The trustee agenda: key developments from July 2023 onwards

Action

This case will directly impact schemes which have amendment provisions with the same or sufficiently similar wording – trustees should check if this is the case and liaise with their legal advisers as appropriate.

The Pensions Ombudsman

Cyber incident update

On 19 July 2023, the Ombudsman confirmed that those services that were temporarily disabled following a recent cyber incident had been restored. There may be delays in services because of the disruption caused by the incident.

Member factsheet on incorrect pension information complaints

The Ombudsman has published a factsheet for members on incorrect pension information. Among other things it explains that, in most cases, members will not have an entitlement to higher benefits that were incorrectly quoted – however, a scheme may have to make good loss suffered (and in limited cases, a member may be entitled to the higher benefits). Gateley’s insight has further details.

Review of Ombudsman in 2024

The next arm’s-length body review of the Ombudsman will take place in 2024. This will look at matters such as the efficacy, governance accountability and efficiency of the Ombudsman. It will also consider whether people have adequate appeal routes for making pension complaints. Gateley’s insight has further information.

Action

Trustees will need to check their scheme’s rules to see whether the pensions tax allowance changes will have an impact. Scheme administration processes will need to be updated. Trustees will also need to consider member communications. 

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.” 

Mansion House pension reforms

The Chancellor’s 10 July 2023 Mansion House speech contained nine pension reforms, all designed to improve pension saver outcomes and deliver ‘greater economic growth’ (see Gateley Legal’s insight). The following day, HM Treasury published a suite of documents relating to the reforms (see Gateley Legal’s insight).

In essence, the reforms are designed to consolidate pensions (DC, DB and the Local Government Pension Scheme) and to increase investment in productive finance – an umbrella term for equity capital, investment in UK companies (start-ups, infrastructure and private equity) and illiquid assets. The reforms include:

• The Government’s response to its 2018 consultation on DB consolidation confirming that it will introduce primary legislation as soon as parliamentary time allows for superfunds and “other relevant models of consolidation”;
• A DB options call for evidence on how DB schemes can invest ‘more flexibly’ and increase their investment in productive finance – the PPF’s 6.9.23 response notes that the PPF would be ‘well placed’ to operate a public consolidator model alongside commercial consolidator and buyout providers but that the current DB framework needs materially changing to allow DB schemes to change their investment objectives and increase investment in productive finance;
• Another call for evidence on trustee skills, capability and culture focusing on investments and including discussion on barriers to trustee effectiveness;
• The consultation response on the new value for money (VfM) framework that will replace the current VfM assessment and which will have a standardised and transparent assessment covering investment performance, costs and charges and service quality. The necessary legislation will be introduced when parliamentary time allows;
• The response to the January 2023 collective defined contribution (CDC) consultation that confirms the Government will consult on draft regulations to expand CDC provision to whole-life multi-employer schemes for non-associated and unconnected employers and master trusts this autumn;
• A DWP consultation on helping savers understand their pension choices outlining the Government’s proposals for a decumulation framework which will require trustees to offer decumulation services “suitable for their members and consistent with pension freedoms”;
• A DWP consultation on ending the proliferation of deferred small pots which proposes using a small number of authorised schemes to act as consolidators;
• A consultation on proposals covering Local Government Pension Scheme (LGPS) investments and in particular the acceleration and expansion of asset pooling by March 2025 and increasing investment in private equity with the aim to reach a 10% allocation level.

The Regulator has welcomed the Mansion House pension reforms saying they “support our ambition for pension savers to be in large, well-run schemes that deliver good outcomes at every stage of their retirement journey.” Its 12 July blog noted that there needs to be a fundamental mind shift in the industry on investment governance, efficiency through scale and increased professionalism of trustees. The Regulator will publish new productive finance guidance and update the DB and DC investment guidance this autumn.

Other developments

APPT review of professional trustee accreditation process

The Association of Professional Pension Trustees (the APPT) has published its review of the APPT accreditation framework – this ties in with the Mansion House evidence call on trustee skills, capability and culture, which asks for views on the sufficiency of the current framework. Overall, the APPT Council believes that the accreditation scheme has ‘worked well’ and would be fit for purpose under a mandatory regime (the accreditation system is currently voluntary). You can read about the APPT’s other findings here.

MaPS evidence review into pension scams

On 10 August 2023, the Money and Pensions Service published an evidence review into pension scams in the UK. Its key findings include underreporting and inconsistency in data collection, changing tactics remaining an issue, a risk of re-targeting and risk factors including higher education levels, having financial knowledge (overconfidence) and approaching retirement with less income than required. The review also sets out some proposed actions that could assist in scam prevention including around intervention, increased uptake of support services and ways to reduce re-targeting. See here for more information.