The Pensions Regulator (the Regulator)
Regulator blog on midlife MOTs
The Regulator’s 26.7.23 blog encourages schemes to signpost the new Midlife MOT service that was launched by the Government on 5 July 2023 to members. The service is to provide workers in their 40s to mid-60s with help on financial planning (including pensions), health and labour skills. Gateley Legal’s insight has more information.
Upper Tribunal confirms contribution notices not restricted to loss to scheme
On 28 July 2023, the Upper Tribunal upheld the Regulator’s decision to issue a £1.875m contribution notice (a CN) in 2020 to Anant Shah, the former owner of the sponsoring employer of the Meghraj Group Pension Scheme.
In 2020, a CN of £3.6m was issued on a joint and several basis to Mr Shah and his nephew following payments made to the employer’s parent company after the employer disposed of shares in a joint venture company. The Regulator found that the payments should have been made to the scheme and that the acts satisfied the material detriment test – one of the grounds upon which a CN can be imposed.
The Tribunal confirmed that the CN met the requisite statutory requirements, the amount of CN was reasonable, and that the calculation of CNs (at least in respect of the material detriment test, the relevant ground in this case) is not restricted to the loss suffered by a scheme in connection with the relevant acts, albeit there is a legislative cap, the ‘shortfall sum’ which is the section 75 debt.
As well as providing helpful clarity on certain elements of CNs, the judgment has cleared up uncertainty regarding the scope of the CN amount and whether it should be compensatory only. It means that sponsoring employers (or those connected or associated with them) could be liable for more than the pure loss to the scheme arising from the acts concerned. The emphasis for the amount should be on the “extent to which the act or failure to act … has caused detriment to the prospects of members … receiving” their benefits.
See Gateley Legal’s insight for more information.
Updated DB superfunds guidance
The Regulator has updated its DB superfunds guidance following a review. The key changes make it easier for schemes to join superfunds and decrease the security of member benefits. These include:
- changes to assist the transfer process including to the Gateway period, clarification of the Regulator’s views on when it might be appropriate for a scheme to consider a transfer, and providing more time to demonstrate that its capital expectations have been met;
- amendments to the Regulator’s expectations on funding with a change to the discount rate from Gilts+0.5% to Gilts+0.75%;
- adjustment of the Regulator’s position on profit extraction with further industry engagement and an update to follow; and
- clarity on the Regulator’s expectations on the assessment process.
The Regulator’s superfunds guidance for prospective ceding trustees and employers has also been updated. See Gateley’s insight for further details.
Defined contribution (DC) code and guidance updated for 6 April 2023 investment changes
On 24 August 2023, the Regulator updated its DC code of practice, DC investment guidance and DC communications and reporting guidance to incorporate reference to new regulatory requirements that came into force on 6 April 2023 which will require trustees of most DC trust-based schemes to include in the default statement of investment principles their policy on illiquid investments and disclose in the chair’s statement asset allocation and any performance-based fees in default arrangements.
Blog on climate scenario analysis limitations
The Regulator’s 29 August 2023 blog on climate scenario analysis sets out steps trustees (see here) can take to facilitate improvement of the climate scenario analysis used by trustees of large schemes when preparing their annual climate change reports. This follows research criticising some of the analysis which the Regulator notes appears “to seriously underestimate the financial risk from climate change” and is “at odds with the established earth and climate science.”