In this edition of our Insight, we report on the Pensions Regulator's new anti-scam strategy and its updated guidance on fiduciary management tenders and investment consultants’ objectives. We also cover new guidance on pensions value for pensions dashboards, the FCA's new 'Consumer Duty' and draft technical changes to the Fraud Compensation Fund and Pension Protection Fund.
The Pensions Regulator round-up
Pension scams: Regulator publishes scam-fighting plan
On 3 August 2022, the Pensions Regulator revealed a new three-part scam strategy to protect savers, some of whom are likely to be increasingly vulnerable as a result of the recent hikes in the cost of living. This will involve educating savers, encouraging higher standards, and tackling fraud through preventing, disrupting and punishing criminality.
The new strategy has been formulated following the Regulator's and National Fraud Intelligence Bureau's recent joint assessment of pension scam threat (see our Insight). It will 'complement' Project Bloom's work (the multi-agency taskforce set up to deal with scams which is to be renamed the Pension Scams Action Group).
The Regulator is keen to distinguish between fraud which could lead to criminal sanctions and practices, for example, high fees, which can be mitigated. This is because although victims might view both as a 'scam' the approach and sanctions could be 'very different'.
The main pension scams the Regulator is concerned with are: (1) investment fraud; (2) pension liberation; (3) scam schemes and providers; (4) clone firms; (5) claims management companies; (6) employer related investment breaches; and (7) high fees.
The plan's measures include development of a Pension Scams Action Group which will annually or biennially assess threat, looking at setting up a 'regulatory sandbox' to test potential solutions, reviewing member communications guidance on scam-prevention and continuing to encourage consolidation of 'poorly run' schemes.
Updated Regulator guidance on tendering for FMs and setting objectives for ICs
Ahead of the 1 October 2022 date that the Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2022 will come into force, the Regulator has published revised guidance on the fiduciary management services' tender process and setting objectives for investment consultants.
Since December 2019, a CMA Order has required trustees to undertake a tender exercise when appointing fiduciary managers in respect of 20% or more of scheme assets and to set strategic objectives for investment consultancy providers.
The regulations will integrate the relevant CMA Order requirements (subject to small differences) into pensions legislation. The updates to the guidance reflect the introduction of the regulations. There is a specific section in the IC guidance on the key differences between the CMA Order and the regulations. The primary difference is to move 'regulation of the obligations' from the Competition and Markets Authority to the Regulator. This should mean that the requirement to submit annual compliance statements to the CMA will be replaced by a requirement to answer additional scheme return questions.
Trustees should follow both sets of guidance when complying with their duties in respect of FM tenders and IC objectives. They should also note that:
- the IC guidance encourages objectives to be set for investment consultants even where advice or services provided are not within scope of the regulations (and for all other advisers) as a matter of effective governance; and that
- following a qualifying tender exercise, trustees should ensure that they review the FM's performance and also periodically review the FM market to determine whether a re-tender is necessary.
See our Insight for details of the DWP's 6 June 2022 response to its 2019 consultation on delivering the Competition and Markets Authority recommendations on trustee oversight of investment consultants and fiduciary managers.
Pensions dashboards: PASA pensions value checklist
On 1 August 2022, PASA published pensions value guidance looking at the data needed to assist individuals to understand what they may receive by way of pension income – value data. This comprises the accrued value of the pension and estimated retirement income together with 'contextual' data such as date payable. It has been produced to aid schemes and administrators in pensions dashboards preparation and contains a checklist of steps administrators can take to fully understand value data, find out where there are gaps and how to remedy them, and to decide if work can be started now.
Draft Occupational Pension Schemes (Fraud Compensation Payments and Pension Protection Fund Compensation) (Amendment) Regulations 2023
The DWP is consulting on draft regulations that will change the existing Fraud Compensation Fund and Pension Protection Fund regulations to allow the Board of the PPF to pay for scheme fees and costs whilst FCF claims are going through and which remove current provisions which mean a child dependant loses PPF compensation where they have a gap between qualifying courses of more than a year.
FCA rules and guidance on new consumer duty
On 27 July 2022, the Financial Conduct Authority published final rules and guidance on the new 'Consumer Duty' that will apply to retail financial services to improve consumer protection. The duty is made up of three components:
- Consumer principle: this sets the 'overall standard of behaviour' expected from firms and its definition is supplemented by the other components of the duty.
- Cross-cutting rules: these comprise three overarching requirements on behaviour expectation that set out how firms should act to 'deliver good outcomes' and assist firms in interpreting the 'four outcomes'.
- Four outcomes: these are rules and guidance which provide more detail on the expectations for the conduct of firms in four key areas – governance of products and services, price and value, consumer understanding, and consumer support.
Reasonableness: The Consumer Duty is underpinned by a reasonableness concept – objectively tested.
Pension schemes: the final rules explain that the duty will not apply to those pension schemes that are regulated by the Pensions Regulator. However, FCA authorised firms that create a product and operate occupational pension schemes (for example master trusts) need to comply if they "can determine or materially influence retail customer outcomes" and they must consider the end customers even if they are not direct clients. The guidance explains that this includes beneficiaries of trust-based pension schemes where the FCA authorised firm's client may be the trustee.