In this edition of our Insight we report on the last couple of weeks' pensions developments including the Pensions Regulator's consultation on revised enforcement and prosecution policies, its resumption of auto-enrolment routine inspections and the GMP conversion Bill.
Amongst other matters we also provide an update on the regulations which will integrate the CMA order, PPF 7800 funding and PASA's Good Practice Guidance on DB Transfers.
The Pensions Regulator round-up:
Revised enforcement and prosecution policies, resumption of auto-enrolment spot checks and updated transfer template letter
The Pensions Regulator consults on revised enforcement and prosecution policies
The Pensions Regulator is consulting on:
The revisions come off the back of the extended powers that the Regulator has been given under the Pension Schemes Act 2021. The need for a consolidated and more streamlined set of policies was highlighted during the recent consultations on these new powers. The new documents are designed to include reference to the new powers and to clarify the expectations of the Regulator as regards enforcement and prosecution.
The closing date for the consultation is 24 June 2022.
The Enforcement Policy
What is in and what is not?
The enforcement policy will replace the current enforcement policies for defined benefit, defined contribution and public service pension schemes. It incorporates the overlapping powers and information gathering policies that the Regulator consulted on in 2021 - these incorporated chapters do not form part of the consultation given they have already been consulted upon.
There will still be separate compliance and enforcement policies for automatic enrolment, master trusts and collective defined contribution schemes and a separate policy on how the Regulator will approach the new avoidance of employer debt and conduct risking accrued scheme benefits criminal offences under the Pensions Act 2004.
It is relevant for anyone who could be subject to the Regulator's investigative powers or enforcement action so includes trustees, managers, employers, service providers and advisers.
When will enforcement action be considered?
The Regulator will look at whether to use its enforcement powers when there is a breach of the law or activity within scope of the Regulator's powers and risks or harm especially to savers is identified. The enforcement powers are wide and varied including regulatory, penalty, civil and criminal powers. They are used with the aim of achieving a positive outcome through prevention, remedy, restoration and/or deterrence with prosecution generally being used for the most serious behaviour especially dishonest, wilful or fraudulent behaviour.
The Prosecution Policy
What is it?
The prosecution policy sets out how the Regulator will approach prosecuting workplace pension criminal offences such as the new Pension Schemes Act 2021 criminal offences, other existing criminal offences such as failing to comply with automatic enrolment duties, and other types of offence such as fraud and money laundering.
What does it include?
It includes sections on investigation (how cases are selected, how the Regulator will liaise with targets, the prosecution decision, and the position of victims), regulatory action, cautions, proceeds of crime and other agencies.
Overlapping powers, information gathering and high fines policies consultation response
In addition to the enforcement and prosecution policies, the Regulator has also published its response to the overlapping powers, information gathering and high fines policies consultation that was issued last year.
In general, responders were accepting of the draft policies but asked for more detail in several areas and requested that the presentation be improved. Further detail and clarification have been provided where appropriate. The presentation points are largely dealt with as part of the incorporation of the overlapping powers and information gathering policies into the draft enforcement policy. The Regulator has also published the high fines monetary penalty policy as two separate finalised ones, one on the avoidance-type penalties and the other on the information requirements penalties.
Recommencement of Regulator automatic enrolment spot checks
The Pensions Regulator is recommencing its spot check inspections of employers it believes may not be meeting its automatic enrolment obligations. The resumption of routine inspections follows the relaxation of COVID-19 restrictions and the latest checks will include areas in Greater Manchester, Nottingham, Greater London and Belfast.
Regulator updates template transfer letter
The Regulator has updated the template letter which it introduced back in May 2020 to send to all defined benefit members who request a CETV quotation to take out references to the pandemic. The letter was brought in as a response to increased pension scam risk and should still be issued to members who request a transfer.
Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 receives Royal Assent
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 received Royal Assent on 28 April 2022. The Act aims to clarify and amend the existing GMP conversion legislation so that conversion works more effectively. The issues addressed in the Act include:
- Clarifying that conversion is applicable to both survivors and members;
- Regulation making powers to clarify requirements in respect of consent and the conditions in respect of minimum survivor pension requirements; and
- Removing the need to notify HMRC of a conversion.
The bill was introduced as a private members' bill by Margaret Ferrier MP on 26 October 2021 and received cross party support. Guy Opperman, the Pensions and Financial Inclusion Minister, commented that “I warmly welcome the passing of this act and commend MP Margaret Ferrier for introducing the valuable legislation”. You can read more about the passage of the Bill through Parliament in our previous insights here and here.
Update on regulations relating to the CMA order – trustee oversight of investment consultants and fiduciary managers
The Competition & Markets Authority's 27 April 2022 report provides an update on the regulations which will "integrate an order [the Competition and Markets Authority Order 2019] produced by the CMA into pensions law".
The CMA order was made following the CMA's review of the supply and acquisition of investment consulting and fiduciary management services and was designed to improve competition in the market. It includes a requirement for trustees, subject to limited exceptions, to carry out a tender process for fiduciary management services and to set objectives for investment consultants.
The regulations will set out the action trustees must take in respect of investment consultant and fiduciary management services and give the Pensions Regulator oversight powers in relation to the requirements. The draft regulations were consulted upon in 2019 but have not yet been finalised.
The CMA's report confirms that the DWP plans to make the regulations in 'late 2022'. It also confirms that HM Treasury intends to make changes to the Regulated Activities Order in 2022 so that the FCA can consult on investment consultants and fiduciary managers rules during 2023, and bring investment consultancy within the regulatory regime of the FCA probably during 2024.
Latest PPF 7800 Index shows funding has increased
The latest PPF 7800 report setting out the estimated funding position on a section 179 basis as at the end of April 2022 of the eligible 5,215 DB schemes shows that:
- the aggregate surplus of these schemes increased over the month to £206.2bn from a surplus of £176.4bn at the end of March 2022;
- the funding ratio increased from 111.4% at the end of March 2022 to 114.0% at the end of April; and
- the aggregate deficit of the schemes in deficit decreased to £47.8bn from £62.9bn at the end of March 2022.
Government responds to Work and Pensions Committee inquiry into the impact of pensions freedoms and protections for savers
The House of Commons Work and Pensions Committee published a report detailing the responses of the Government (and the Financial Conduct Authority) to their accessing pension savings report that was published in January 2022.
The key points of the Government's response include:
- The DWP plan to issue a call for evidence this May to look at options for accessing pensions (decumulation);
- The Government does not agree with certain of the WPC's recommendations on Pension Wise including that there should be automatic booking of appointments;
- References to the DWP's work with an industry-led working group on the consolidation of small pots with a progress report expected in May 2022 and the extension of collective defined contribution schemes to unconnected multi-employers.
Progress update on pensions dashboards released
The latest progress update report produced by the Pensions Dashboards Programme outlines activity over the past six months and looks ahead to what it expects to see in the next six months. It also summarises the ongoing work by the DWP, the FCA and the Regulator.
Chris Curry, principal of the Pensions Dashboards Programme has noted that the programme has now moved from the “discovery phase” where delivery plans with their supplier have been finalised and on to the “alpha testing phase” during which the initial build and robust testing of the programme will take place.
The Report notes that most of the work at this stage by the DWP, FCA and Regulator has been on the legislation which pension dashboard operators will have to comply with to maintain ‘qualifying pension dashboard service’ status. The Report confirms that the DWP is planning to publish its response to the consultation on draft regulations for pensions dashboards in the third quarter of 2022. It also notes that the FCA is creating a regulatory framework for qualified pension dashboard operators and plans to consult on this later in the year.
You can read more about the DWP pensions dashboards consultation in our February insight.
PASA Good Practice Guidance on DB Transfers
On 3 May 2022, PASA (the Pensions Administration Standards Association) published Good Practice Guidance on DB Transfers. The Guidance has been updated following a consultation with the pensions industry and to incorporate reference to the new transfer value regulations (see our insight). It "sets out the principles and suggested simplified approaches for faster, safer and more efficient transfers which comply with regulations." Although the Guidance provides flexibility for administrators, they are expected to follow the principles 'at all times'. Therefore, trustees should ensure that their scheme's administrators are following the updated Guidance as necessary.
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