In this latest edition, we will look at practical support available when producing implementation statements, pension contributions and the job support scheme.
We will also look at the latest COVID-19 guidance from the Pensions Regulator, an update on the Pension Schemes Bill, a Pensions Ombudsman determination concerning investment loss resulting from transfer delays and finally, the Pension Protection Fund’s draft determination and consultation for the calculation of the 2021/22 levy.
Implementation statements and PLSA guidance
Annual reports completed on or after 1 October 2020 by schemes with more than 100 members must include an implementation statement which sets out how certain matters in the statement of investment principles have been followed, including in relation to stewardship, engagement and voting behaviour. The requirements as regards the content of the statements and publication dates vary depending upon whether a scheme is a hybrid or defined contribution scheme or a defined benefit scheme.
The Pensions and Lifetime Savings Association (PLSA) has produced guidance which provides practical support for trustees on the production of implementation statements. It has also published Vote Reporting Templates to assist pension schemes, investment managers and platform providers disclose how they enact their shareholder voting rights. The guidance is designed to promote consistent and uniform reporting of information.
The PLSA guidance and templates should provide useful support for trustees when preparing their implementation statement.
Does the job support scheme cover pension contributions?
The Job Support Scheme (JSS) was announced by the Chancellor of the Exchequer, Rishi Sunak, on 24 September 2020. It will replace the Coronavirus Job Retention Scheme as from 1 November 2020 for six months and will provide additional support for 'viable' UK employers 'facing lower demand' as a result of the pandemic.
HM Treasury's Job Support Factsheet explains that for the first 3 months of the JSS employees have to work at least 33% of their usual hours (this minimum threshold may be increased after 3 months) and for every hour not worked both the Government and the employer should pay a third each of the usual hourly wage with the Government's contribution being capped at £697.92 a month. The grant payment provided by the Government will not cover Class 1 employer NICs or pension contributions which means that the employer will still need to pay these.
The full guidance is not yet available but when it is further details of the JSS should be provided. If an employer does intend to take part in the JSS, advice may be required with regards to certain matters including, for example, in relation to the definitions of 'salary' and part-time working in pension scheme rules.
The Pensions Regulator updates its COVID-19 guidance
The Pensions Regulator updated its COVID-19 guidance on 16 September 2020 setting out its expectations for pension schemes going forwards. This includes:
- As from 1 October 2020, enforcement will start to return to normal including submission of audited accounts, investment statement reviews and the Regulator's review of chair's statements for DC schemes; and
- As from 1 January 2021, DC schemes will need to resume reporting late contributions no later than 90 days after the due date rather than the extended 150-day period which was provided by the Regulator as a response to the pandemic. This change will be made mandatory from a later date, 1 April 2021 to give schemes additional time where needed to implement changes to internal systems.
The guidance for trustees considering employer requests for a reduction or suspension of Deficit Repair Contributions remains unchanged.
Trustees should ensure that they are familiar with the Pensions Regulator's guidance in this area and continue to monitor developments.
Update on the Pension Schemes Bill
The next reading of the Pension Schemes Bill in the House of Commons will take place on 7 October 2020. Guy Opperman, the pensions and financial inclusion minister, has confirmed that he expects the Pension Schemes Bill to be brought into force by the end of 2020.
Trustees and employers will need to prepare for the introduction of the new provisions, in particular, the extension of the Pension Regulator's moral hazard powers and the new scheme funding provisions. We will provide further updates on the Bill's progress in our weekly digests.
PPF draft 2021/22 levy determination & consultation published
The Pension Protection Fund (the PPF) has published the draft 2021/22 levy determination and consultation document setting out its proposals for the calculation of the 2021/22 levy. It has considered the impact that COVID-19 has had on employers and scheme funding which in turn increases the risk of more claims on the PPF.
However, it expects that for 2021/22 COVID-19 will only have a limited impact on levy bills, not least because of the Government support schemes that have been put in place. As a result of this and the significant hedging of its risks the PPF is in a position to reduce the 2021/22 levy it expects to collect to £520m which is £100m less than the equivalent figure for 2020/21.
Instead of setting the methodology for the next three years as it usually would, the PPF has decided to adopt a single year basis. This will allow the PPF the 'best opportunity' to provide flexible support to levy payers as the economic effects of the pandemic evolve. It expects a return to a multi-year approach from 2023/24.
The PPF is proposing an adjustment so that the risk-based levy for small schemes is reduced to ease the burden for these schemes, which can often pay high levies as a proportion of liabilities. It also intends to reduce the risk-based levy cap which applies to all schemes from 0.5% of scheme liabilities to 0.25%.
The PPF believes that the proposed changes will provide 'valuable support' to schemes and employers and no doubt this will be welcome news especially given the current uncertainty as to the impact that the virus will continue to have over the coming year. The PPF consultation will close on 24 November.
Pensions Ombudsman: transfer delay caused foreseeable investment loss
This recent case (Pensions Ombudsman Decision (CAS-38354-V5L8)) concerned delays to a transfer of benefits to a self-invested personal pension which the member complained had caused him to suffer investment loss.
Whilst the Pensions Ombudsman agreed that there had been maladministration on the part of the administrator by reason of the delays, he did not consider that the financial loss the member was claiming was measurable or within the reasonable contemplation of the parties.
The High Court disagreed. It was of the view that when a member asked for a transfer it might be for the purpose of investment and that if maladministration caused a delay to that transfer the investor might lose the investment opportunity which could ultimately cause loss. An assessment of the level of loss would not require the member to show precisely what shares would have been bought but instead what the member would likely have purchased taking into account the nature of his portfolio and his historic investment choices.
Upon remittance back to the Pensions Ombudsman, the Ombudsman determined that the delay caused an investment loss of £43,700 and directed the administrator to pay this amount together with interest and £2,000 for distress and inconvenience.
The case provides a useful warning as regards processing transfer requests in a timely manner. If this does not occur, the member may be able to claim investment loss on top of an award for distress and inconvenience.