Pensions legislation and case law update: the latest developments week ended 8 October

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In this week’s update, we look at the new PPF+ specialist advisory panel that will focus on overfunded schemes, updated guidance from the Pensions Regulator on the closure of ‘gated’ funds and the potential creation of a default arrangement, the latest position on reforms to the cost control mechanism for public sector schemes, and the coming into force of the data sharing code of practice 

PPF+ specialist advisory panel to be set up in February 2022

The PPF has launched a tender process to set up a specialist advisory panel 'PPF+' in February 2022 to deal with those schemes that enter a PPF assessment period overfunded. The panel will consist of four companies and cover core services including a transaction adviser, scheme actuary and investment support. 

The PPF is setting up this panel because of a continuing trend for overfunded schemes to enter assessment and wanting to ensure such schemes “go through the assessment process as efficiently as possible”.

The deadline for applications is 29 October 2021.

The Pensions Regulator: updated investment governance guidance on temporarily closed funds and default arrangements 

The Regulator's updated Managing DC benefits: investment governance guidance now includes information in Appendix 1: Default arrangements on the temporary closure of gated funds.

Gated funds are typically those that contain illiquid assets, for example property, which can close on a temporary basis during periods of market uncertainty.

Certain funds temporarily closed ('gated') as a result of the pandemic until the market stabilised. 

Redirecting contributions into an alternative fund

The guidance explains that redirecting scheme contributions to other funds while the gated funds are shut can lead to the alternative fund becoming a default arrangement with associated legal obligations such as complying with the charge cap and having to produce a statement of investment principles. 

Trustees faced with such a situation may need to obtain legal advice. Whether or not a default arrangement has been created will depend on the degree of choice exercised by / information provided to members. 

The Regulator suggests that the only times when a default arrangement would not be set up is if either:

  • members were aware before they selected the original fund that contributions could be diverted to another fund in certain cases, and they consented to this; or
  • trustees contacted the members before redirecting contributions and obtained their agreement. 

Redirecting contributions back into the original fund

The guidance also covers moving contributions back into the original fund. Trustees should consider whether the pre-existing expression of choice is still applicable – if not, additional steps or member consent will be required. 

The Regulator expects that the pre-existing expression of choice will still apply where members have either:

  • agreed to the redirection on a temporary basis, until the original fund stops being gated; or
  • been told by the trustees that this will be the case. 

The guidance also covers the consequences of a default arrangement being set up and dealing with transfer requests when part or all of an investment fund is gated. 

Public sector pensions: HM Treasury responds to consultation on reforming the cost control mechanism

On 4 October 2021, HM Treasury published its response to the consultation on reforming the cost control mechanism used in public service pension schemes. This is a risk-sharing arrangement that aims to 'maintain' employer support levels for public service pension schemes by assessing certain costs and changing member benefits (either improving or reducing them) where costs move by more than a corridor of +/- 2% of pensionable pay.  

The Government Actuary's Department recommended five potential changes, three of which were the subject of the consultation. The Government has confirmed that it will go ahead with all three reforms which means that: 

  • to reduce intergenerational unfairness, the mechanism will only consider service in the reformed schemes, not the legacy schemes meaning that the such costs connected to legacy schemes will be borne by the Government;
  • the cost corridor will increase from +/- 2% to +/- 3% of pensionable pay; and
  • where there is a breach of the mechanism, which would have resulted in benefit changes being made, such changes will only be introduced if the breach would still have happened had long-term economic assumptions been taken into account.

It is intended that the proposals will be brought in through legislation by the completion date of public service schemes' 2020 valuations. 

Data sharing code of practice comes into force

The Information Commissioner's Office has confirmed that the data sharing code of practice, which was laid before Parliament on 18 May 2021, came into force on 5 October 2021. 

The code provides practical guidance on how to share personal data complying with the fairness, lawfulness, transparency and accountability requirements under the UK General Data Protection Regulation and the Data Protection Act 2018.

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