In this Entrust article, we take a look at the key developments from the last few weeks and what lies ahead for trustees, employers and pensions advisers during the remainder of the year.
May & June 2022 – Key developments
tPR consultation: enforcement & prosecution policies
The Pensions Regulator (tPR) is consulting on a revised draft enforcement policy and an updated draft prosecution policy. tPR has also published its response to the 2021 consultation on its overlapping powers, information gathering and high fines policies. Gateley's Insight has further details.
Action: Both policies have relevance to trustees, employers and pension advisers and they should ensure they are familiar with the Regulator's approach and expectations.
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 clarifies and amends GMP conversion legislation to address a number of issues including in relation to consent, survivor pension conditions and removing the requirement to notify HMRC. See Gateley's Insight for further details.
Charity trustee case on investments
In the recent high court case of Butler-Sloss v Charities Commission , the trustees of two charities were permitted to adopt an investment policy that aligned with the 2016 Paris climate change agreement so that the policy would not conflict with the charities' main purposes of environmental protection and improvement and poverty relief.
The court held that an investment strategy that excludes particular investments can be adopted as long as the trustees have exercised their discretionary investment powers properly.
The case will have limited impact on pension scheme trustees largely because of the difference between charities and pension schemes including their purpose and structure. However, it is a useful case in analysis of a trustee's discretion in the area of climate change. Gateley's Insight discusses the case in more detail.
CMA Order & draft regulations
The DWP published its response to the 2019 consultation on delivering the Competition and Markets Authority (CMA) recommendations for trustee oversight of investment consultants and fiduciary managers on 6 June 2022. The CMA's recommendations were incorporated within a CMA Order which requires trustees, subject to certain exceptions, to undertake a tender process for fiduciary management services and to set objectives for investment consultants when agreeing their services. An annual compliance statement must also be sent to the CMA by 7 January.
The intention of the Government has been to integrate the relevant CMA Order requirements (with small changes) into pensions legislation and to allow tPR to have regulatory oversight of the duties. Draft regulations which tracked the CMA Order to a large extent were issued for consultation in 2019 but nothing further had been heard till now.
The regulations are expected to come into force on 1 October 2022. Trustees have had to comply with the CMA Order for over two years now so are familiar with the requirements – there are no huge surprises in the draft regulations, but trustees should note that they will have to answer additional questions on the scheme return so that the Regulator can effectively oversee compliance – whether this overtakes the need to submit an annual compliance statement to the CMA has yet to be confirmed although it is thought that will be the case. Gateley's Insight has further information.
Other recent developments
Please see here for details of other recent developments which our pension lawyers at Gateley Legal have reported on in their regular Pensions Insight articles.
1 June 2022
Stronger nudge requirements
As from 1 June 2022, trustees have been required to ensure that beneficiaries who want to access or transfer flexible benefits (broadly defined contribution or cash balance benefits) are given a 'stronger nudge' to pensions guidance by making sure that they have received or opted out of receiving such guidance. Gateley's Insights (1) and (2) have more information.
Action: If they have not done so already, trustees should contact their scheme's administrators to confirm that appropriate adjustments have been made to processes and communication materials to take account of the new provisions.
tPR's single code of practice
The revised code of practice is expected before Parliament's Summer Recess scheduled for 21 July 2022. The new code should be operational shortly after this, probably before the end of the year.
Action: Trustees will need to undertake a gap analysis to see how their scheme's governance arrangements stand up against the new code, in particular, checking whether the scheme has an effective system of governance and completing an 'own risk assessment' where there are 100 or more members. Our article has further details and links to more in-depth information which has been prepared by our Gateley colleagues.
Trust Registration Service (TRS)
Although the majority of pension schemes are not required to register on the TRS being excluded trusts because they are registered in the UK with HMRC under the Finance Act 2004, there are limited exceptions including: some overseas pension schemes; and certain pension and life assurance benefits such as bare trusts set up in respect of distribution of a lump sum.
tPR guidance was expected in May 2022 but has to date not arrived although it should be published shortly. The DWP is due to respond to its consultation on draft regulations in Q3 2022 (see Gateley's Insight for the latest dashboards update).
The staging deadlines commence from June 2023 for the larger occupational pension schemes and continue through to 31 October 2025 – timings depend upon scheme type and size. Details of the staging profiles for all schemes (with 100 or more members) can be found in Schedule 2 to the draft Pensions Dashboards Regulations. The staging timetable for small and micro schemes (that is those schemes with fewer than 100 members) has not yet been set.
Action: Trustees of schemes within scope should liaise with the scheme's administrators to check their preparations for onboarding and what action, if any, will be required to ensure that the scheme will be ready at the relevant time. Steps will need to be taken well ahead of the scheme's staging date to ensure compliance.
Collective DC (CDC) schemes
1 August 2022 is the date from which CDC schemes will be able to apply to tPR for authorisation – tPR laid its new code of practice on the authorisation and supervision of collective defined contribution pension schemes before Parliament on 9 June 2022. The Royal Mail Collective Pension Plan is expected to set up the first scheme of this type later this year following finalisation of the draft CDC scheme regulations. The Government is also looking at allowing multi-employer CDC schemes later this year/next year (as at present only single or connected employers can establish a CDC scheme). Gateley's Insight provides an overview of recent developments on CDC schemes.
The judicial review hearing of the application made by the trustees of the BT, Ford and Marks and Spencer pension schemes challenging the Government's decision to effectively replace RPI with CPIH from 2030 is expected to be heard by the High Court this Summer.
Action: Trustees and employers will need to look at the impact of the proposed RPI reform on their scheme if they have not already started to consider this and look out for the judicial review hearing ruling.
Climate risk governance & reporting
The governance and reporting obligations of the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 will be extended to schemes with assets of £1bn or more as from 1 October 2022. They applied to authorised master trusts, collective DC schemes and schemes with assets of £5bn or more as from 1 October 2021. Gateley's Insight has further details.
As from 1 October 2022, schemes within scope will also need to report on a new portfolio alignment metric that will explain the degree to which the scheme's investments align with the Paris Agreement goal of limiting increase in the global temperature.
Action: Trustees of schemes within scope should already have taken preparatory steps to satisfy the new obligations. Trustees of smaller schemes also need to think about climate change risks given their existing duties in this area (see Gateley's Insight for tPR's commentary on this).
tPR revised DB funding code
The second consultation on the revised defined benefit funding code of practice is expected to be published this Autumn and to come into force as from September 2023. It has been scheduled to be published after the DWP consultation on draft funding regulations so that there is time built in to 'learn' from the consultation. The first consultation can be accessed here.
Action: Trustees, employers and advisers should be keeping up to date with developments on the new funding code.
Simpler annual benefit statements
The simpler annual benefit statement requirements for DC auto-enrolment schemes come in on 1 October 2022 (see Gateley's Insight).
Action: Trustees of schemes within scope should check with their scheme administrators that they will be able to comply with the requirements as and when they come into force.
tPR revised employer covenant guidance
tPR is amending its employer covenant guidance including providing additional detail on how guarantees should be treated for scheme funding purposes and ESG and covenant.
It was expected that the regulations covering the changes to the notifiable events regime (see our Spring 2022 update for details) would come into effect on 6 April 2022. However, this did not happen, and we are still waiting for further details as to when the changes will be introduced and their precise format.
Action: Trustees and employers need to be aware of the new requirements – the penalty for non-compliance is a fine of up to £1m and, potential criminal liability if misleading or false information is knowingly or recklessly provided.
DB schemes will have to provide additional asset class information to tPR and the Pension Protection Fund in the annual scheme return.
The Government has stated its commitment to expanding automatic enrolment to 18 to 21 year olds and getting rid of the lower earnings limit during the mid-2020s. The recent private members' bill which attempted to introduce these changes stalled back in March 2022 (see Gateley's Insight) and there was no reference to either these changes or any other pensions-specific legislation being introduced in the forthcoming parliamentary session in the recent Queen's Speech 2022 (for details of other proposed legislation that potentially has relevance to pensions see Gateley's Insight).