In this edition of our Insight we cover recent key pensions developments including the DWP’s and tPR’s joint statement on the transfer regulations, two consultation responses the first on pensions dashboards and the second on social risks and opportunities, the resignation and reappointment of the Pensions Minister and the new Pensions Ombudsman and details of the latest PLSA Made Simple Guides.
Article / 20 Jul 2022
Pensions Insight – weeks ended 8 & 15 July 2022
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The Pensions Regulator round-up
DWP and Regulator joint statement on transfer regulations
On 5 July 2022, the DWP and The Pensions Regulator released a joint statement on the recently introduced transfer value regulations. (See our Insight for details of the regulations and the Regulator’s transfer request guidance).
This follows pensions news reports that PensionBee, a pension combining provider, had written to the Pensions Minister with concerns that certain pension providers were ‘abusing’ the regulations and unnecessarily delaying transfers. Some of the providers in response noted that they had received legal advice stating that certain of PensionBee’s marketing initiatives come within scope of being an ‘incentive’ under the regulations, a ‘red flag’ which means a transfer cannot proceed.
Key points from the joint statement and amended guidance:
- DWP and TPR review: The DWP and TPR are continuing to review how the regulations are ‘operating in practice’ and welcome feedback. (The DWP has committed to review the regulations within 18 months of them coming into force to make sure that they remain ‘effective’).
- Most pension transfers are legitimate: The statement notes that most transfers are legitimate and the “legislation should have no impact on the process for transfers that, prior to the introduction of the regulations, would have caused no concern”. However, the regulations are designed to allow trustees to protect members and refuse a transfer in cases of scams.
- Amended guidance to address concerns on overseas investments and incentives: The Regulator has amended its guidance as a result of concerns raised about the application of the regulations where a transfer involves overseas investments (that this amber flag is potentially catching more transfers than intended – see our Insight) and ‘small-scale’ incentives. The Overview, Carry out due diligence, Red flag and Amber flag sections of the guidance have been amended to address these concerns.
- Trustee approach – low risk transfers: Trustees are reminded to take a ‘risk-based’ approach when dealing with transfer requests – where trustees are of the view that a member has no statutory right to transfer but, following due diligence, conclude that there is a low scam risk, trustees can allow a ‘discretionary transfer’ where this would be permitted under the scheme rules and, as the amended guidance notes, the trustees are “confident that they have fulfilled their fiduciary duties to the transferring member”. As the updated guidance notes: “Your scheme rules may still allow you to make non-statutory transfers even when … risk indicators are present. You should consider the checks in this guidance when assessing whether to grant a non-statutory transfer, but the regulations do not prevent you from making a non-statutory transfer payment where you consider that the transfer is in the member’s interests and does not pose a risk. You should not use non-statutory transfers to avoid carrying out due diligence.”
- Red flag – incentive: The guidance notes that the regulations set out examples of incentives – these are not exhaustive, and a non-included type of incentive should be assessed by the trustees as to whether it presents a heightened risk of a scam. Some may come within ‘normal industry practice’ and present a low risk.
- Amber flag – overseas investments: The concern here is whether the investment would fall within a “lax, or non-existent, regulatory environment or in jurisdictions which allow opaque corporate structures”. Low risk transfers may be allowed under the scheme rules (see above).
Although the Regulator’s statement provides some clarity for trustees in cases where the transfer is deemed ‘low risk’ but would still be caught by the regulations, making a non-statutory transfer in such situations will still be a difficult decision for trustees to make especially given that they would not receive a statutory discharge. Trustees should note that they should still refer to the guidance when deciding whether to allow a discretionary transfer go ahead and carry out sufficient due diligence.
Regulator letter on auto-enrolment approach for gig economy workers
The Work and Pensions Committee has published a letter from The Pensions Regulator providing answers to certain questions raised by the WPC in connection with automatic enrolment and the gig economy. This follows the February 2021 decision of the Supreme Court that confirmed that drivers who used the Uber app were ‘workers’ with statutory employment rights (see our Insight).
The letter confirms that the Regulator is currently working on various delivery and transport sector cases covering 150,000-200,000 workers in the gig economy. However, although the Regulator notes that it will take enforcement action where needed there are “considerable legal complexities and routine challenges from employers when intervening”. The Regulator does not believe that the ‘legal position is clear’ because an individual’s terms and conditions of employment mean that being able to meet the requirements of the ‘worker’ test under pensions legislation is case-specific. Furthermore, there are also difficulties even where an Employment Tribunal decides that staff have worker status, for example, employers arguing that the decision only relates to those who were a party to the case or changing terms and conditions post-decision.
The Regulator has sent guidance to all employers on the matter and will carry on reviewing Employment Tribunal decisions, using enforcement where necessary and seeing if other employers do the ‘right thing’ after a decision.
Online Safety Bill delayed
It has been reported that the Online Safety Bill has been delayed. The Bill commenced its report stage and third reading on 12 July 2022, but proceedings have been put on hold until after the new Prime Minister is appointed at a date yet to be announced. We reported in March that the bill had been amended following pressure to require the “largest and most popular social media platforms and search engines” to stop paid-for fraudulent advertisements showing on their services.
Public sector schemes granted judicial review in respect of McCloud remedy
The Fire Brigades Union (and several other trade union interested parties) and the British Medical Association have both been granted permission for a judicial review of the way in which the Government has proposed that the costs of implementing the McCloud judgment be met. Both believe that the Government is trying to pass the costs over to members rather than pay for “this mistake itself”. (See our Insights 1, 2 & 3)
Consultations
Pensions Dashboards Regulations 2022 – consultation response
The DWP has responded to its January 2022 consultation on the draft Pensions Dashboards Regulations that outline the dashboards obligations of pension schemes and qualifying providers. Several changes will be made to the draft regulations to take account of the 100 responders’ comments. A summary of key policies document also provides a useful synopsis of the response.
Of particular note from the consultation and response, are the following points.
Deferred staging deadlines
The staging deadlines for the first two cohorts (covering schemes with 20,000 or more ‘relevant’ members, these being active, deferred or pension credit members) have been delayed by 2 months. This means that the deadline for:
- master trust schemes with 20,000 or more relevant members will move from 30 June to 31 August 2023; and for
- money purchase schemes used for automatic enrolment with 20,000 or more relevant members will move from 31 July to 30 September 2023.
Data: the following information must be provided
- Money purchase benefits – accrued pot, annualised accrued and annualised projected values;
- Non-money purchase benefits – actives (accrued and projected value); deferreds (accrued value); tranched benefits (provide combined or separate value sets);
- Hybrid: supply value data that “best represents the value” of the benefits.
Matching:
Must be completed immediately. Where there is a possible match, schemes must give a limited form of administrative data and error message with provision in the regulations for follow-up. Schemes must provide view data where there is a match in a certain way.
Response times on data: these are fairly tight (see Response times section of Chapter 3 of the summary of key policies document) and schemes will need to be able to work fairly quickly.
Connection
Most of the original proposals remain the same:
- trustees have a 1 month connection window to connect (5 months for master trusts with 20,000+ members);
- connection must be done in accordance with certain MaPS and/or Pensions Regulator standards and, following connection, trustees must provide reports in accordance with MaPS/Regulator standards.
Staging
See Schedule 2 of the draft regulations (with amends to be inserted as outlined above) for the various schemes staging deadlines. The reference date on which member numbers is based means the scheme year end date falling between 1 April 2020 and 31 March 2021 (inclusive). Also of note:
- Hybrid schemes – the staging deadline is based on the total number of relevant members across both money purchase and non-money purchase sections and the whole scheme should then be classed as a non-money purchase scheme to work out the staging deadline;
- Schemes in PPF assessment period – entire schemes in PPF assessment prior to their staging deadline will be exempt from the requirements. However, schemes that have already connected before entering assessment will need to keep the connection but will not have to present value information;
- Schemes in wind up – will need to connect according to their staging deadline but will only have to provide value data if the trustees believe it would be appropriate to do so;
- New schemes and schemes which change in size – the regulations also cover the staging deadlines for a scheme that was not in existence at the reference date but which is set up (or was in existence but had fewer than 100 members) and meets the size threshold within 2 years of the reference date (scheme year end between 1 April 2021 and 31 March 2023) (see Chapter 5 of the summary document for the deadlines).
Compliance and enforcement
There are no changes to the draft regulations despite certain concerns raised during the consultation. The Regulator will have compliance and enforcement powers including the power to issue compliance and penalty notices (up to £5,000 for an individual and up to £50,000 in other cases) with multiple penalty notices being possible in a single document for multiple breaches.
Although the staging deadline for many schemes may still be some time off, trustees should commence preparatory discussions with relevant organisations if they have not already done so ‘as soon as possible’ (see our Insight for details of the Regulator’s warning in this regard).
Consideration of social risks and opportunities – consultation outcome
The DWP has also published the Government’s response to a March 2021 call for evidence asking for views on how schemes approach social risks and opportunities. Key points are summarised below.
Improving the ‘S’ in ESG: The Government wants schemes to look at improving consideration of the ‘S’ in ESG – trustees risk not meeting their fiduciary duties if they do not ‘factor in financially material social factors’. Social factors include matters such as workforce conditions and supply chains, community engagement, consumer protection and modern slavery.
ESG and the SIP: The requirement in the statement of investment principles to set out the trustees’ policies on financially material considerations including ESG factors includes all parts of ESG where these are financially material. However, it is for trustees to decide how to include financially material social risks and opportunities, either through a separate social risk policy or in an integrated manner. If the latter, the response notes that trustees should still “actively consider which social risks and opportunities might be financially material to the scheme”.
DB schemes and employer covenant: The DWP believe that trustees need to understand the effect that social risks and opportunities have on the employer covenant and how it will affect support over time – although public information may not be available, trustees can ask for information during an assessment or when looking at climate change impacts.
Delegation: Where stewardship activities are delegated to parties, trustees should still ensure that asset managers include social factors.
The Occupational Pensions Stewardship Council: The response encourages schemes to join the Occupational Pensions Stewardship Council, a forum set up to promote and facilitate high stewardship standards of pension assets through shared experience and practical support services.
New taskforce: A new Minister-led taskforce will be set up to help support the pensions industry on identifying reliable data and metrics on social factors and to provide resources to assist with assessing and managing financially material social risks and opportunities.
This response is the latest in the Government’s recent initiatives on assessing and reporting on ESG matters. The Government wants all relevant schemes to be proactive in including social factors within investment decision-making and stewardship policies and most trustees will need to spend additional time in a more active manner than they have done in past years on ESG and stewardship matters.
DWP’s mid-life MOT expansion
On 14 July 2022, the DWP announced the expansion of the mid-life MOT initiative, the ‘work, wellbeing, and finance’ review for workers in their 40s and 50s which aims to improve retirement preparation and financial ‘resilience’.
The expansion will involve online delivery through the private sector and DWP jobcentres and forms part of a £22m funding project announced in the 2021 spending review designed to assist those aged 50 and over with new career opportunities. The expansion will be brought in alongside a face-to-face trial of the MOT in specific areas in England.
Appointments
Pensions Minister resignation and re-appointment
It has been a tumultuous time in British politics recently and pensions did not go untouched. Guy Opperman, the Pensions Minister, resigned from his position as Minister for Pensions and Financial Inclusion on 7 July 2022 only to be reappointed in what appears to be a caretaker role a day later following the Prime Minister’s resignation. Mr Opperman is the longest serving Pensions Minister following his appointment on 14 June 2017.
New Pensions Ombudsman and Pension Protection Fund Ombudsman announced
The DWP has announced that the preferred candidate for the next Pensions Ombudsman and Pension Protection Fund Ombudsman is Dominic Harris, presently a pension partner at law firm, CMS.
The Work and Pensions Committee pre-appointment hearing was held on 13 July 2022 – this allows the WPC to consider suitability for the post and test professional competency and personal independence. The appointment should be confirmed shortly.
It has always been interesting to see what a new Pensions Ombudsman has to bring in terms of direction and approach – we expect that this new appointment will be no exception.
Latest PPF 7800 index update shows funding has increased
The latest PPF 7800 index update setting out the estimated funding position on a section 179 basis as at the end of June 2022 of the eligible 5,215 DB schemes shows that:
- the aggregate surplus of these schemes increased over the month to £267.9bn from a surplus of £261.6bn at the end of May 2022;
- the funding ratio increased from 118.9% at the end of May 2022 to 120.1% at the end of June; and
- the aggregate deficit of the schemes in deficit decreased to £25.3bn from £28.2bn at the end of May 2022.
PLSA guides
PLSA guide on cyber risk
The PLSA (Pensions and Lifetime Savings Association) has published its latest Made Simple guide on cyber risk – it aims to assist pension professionals in understanding cyber risk and what action should be taken to deal with it.
PLSA and LCP Made Simple Guide on Own Risk Assessments
The PLSA and LCP have published a Made Simple Guide to Own Risk Assessments (ORAs). Trustees of occupational pension schemes with 100 or more members will have to undertake an annual documented ORA of their scheme’s system of governance when the Pensions Regulator’s new single code of practice comes into force. The draft new code requires that the first ORA is completed within one year of the code coming into force and trustees should begin preparing for this deadline if they haven’t already done so.
The guide covers an introduction to ORAs, practical tips on completing the assessment, examples of good governance and areas which the PLSA feels trustees should consider focusing on (climate change, stewardship, inclusion and diversity and cyber risk). As with other Made Simple Guides it provides a useful and clear explanation of the requirements and some helpful practical tips as to how trustees can approach their first ORA.
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