go back to the House of Commons, who will have the opportunity to either accept or reject the amendment. If the House of Commons decide to reject the amendment, it is likely that the House of Lords will not seek to block the Government's manifesto and that the initial proposal (removal of two years' service) will stand.

Flexible working

The Government proposes to make flexible working the default for all employees from the first day of employment. The ERB proposes that employees are required to accommodate this "as far as is reasonable" and if employers refuse a flexible working request, they must state the grounds for refusal, including reasons. The proposed consultation date for this reform is winter 2025/early 2026.

Changes to contracts

The ERB originally proposed to ban all 'fire and re-hire' practices (where an employer dismisses an employee due to a failure to agree a contract variation). The House of Lords however have proposed to soften this by introducing "restricted variations". This means that 'fire and re-hire' will only be automatically unfair where a variation in the contract relates to one of the following (and the employee does not agree to the variation):

• Reductions to pay.
• Changes to performance-based pay measures.
• Alterations to pensions.
• Variations in working hours or shift times; and
• Reductions in leave entitlement.

At the core of this amendment is the idea that employers should be allowed to change employees' contractual terms, however, only in limited circumstances.

The House of Lords also proposed that it will be automatically unfair to dismiss an employee if the reason for the dismissal is to replace them with non-employees, such as agency workers, to do essentially the same role but for less pay and without certain protections. There are, albeit limited, exceptions to this, which include where there is a reduced business need for a particular type of work, essentially if the employer is experiencing financial difficulties. If an employer decides to fire its current employees and hire non-employee workers to carry out the work instead, it will be their responsibility to show that the particular work has changed in a significant way or is not required anymore.

'Fire and rehire' is due to be consulted on later this year, with an expected implementation date of October 2026.

Access to sick pay

The ERB in its current form still proposes (i) to remove the lower earnings limit requirement for an individual to be entitled to statutory sick pay, and (ii) to make statutory sick pay a day one right for all employees (other than during the first three days of employment).

Women in the workplace

Gender pay gap and menopause action plans will be introduced on a voluntary basis in April 2026, expected to take effect in 2027. This means employers must consider their current gender pay gap framework (and any menopause related policies/support) to consider any areas where they fall short, and to start developing a well-evidenced strategy promptly.

Potential impact on coverage for EPL Claims

While all the above changes will undoubtedly impact insurers, we consider that the proposal to remove the two-year qualifying period to bring an unfair dismissal claim will be significant to the number of EPL notifications. This risk, however, may be mitigated if the House of Commons decide to accept the House of Lords' amendment. Nonetheless, even if the House of Lords' amendments are accepted, the qualifying period will still be significantly reduced (to six months) which will likely increase the number of claims.

Across the board, the proposals increase duties and responsibilities of employers to behave in a certain way, which may in turn increase the likelihood of employees "blowing the whistle" or bringing claims if they believe their employer is not complying with its new statutory duties. Insurers may therefore look to make further enquiries at the policy creation/ renewal stage to limit the risk of exposure if the number of claims increases significantly.

TPR Fines 'Now Pensions' £100k over reporting failures

The Pensions Regulator (TPR) has issued a total of £100,000 in fines to Now Pensions and its trustee board for failing to report significant breaches in its reporting requirements; according to TPR, the master trust failed to send more than 80,000 statutory communications to members and did not report these failings as significant events to the regulator. These communications were related to auto-enrolment rights, and the failure to send them resulted in financial detriment to some members as they were “denied the opportunity to make choices over their auto-enrolment options”.

This enforcement action provides a sobering warning in respect of reporting requirements. TPR have said that, under the master trust authorisation regime, timely and accurate breach reporting is not optional and that it will take “tough action” to protect savers when standards slip.

Given TPR's increasing enforcement activity, the development is something for PTL insurers to note and consider the scope of policy coverage for fines.

Government revives Pensions Commission amid retirement savings crisis

The Department for Work and Pensions (DWP) and HMRC have announced that it has relaunched the Pensions Commission in a bid to address growing concerns that future retirees will be worse off than today’s pensioners. The Commission is expected to provide its final report in 2027, which will investigate the pensions system as a whole to try to identify the barriers that are preventing adequate savings, and provide a roadmap for building a stronger, fairer and more sustainable pension system.

The DWP has published statistics which suggest that retirees in 2050 could have £800 or 8% less private pension income per year, while nearly 15 million people are under-saving. The DWP found that lower earners, the self-employed, ethnic minority groups and women are particularly at risk of poor retirement outcomes. A quarter of low-income private sector workers and workers from a 'Pakistani or Bangladeshi background' save nothing into a pension, and over 3 million self-employed people also save nothing. Meanwhile, a significant gender pensions gap persists, with women approaching retirement holding 48% less private pension wealth than men.

Pensions Minister Torsten Bell said the revived Commission aims to secure better retirements for future generations, echoing the success of the 2006 Commission which helped boost pension saving through auto-enrolment. The new Pension Commission will be led by Baroness Jeannie Drake, Sir Ian Cheshire and Professor Nick Pearce, and will work closely with key stakeholders. It will not consider the state pension triple lock, but the Government has also launched a statutory state pension age review which will consider any incidental changes.

Any increase in obligations on employers in relation to their auto-enrolment obligations – which appears to be where the Commission is heading – is something that PTL insurers (including the PTL section of ML policies) will want to keep an eye on – as well as for EPL given the overlap here.  Increasing responsibilities (in particular for contributions) may result in increased risk for employers and in turn risk under PTL policies.

To read DWP's press release, click here.

DWP to review pension scheme climate rules

The Government has announced that it is overhauling its climate disclosure and transition planning framework to drive investment in clean energy. As part of this, the DWP will review the 2021 climate disclosure regulations for occupational pension schemes. The review, set to be published later this year, will draw on evidence from TPR and assess the impact of current rules, based on the Taskforce on Climate-Related Financial Disclosures recommendations.

The move is part of a broader strategy, including consultations led by the Department for Energy Security and Net Zero, to mandate UK financial institutions (including banks, asset managers, pension funds and insurers) and FTSE 100 firms to publish credible transition plans aligned with the Paris Agreement’s 1.5°C target. TPR will also explore the feasibility of transition planning within pension schemes, organising an industry group to support this work and report back to the DWP. The Government aims to cement the UK’s role as a global green finance leader.

We have already seen fines levied by TPR in relation to climate reporting obligations – including a fine for ExxonMobil in 2023 – and so any review of this area, leading to changes in reporting requirements, may increase risk.

BoE Governor criticises government plans for pension investment mandate

Bank of England Governor, Andrew Bailey, has voiced strong opposition to Government proposals that would allow ministers to mandate investment decisions for defined contribution pension schemes. The controversial measure, part of the new Pension Schemes Bill debated on 7 July 2025, would enable the Government to direct pension funds to allocate a portion of assets to UK-focused investments, such as infrastructure and private markets.

Although ministers have described the power as a “backstop”, critics view it as pressure on schemes to meet voluntary targets set by the Mansion House Accord, where 17 providers pledged to invest 10% in private markets, with at least 5% in the UK. Bailey said while pension industry reform is needed, mandating investment is not "appropriate” and he hoped such changes come as a result of “natural” developments. The former pensions minister, Steve Webb, said Bailey’s rare and forceful intervention would not be welcomed by the DWP, and that it would cause significant challenges to the proposal’s journey through Parliament.

It is unclear where the approach to UK investments within pension schemes is going to end up – if it's mandated that may be better for trustees from a risk perspective as it is harder to blame them for lower returns having invested in UK plc where they are required to make those investments, whereas the position where they are encouraged but not required to make investments arguably leaves trustees open to increased risk if UK plc does not provide returns akin to those that can be achieved via other investments.

Ombudsman dismisses complaint on discretionary pension increases

The Pensions Ombudsman (TPO) has rejected a complaint by Mr Y, a member of the Smiths Industries Pension Scheme, who challenged the employer’s decision not to request a discretionary pension increase above 5% in 2022. Mr Y claimed the employer, Smiths Group plc, failed to uphold a longstanding commitment to inflation-linked increases and breached its duty of good faith under the principles established in Imperial Group v Imperial Tobacco [1991]. TPO concluded that Smiths had acted in accordance with the Scheme’s governing rules, had not acted irrationally, and had not breached its legal duties.

The background

Mr Y’s complaint stemmed from a 1998 newsletter sent to members during a merger of three pension schemes, which announced several benefit improvements. One such improvement was a “stated aim” to provide annual pension increases in line with the Retail Price Index (RPI), capped at 10%, “subject to the finances of the scheme.” This aim was subsequently reflected in the Scheme’s rules, which allowed increases above 5% at the request of the principal employer. The employer was required to “have regard” to the stated aim when considering whether to make such a request.

In May 2022, the Scheme awarded a 5% increase despite RPI being at 7.5%. Mr Y complained, arguing that this decision was inconsistent with the 1998 commitment and that the employer had failed to properly consider members’ expectations, Scheme affordability, and the original intent behind the stated aim. He claimed this amounted to a breach of the employer’s duty of good faith.

The decision

The Ombudsman found that there was no absolute commitment to provide pension increases in line with RPI. The stated aim did not amount to a contractual promise, but instead introduced a discretionary power, constrained by the requirement to “have regard” to the stated aim and the finances of the Scheme. Importantly, any increase above 5% could only be made at the employer’s request, giving the employer a degree of control over whether enhanced increases were applied.

The Ombudsman was satisfied that Smiths had exercised its discretion properly. The company had considered the Scheme’s financial position, the impact of broader economic uncertainty, and the desire to strengthen the Scheme’s long-term sustainability. It was reasonable for Smiths to prioritise these factors. Although the company's decision as employer not to request an enhanced increase meant that pension values were eroded by inflation, this did not amount to a breach of duty. The Ombudsman also noted that the employer was entitled to weigh its own interests, even where these may conflict with those of members, provided the decision was not irrational or perverse.

The Ombudsman concluded that Smiths had met the legal tests for exercising a discretionary power, including acting for a proper purpose, taking into account relevant considerations, and reaching a decision that a reasonable decision-maker could have made.

Key takeaways

This case reinforces that discretionary benefits, even those communicated as an “aim”, do not create enforceable entitlements unless clearly defined as contractual promises within the Scheme rules. Employers are not obligated to grant such increases unless the rules impose a duty to do so. Where discretion exists, employers must demonstrate that they have properly considered relevant factors (such as scheme finances and the wording of any stated aims) but they are also entitled to prioritise long-term funding goals and other legitimate interests.

The Ombudsman also clarified that members’ expectations, while relevant, do not override the discretion conferred by the rules. Statements made in communications like newsletters may influence expectations but will not bind employers unless supported by rule changes or contractual guarantees.

To read the decision, click here.

Pensions Ombudsman upholds complaints over unjustified transfer delays

TPO has upheld two complaints brought by Ms N against the trustees of two executive pension plans for unreasonably delaying the transfer of her pension benefits. Despite being the beneficial owner of the policies in question, Ms N faced prolonged refusals from the trustees (S Ltd and K Ltd) who cited fraud concerns, lack of entitlement, and past employment issues without providing substantiating evidence. The Ombudsman found that neither trustee had a reasonable excuse for the delays, which amounted to maladministration, and ordered both to pay non-financial redress for the distress and inconvenience caused.

The background

Ms N was a member of two occupational pension schemes: the Scottish Widows Executive Pension Plan (administered by S Ltd) and the BNLA Unit Linked Executive Pension Plan (administered by K Ltd). In both cases, Ms N's former husband, Mr N, had played a role in the original establishment and administration of the policies. Ms N attempted to transfer out of both policies, requesting the first in 2023 and the second as early as 2019, but was repeatedly obstructed by the respective trustees.

S Ltd questioned the legitimacy of the Scottish Widows policy, claiming it had been fraudulently created, despite a lack of any supporting evidence. K Ltd similarly blocked the transfer from the BNLA Plan, asserting Ms N was not entitled to the benefits due to her alleged dismissal for gross misconduct, again without producing legal or evidential support.

The decision

The Ombudsman concluded that the delays in both cases constituted maladministration. The trustees had failed to properly understand or apply their legal obligations under Section 99(2) of the Pension Schemes Act 1993, which requires completion of transfers within six months. Both S Ltd and K Ltd relied on unsupported allegations to justify their refusal, ignored professional advice, and failed to take timely legal steps to clarify the position.

The Scottish Widows policy transfer was delayed by 19 months, having been requested in August 2023 and only completing in February 2025. TPO found that S Ltd’s concerns over fraud were not credible and were not supported by documentation or any legal finding. Similarly, the BNLA Plan transfer was delayed by over five years due to K Ltd's mistaken belief that Ms N’s dismissal nullified her pension rights. The trustee had relied on plan documentation and a divorce consent order without legal advice, both of which did not justify withholding transfer authority.

Despite the severe delays, TPO found that Ms N had not suffered financial loss. In fact, due to favourable investment performance, the final transfer values exceeded what she would have received had the transfers taken place within the statutory period. Therefore, no financial compensation was awarded. Nonetheless, the Ombudsman acknowledged the serious non-financial injustice and awarded Ms N £1,000 against S Ltd and £2,000 against K Ltd for distress and inconvenience.

Key takeaways

These decisions serve as a warning to trustees who may overreach or misinterpret their legal responsibilities when considering and actioning transfer requests, especially where executive pension arrangements are involved. Concerns that may prevent a proposed transfer must be substantiated by legal advice and evidence; a mere suspicion is not enough to override a member's statutory transfer rights. Trustees must also act within the statutory six-month period and cannot rely on vague clauses or untested assumptions to delay transfers.

Additionally, these decisions highlight that members can be awarded redress for distress and inconvenience even in the absence of financial loss. While the financial outcomes ultimately favoured Ms N due to market performance, the Ombudsman was clear that procedural failures and poor handling of transfer requests still warranted compensation for non-financial harm.

To read the decisions in these cases, click here and here.

If you have any queries or questions on this topic please do get in contact with a member of the team, or your usual RPC contact.