Pensions legislation and case law update: the latest developments week ended 7 May 2021

In this week’s update, we report on Sarah Smart’s appointment as chair of the Regulator, the Regulator’s annual funding statement, the FCA’s ‘stronger nudge’ guidance consultation, the pensions aspects of the UKSIF’s sustainable finance report and the FRC’s sanctioning of an actuary historically involved with the Coats Group plc pension schemes.

Sarah Smart confirmed as chair of the regulator

The DWP has announced the appointment of Sarah Smart as the new permanent chair of the Pensions Regulator (the Regulator). This follows the Work and Pensions Committee's 23 April 2021 endorsement of the appointment. For a detailed breakdown, see our insight update.

Regulator's annual funding statement to consider COVID-19 mortality projections and withdrawal of Government COVID-19 support 

Development: 

David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Regulator has provided some insight into the Regulator's forthcoming annual funding statement 2021 during an interview with Lane Clark and Peacock. 

Mr Fairs has noted that the statement will include information on COVID-19 and mortality assumptions and also consider the possible effect on sponsoring employers' covenants when the COVID-19 support packages provided by the Government begin to be withdrawn.

Key point: 

When discussing mortality assumptions, Mr Fairs noted the 'wide variation' in expectations amongst those in the pensions industry and that schemes which are looking at reducing technical provisions to take account of COVID-19 mortality projections should consider the 'consequences if these things don't play out in practice'. Trustees will need to carefully consider COVID-19 mortality assumptions with the scheme actuary before making any decisions.

FCA consult on 'stronger nudge' to pension wise guidance

Development:

The Financial Conduct Authority (the FCA) is consulting on what rules are required to implement the 'stronger nudge' provisions under Section 18 of the Financial Guidance and Claims Act 2018 which require the FCA to put in place rules for providers of contract-based schemes to make sure that consumers have received or opted out of receiving Pension Wise guidance. The consultation also invites ideas on how to increase take-up of guidance.

Currently, providers must signpost consumers to Pension Wise guidance and encourage them to obtain guidance or advice. However, take-up is low. It is proposed that, after deciding in principle how to access savings, members will be referred to Pension Wise and encouraged to take guidance and offered an appointment which if accepted is either booked by the pension provider or by the consumer after they have been given relevant information on booking.

Under the proposals, records will also need to be kept of whether the consumer took up the offer of guidance, declined or received regulated advice. 

Key point:

The consultation runs until 29 June 2021. The 2018 Act also imposes requirements on occupational pension schemes as regards 'nudging' members to pension guidance and a DWP consultation on proposed regulations is likely to follow shortly.

UKSIF report recommends sustainability 'upskilling' of trustees and ESG expertise on trustee boards

Development: 

The UK Sustainable Investment and Financial Association's (UKSIF) has launched its Policy Vision Report setting out its vision for sustainable finance. 

The report sets out policy 'solutions' across several sectors of the economy including pensions, and asks the Government and regulators to "seek ways to significantly upskill pension scheme trustees in their understanding of sustainability-related risks and opportunities" which will assist schemes in their management of climate-related risks and opportunities and improve protection for savers. 

UKSIF also proposes making sure that at least one trustee with expertise on ESG issues is on all trustee boards and independent governance committees above a certain size. Schemes are encouraged to commit to net-zero.

Key point: 

It is clear from recent developments on ESG matters that there is a push from all fronts for schemes to ensure that they adequately address the impact of climate change and other ESG factors, the Regulator's recent climate change strategy being an example of this. Trustees have an important role to play in addressing ESG and as UKSIF identifies, they will need support from the Government and regulators along the way.

FRC sanctions actuary in relation to coats group plc 

The Financial Reporting Council has sanctioned an actuary for misconduct in relation to provision of actuarial advice to Coats Group plc (previously known as Guinness Peat Group (GPG)) between September 2005 and March 2012.

The actuary provided actuarial advice to GPG whilst also advising individual GPG executives in their capacity as trustees of three of GPG's defined benefit pension schemes. He was found to have provided such advice irrespective of the conflicts of interest of the arrangement and in contravention of the Impartiality and Compliance Principles of the Actuaries' Code.

The penalty imposed was significant at £65,000 – reduced from £100,000 for mitigation and settlement which took into account that the misconduct was not dishonest, there was no financial benefit, the actuary's good disciplinary record and his cooperation in the enquiries.

This sanction follows the Regulator's June 2017 regulatory intervention report regarding its involvement in the three schemes and subsequent settlements following warning notices against various Coats group employers of the potential imposition of financial support directions.