08 Oct 2018

Pensions Snapshot - October 2018

Linkedin

This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of September 2018 in relation to occupational pension schemes. The topics covered in this edition are:

 

Ready steady levy

The Board of the Pension Protection Fund (PPF) has issued its levy rules consultation paper for the 2019/20 levy year. The general message from the PPF is one of steady state, which is not too surprising now that we are in the middle of the third PPF Triennium – a three year period during which the PPF aim to maintain stable levy rules.

In terms of highlights, the PPF:

  • reminds Schemes with "Type A" (guarantees) or "Type B" (security agreements) contingent assets agreements which are limited to a fixed cap, that it will no longer be possible to recertify such agreements unless they are re-executed using the PPF's latest standard form;
  • reports that while the last year has seen the highest level of claims on the fund in its history, the PPF's funding position remains strong and on track to achieve its long-standing funding objective;
  • proposes to leave its levy parameters unchanged, meaning that it predicts it will collect around 10% less in levy payments in the 2019/20 levy year; 
  • has put forward a new levy methodology to cope with the emergence of DB consolidator vehicles and the different risks they pose to the PPF (but emphasises that its methodology cannot be a substitute for an appropriate regulatory regime);
  • clarifies the exclusion of investment management expenses in its deficit reduction contribution guidance; and
  • states that is has decided not to extend the S&P Credit Model - that it uses to score regulated financial institutions - to entities in other regulated industries.

If your pension scheme is affected by the contingent asset agreement re-execution requirements mentioned above, the PPF recommends early action to ensure that all necessary steps are taken by the submission deadline.  This will then allow the PPF to continue to take into account a scheme's contingent asset for levy calculation purposes. Stephenson Harwood can help if you require assistance with the re-execution process.

DWP drops plan to require trustees to survey members' investment opinions

In September the DWP published its response to the consultation on clarifying and strengthening trustees' investment duties.

The consultation and accompanying draft regulations proposed that, from 1 October 2019, a pension scheme's Statement of Investment Principles should include a statement setting out how the trustees take account of the views which members hold. This proposal was meant to reflect the Law Commission's position in its 2017 report that there should be sufficient flexibility to allow non-financial considerations to be taken into account by trustees in limited circumstances, particularly where the membership may collectively hold a shared ethical or social position.

However, in response to industry criticism about the uncertainty this could cause, the DWP has dropped this requirement. A particular concern included situations where trustees invest contrary to any ethical views members may hold, with this leading to a confused membership and potential legal challenges.

In our view this is a sensible decision by the DWP. The requirement for a statement on member views would have muddied the waters of already misunderstood investment duties. Trustees should welcome this news but should also remain conscious of the apparent direction of travel on ESG issues and be aware that some members may be scrutinising the investment decisions that trustees are making.

A new approach for the Pensions Regulator – making workplace pensions work

The Pensions Regulator (TPR) has published a document ‘making workplace pensions work’ which sets out its future approach.

Key features include monitoring some larger schemes more closely, with one-to-one supervision, and engaging with smaller schemes more explicitly where there is a risk of failure.  TPR intervention will increase in relation to defined benefit schemes, with more communication from TPR on matters concerning annual valuations and reduction of deficits.  Defined contribution schemes will also face increased direct intervention to ensure that improvement actions are undertaken in a timely manner to reduce risks. 

The document explains that TPR considers that, in future, it will be a quicker, more proactive and tougher regulator.  As part of its increased visibility, TPR will provide updates on key milestones and practical examples of its work.  Whilst the document is at pains to make it clear that TPR will take a tougher stance in the future, the proof is in the pudding.  Clearly, the document was written with a view to addressing criticism that TPR has faced in recent years for its apparent lack of ‘teeth’ in dealing with scheme failures and, potentially, this new approach is too little, too late.  It will take time before it becomes apparent whether this does signal a new era for TPR in which meaningful intervention leads to member benefits being better protected.

DWP and TPR clarify position on signposting to the Pensions Ombudsman and TPAS

The dispute resolution function in relation to occupational and personal pension schemes was transferred from The Pensions Advisory Service (TPAS) to The Pensions Ombudsman (TPO) earlier this year. This means that all complaints and disputes in relation to such schemes are now dealt with by TPO; TPAS now deals only with general requests for pensions information and guidance.

However, current legislation dealing with the "signposting" of TPO and TPAS to Internal Dispute Resolution Procedure (IDRP) applicants has not been updated to reflect these developments. For example, the legislation still requires trustees to inform an applicant about the availability of TPAS (and provide contact details) as soon as reasonably practicable after an IDRP application is received.

A joint notice dated 13 September 2018 from Guy Opperman (Minister for Pensions) and Lesley Titcomb (Chief Executive of TPR) has confirmed that pension schemes will not be penalised for updating their IDRP signposting to reflect the current position in relation to the functions of TPO and TPAS. The notice also confirms that the modifications required to the out-of-date legislation are expected to be made by April 2020 at the latest.

There are a couple of other points worth flagging in relation to TPO and TPAS:

  • TPO now operates an Early Resolution Service (ERS) in addition to its normal Adjudication Service. The aim of the ERS is to provide a quick, informal and streamlined process in relation to pension scheme complaints and disputes. As such, TPO will not expect complainants to go through a scheme’s IDRP before using the ERS; and
  • the function currently provided by TPAS will transfer to the new Single Financial Guidance Body next year, where it will continue to provide pensions information and guidance.

Trust-based registered pension schemes do not need to register on the Trust Registration Service

HMRC has confirmed that, for registered pension schemes that are trust-based, there is no need for separate registration on the Trust Registration Service.  HMRC will consider that the trustees have met their reporting obligations under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 provided details are kept up-to-date on the Manage and Register Pension Scheme service or the Pension Schemes Online service.

This is a useful confirmation from HMRC and highlights the importance for trustees of ensuring that the information on the Manage and Register Pension Scheme service or the Pension Schemes Online service is maintained.














Linkedin

KEY CONTACT

Stephen Richards

Stephen Richards
Partner

T:  +44 20 7809 2350 M:  +44 7739 384 686 Email Stephen | Vcard Office:  London

Alex Rush

Alex Rush
Senior associate

T:  +44 20 7809 2187 M:  +44 7711 347 524 Email Alex | Vcard Office:  London