In this Insight we provide our usual round-up of the latest pensions developments including all key Pensions Regulator updates, a legislative and Financial Conduct Authority round-up, and details of the latest Ombudsman Pensions Dishonesty Unit investigation.
Pensions Regulator round-up
DWP review of TPR
The Department for Work and Pensions (DWP) has published its independent review of the Pensions Regulator (TPR).
The report concludes that TPR is broadly well-run and well-regarded. It has notable successes including the implementation of Automatic Enrolment (AE). It has a coherent strategy focused on clear outcomes with the interests of savers at its heart and holds itself to account against a range of key outcome and performance indicators.
It publishes 17 recommendations around 3 themes:
- Risk and growth: how UK pension funds are invested and the role TPR plays in these policy discussions;
- Compliance and enforcement: TPR has a thoughtful approach to driving compliance, but it is important to take tougher action where necessary; and
- Digital transformation and value for money: TPR has grown significantly and has an additional workload as a result, TPR must ensure it discharges existing functions efficiently.
First fine for failing to publish climate change report
TPR has issued its first climate change reporting fine against the ExxonMobil Pension Plan for failure to publish its climate change report as required by the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021.
Although the Exxon trustees had produced the report and the scheme administrators had uploaded it for publication within relevant timescales, the report was not published on a publicly available website until after the deadline because of a faulty URL. The Exxon scheme trustees have been fined £5,000 for this breach – the penalty for failing to correctly publish a report is mandatory and can range from £2,500 to £5,000 for individual trustees and £50,000 where the trustee is a corporate body.
TPR will release the names of those who do not publish their climate change report in its compliance and enforcement bulletins. TPR publishes the names of parties who have been issued with certain categories of fines as it believes that doing so can act as a deterrent to non-compliance – for example, it names employers who have received large automatic enrolment fines and schemes which have not completed a scheme return on time (see here for the latest list).
Regulated apportionment arrangement guidance
TPR has published guidance on regulated apportionment arrangements (RAA) – previously, TPR had issued an August 2010 RAA and employer insolvency statement which set out the RAA application process and the guidance develops this statement.
A RAA is an agreement which permits an employer experiencing severe financial distress (‘inevitable insolvency’) to sever its liabilities to an underfunded defined benefit pension scheme as part of a rescue plan so that it can continue to trade – the employer’s liabilities are apportioned to a new employer which ceases participation in the scheme triggering a section 75 debt which cannot be met leading to the scheme entering a Pension Protection Fund (PPF) assessment period (if it has not already done so). The trustees must believe that there is a reasonable likelihood of a Pension Protection Fund assessment period starting within the following year if one has not already commenced – the trustees’ view of the RAA will form part of any RAA proposal and their agreement for a scheme not in a PPF assessment period is required. Because of the limited circumstances in which RAAs are available, few have been set up.
A RAA must be approved by TPR (such approval will not be given ‘lightly’) and the PPF must not object. The guidance covers TPR’s six principles regarding approval, all deriving from the premise of equitable treatment, that it is unjust to members and PPF levy payers if employers can extinguish scheme liabilities without ‘providing appropriate value’ to the scheme or the PPF. Any RAA application should cover how these principles have been met and the guidance sets out examples of evidence that could be submitted.
The guidance also covers the PPF’s role and principles, equitable treatment, other cases in which the RAA principles will be relevant, making a RRA application and when a TPR RAA report might be published.
Draft Finance Bill 2024 legislation: ACA publishes third letter in response to consultation on abolition of lifetime allowance
The Association of Consulting Actuaries (ACA) has published a letter responding to HMRC's consultation on the draft Finance Bill 2024 legislation that will abolish the lifetime allowance.
This is the ACA’s third letter in response to the consultation. The first letter addressed policy issues raised in HMRC’s newsletter and implementation timing, while the second letter focused on transitional issues and disclosure of information. This ACA’s third letter identifies the remaining issues, outlining operational or policy points that are out of line with expectations and may be errors and highlighting draft provisions that can be deleted or simplified.
According to the ACA the issues identified, including the limited form of consultation and potential complex amendments, reinforce its earlier proposal that the implementation date be delayed by six months to October 2024.
The ACA also comments on the potential interaction between the legislation and schemes’ rules and suggests that protective regulations should be put in place to avoid immediate and unintended outcomes for schemes.
Regulations laid before Parliament providing for compensation payments after insurer write-down order to be treated as authorised member payments
On 18 September 2023, the Registered Pension Schemes (Authorised Member Payments) Regulations 2023 (SI 2023/1012) were laid before Parliament, having been made on 15 September 2023.
The Regulations give new powers for the courts to enable payments to be made to the holders of insurance policies whose entitlements have been reduced following the issuing of a write-down order without incurring charges to income tax under any of sections 208, 209 and 239 of the Finance Act 2004 (FA 2004) (c. 12).
The Regulations will come into force on 31 October 2023 and given their technicality, were not subject to any consultation before being made.
The Pensions (Extension of Automatic Enrolment) (No 2) Bill 2022/23 has been granted Royal Assent
The Private Member’s Bill seeks to extend automatic enrolment (AE) by abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled.
The Bill reduces the age for being automatically enrolled and enables pension saving from the first pound earned.
“This Bill will mean millions across the country can save more and save earlier – boosting security in older age and helping people achieve the retirements they’ve worked so hard for” – Mel Stride, Secretary of State for Work and Pensions.
Before the introduction of AE in 2012, just 55% of eligible employees saved into a workplace pension. This had risen to 88% by 2021 amounting to an additional £33bn saved in real terms in 2021 compared to 2012.
This will be of particular benefit to part-time women workers and young people. The proportion of eligible women in a workplace pension has increased from 59% in 2012 to 89% in 2021, while the proportion of eligible 22 to 29-year-olds has more than doubled – from 35% in 2012 to 86% in 2021.
TPO upholds complaints against Focus Group Administration trustees
In upheld complaints against the trustees of the Focus Group Administration pension scheme, the Deputy Pensions Ombudsman (the DPO) has ordered Mr Simon Williams, a FIDE Chess Grandmaster, to repay in excess of £730,000 to the scheme.
Mr Williams was the sole trustee between March 2013 when the scheme was set up until August 2016 when he was replaced by Focus Administration Limited, the sponsoring employer. Bramble Administration Limited acted as scheme administrator.
Following an investigation by the Pensions Dishonesty Unit (see our Insight), the DPO found that Mr Williams and Focus had committed multiple breaches of trust (relating to conflicts of interest, breaches of investment regulations, unauthorised payments and breaches of Pensions Act 1995 and caselaw duties) and, together with Brambles, several acts of maladministration which led to the loss of scheme assets in a ‘sophisticated’ pension liberation arrangement. Around 11 members had transferred in pension funds of approximately £830,000 in total to the scheme.
The scheme investments were in companies that were incorporated shortly before investment, trading at a loss and/ or in companies in respect of which Mr Williams’ associate(s) had an interest. The pension liberation scheme included the purchase of office pods which appeared to provide a capital gain payment for the member, but which actually involved unregistered property transactions where the capital gain payment was taken from the member’s pension fund.
In addition to the £730,000 repayment, Mr Williams (and Brambles) have been directed to pay a £6,000 distress and inconvenience payment to each applicant.
Financial Conduct Authority round-up
FCA user guide on British Steel Pension Scheme consumer redress scheme
On 26 September 2023, the FCA published a user guide to help firms subject to the consumer redress scheme comply with their reporting requirements in respect of the scheme which was set up in February 2023 for former members of the British Steel Pension Scheme (the BSPS) who transferred out of the scheme after being provided with unsuitable transfer advice.
FCA decision notices issued to pension transfer advisers
The FCA has published its Decision Notice (5 May 2023) and Final Notice (28 September 2023) in respect of two former pension transfer advisers, Mr D A Reynolds of AW (UK) Limited and Mr A J Deeney (associated with AW and Fortuna Wealth Management Limited) respectively. Mr Reynolds has referred his Decision Notice to the Upper Tribunal so the FCA’s findings are still provisional for the time being.
In “one of the worst cases...” seen by the FCA, it has fined Mr Reynolds £2,212,316 and Mr Deeney £397,400. Both have been banned from financial services work. Mr Reynolds was disqualified from acting as a company director for 13 years by the High Court in May 2021.
The FCA found that Mr Reynolds had ‘dishonestly advised’ more than 670 customers including 150 BSPS members, received prohibited commission payments, misled the FCA and ‘recklessly’ permitted relevant evidence to be destroyed. It found that Mr Deeney unsuitably advised AW customers so that he could dishonestly obtain prohibited commission payments. His misconduct continued with the Fortuna firm which was set up with the goodwill and client contacts of AW and in respect of which he misled the FCA about his involvement in high-risk investment advice.
Mr Reynolds’ application for privacy in respect of his Notice was refused and Mr Deeney settled his case with the FCA in May 2022.
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