In this week’s update we cover the Public Service Pensions and Judicial Offices Bill guidance, the Pensions Regulator’s intervention report in the Keytec case and its blog on the transition to UK net zero, the latest PPF 7800 funding position, PASA’s supplemental guidance on transfer payments and the ICO’s consultation on international data transfer guidance. We also provide a round-up of recent pensions related sanctions issued by various regulatory bodies.
Guidance on Public Service Pensions and Judicial Offices Bill published
On 6 August 2021, the Home Office published Guidance on the Public Service Pensions and Judicial Offices Bill which is due to receive its second reading in the House of Lords on 7 September 2021.
This Bill introduces provisions to remedy the age discrimination identified in the McCloud case (The Lord Chancellor and Secretary of State and another v McCloud and Mostyn and others and Sargeant v London Fire and Emergency Planning Authority and others ) by allowing members a 'deferred choice underpin' when their benefits become payable, of taking either legacy or reformed scheme benefits for service between 2015 and 2022. The Bill also reforms the pension arrangements and increases the mandatory retirement age of judicial office holders to 75 from 70.
The Guidance explains why the Bill is needed, what changes will be implemented and how this will impact upon members' benefits. The Guidance will be kept under review and updated during the implementation process. It is the Government's intention for the 'deferred choice underpin' to be implemented by 1 October 2023, or earlier if schemes can apply the changes before this date.
Regulatory intervention report: Keytec (GB) Ltd and overseas parent, Turbon AG
The Pensions Regulator has published a regulatory intervention report setting out how it worked with Keytec (GB) Limited, the sponsoring employer of a small hybrid pension scheme, its German parent, Turbon AG, and the scheme trustees to arrive at a funding agreement without the Regulator having to use its anti-avoidance powers, to issue a Financial Support Direction.
The case arose following the scheme's 2016 actuarial valuation, when the Regulator became concerned that the scheme was not being treated fairly when compared with Keytec's shareholders. The unfair treatment included payment of a £876,000 dividend in 2015 with no mitigation being provided to the scheme. In addition, Keytec had become a service company and the Regulator had concerns regarding its ability to support the scheme without assistance from Turbon, which prioritised general company cash needs over those of the scheme. Two guarantees that had been provided by Turbon were insufficient being limited in value and one being time-limited.
Following Turbon's failure to engage with the trustees, the Regulator issued a Warning Notice on 23 March 2020 to Turbon, and its majority shareholder, HBT Holdings, seeking financial support for the scheme.
Following negotiations, a funding package was ultimately agreed which the Regulator determined was sufficiently meaningful to allay its concerns and which meant that the Regulator was satisfied that it would no longer need to use its powers. The package included a one-off cash payment of £636,000, agreed deficit repair contributions, a substantial parent company guarantee and an agreed funding framework for future valuations to be carried out on a self-sufficiency basis.
The report notes that the Regulator will step in to "achieve a strong outcome for savers, regardless of the scheme's size".
The Pensions Regulator's blog on the transition to UK net zero
The Regulator's latest blog discusses how schemes can influence the transition to a net zero economy. It makes clear that the Regulator expects action as opposed to 'well-meaning intentions' referring to its consultation on new climate-related guidance (see our insight update).
Other key points from the blog are:
Reference is made to the increasing pressure on the pensions industry to contribute to the transition. The blog mentions the forthcoming climate-related governance and reporting statutory requirements which will apply to those schemes with £5bn or more of assets under management as from 1 October 2021 and campaign groups and Make My Money Matter research which points to moving to 'greener' pensions having a greater impact on climate change than becoming a vegan or having an electric car.
Right and prudent:
The blog says that it is both right and prudent for trustees to pay attention to climate-related risks and opportunities noting that they must set the policy in relation to how 'financiallymaterial considerations', which include ESG considerations, are taken into account in the selection, retention and realisation of investments and monitor whether advisers and asset managers are considering climate-related risks and opportunities properly.
A way to go:
However, as the blog flags, research shows there is some way to go before all schemes' ESG policies and monitoring capabilities reflect the preferred approach of trustees (90% oftrustees and professionals surveyed were in favour of addressing climate change risk within a scheme's investment strategy).
The blog ends with a call to trustees to sign up to the 2020 UK Stewardship Code noting that trustees need to challenge investment managers where their current stance does not align with that of the trustees. The Regulator notes that climate change may be the most significant threat to the stability of the pension saving system, but that the pensions industry is not "powerless in the face of that threat".
PPF 7800 index shows decrease in funding surplus
The latest PPF 7800 Index Report setting out the estimated funding position on a section 179 basis as at the end of July 2021 of the eligible 5,318 DB schemes shows that:
- The aggregate surplus decreased over the month to £62.4bn from a surplus of £99bn at the end of June 2021;
- The funding ratio decreased from 105.8% at the end of June 2021 to 103.5%; and
- The deficit of the schemes in deficit increased to £142.2bn from £117.7bn at the end of June 2021.
PASA supplemental guidance on transfer payments
The cross-industry GMP Equalisation Working Group, chaired by the Pensions Administration Standards Association has published supplemental guidance on transfer payments which updates its September 2019 methodology guidance and reflects the 2020 Lloyds Bank judgment (Lloyds Banking Group Pensions Trustees v Lloyds Bank) concerning GMP equalisation and the payment of transfer values.
The supplemental guidance looks at the role of both the transferring and receiving scheme, individual and bulk transfers and aims to help resolve outstanding issues in a 'pragmatic and practical way'. Our In Depth Insight provides an overview of the 2020 Lloyds case.
ICO consults on updated guidance and draft ICO international data transfer agreement
On 11 August 2021, the Information Commissioner's Office announced the launch of a public consultation on the protection of personal data transferred outside the UK including updated guidance, a draft ICO international data transfer agreement (IDTA), and an international data transfer assessment and tool.
This follows the ECJ's 16 July 2020 decision in Schrems II (Data Protection Commissioner v Facebook Ireland and Maximillian Schrems (Case C-311/18)) that, although the European Commission Decision on controller-to-processor standard contractual clauses was valid (subject to a case-by-case assessment), this was not the case for the protection given by the EU-US Privacy Shield framework for EU to US data flows.
The ICO consultation covers proposals and plans for international transfer guidance updates, transfer risk assessments and the IDTA.
Sanctions: a round-up
FCA publishes provisional decision notice against financial adviser for failings in pension transfer advice
The Financial Conduct Authority has published a provisional Decision Notice against a financial adviser of Retirement and Pension Planning Services Limited (in liquidation) (RPPS) fining the adviser £1,284,523 and banning him from both senior management functions in relation to any regulated activities undertaken in an authorised or exempt capacity and advising on pension transfers or opt outs.
The adviser provided defined benefit pension transfer advice to 422 customers including 183 members of the British Steel Pension Scheme, which the FCA considers was seriously incompetent.
The total value of transfers advised upon was £125m. RPPS received £2.2m in fees with approximately £1.2m of this being retained by RPPS and the adviser. The fine aims to remove the benefit received.
The adviser has referred the decision to the Upper Tribunal which will now consider the matter, hence the Decision Notice being provisional at this stage.
Insolvency Service disqualify call centre director for pension scheme negligence
The Insolvency Service has confirmed that a director of a call centre company, Target Source Media Limited, has been disqualified from acting as a director for eight years following his role in the establishment and operation of an unregistered pension scheme, the Target Source Media Pension Scheme.
The scheme was set up in June 2016 but was never registered and was administered by a third party whom the director never checked was suitable to undertake such activities. Over £200,000 was transferred to the scheme whilst it was unregistered putting these funds at risk.
Following the Insolvency Service investigation, the director signed an 8-year disqualification undertaking. The director resigned in June 2017 but stayed on as an employee for a few months and assisted in the transfer of monies out of the pension scheme.
Two solicitors struck off solicitors' roll in relation to pension investments
The BBC has reported that two solicitors have been struck off the solicitors' roll after being found to have been "manifestly incompetent, reckless and dishonest" by a solicitors' disciplinary tribunal for their part in a pension investment scam.
The solicitors provided conveyancing legal services to 7,500 people between 2011 and 2017 in relation to investments in storage units or parking spaces with Group First. The individuals were telephoned by separate sales companies and persuaded to invest in Group First with promises of returns of around 50% over 6 years. The investors were not purchasing either storage units or parking spaces but buying very complicated leases, but this was not explained to the investors by the solicitors concerned who, the tribunal determined, were more focused on the money they would make than their clients’ interests. The solicitors made up to £3m in fees from their work. As well as being struck off, the solicitors were ordered to pay £98,000 in costs.