In this week’s update we consider the Pension Schemes Bill, the evidence provided by the regulators and the police in the WPC pension scam inquiry, the judicial review of the public sector exit payment regulations, expansion of the Dormant Assets Scheme, the Edinburgh Woollen Mill administration, DWP’s report on small pension pots and the consultation on the corporate directors ban.
Pension schemes bill - new criminal sanctions and information gathering powers will not be retrospective
Development:
The Pensions Minister has confirmed, when responding to a Parliamentary Written Question, that the provisions in the Pension Schemes Bill which extend the powers of the Pensions Regulator (the Regulator) will not be retrospective. The enhanced powers include the introduction of new criminal offences and strengthened non-criminal sanctions, a widening of the powers in relation to contribution notices and notifiable events and enhanced information-gathering powers.
Mr Opperman confirmed that the new criminal sanctions and information gathering powers will only apply where the act takes place or commences after the powers come into force. He also noted that the powers which need to be provided to the Regulator through secondary legislation should be made available to the Regulator by Autumn 2021.
Key point:
Confirmation of the position as regards retrospectivity provides welcome clarity on this point. However, uncertainty as to exactly how the Regulator will apply its new powers still remains; we will have to wait to see what further detail the Regulator's consultation and guidance will provide.
WPC pension scam inquiry progresses with regulators and police representatives providing oral evidence
Development:
The Work and Pensions Committee (the WPC) three-part inquiry which is looking into the 'impact of pension freedoms and the protection of pension savers' has been progressing with the Regulator, the Financial Conduct Authority, the City of London Police and the National Economic Crime Centre providing oral evidence to the committee.
It was revealed to the WPC that more than £30m has been reported to Action Fraud as having been scammed over the last three years with the 'true' value likely to be much more than that with underreporting by both individuals and the pensions sector. The average lost by people is about £82,000. In 2020, the number of pension frauds reported was 637. The Regulator confirmed that it was currently investigating scams amounting to £54m in 82 schemes and involving over 18,000 savers.
The WPC also heard about the evolving nature of pension scams and the emergence of scams which involve investment fraud vehicles alongside an increasing use of unregulated online advertising and marketing, and utilisation of social media platforms.
Key point:
The recent drive on addressing pension scams looks set to continue through 2021 and it will be interesting to see what conclusions the inquiry reaches.
If they have not done so already, the Regulator urges trustees (and pension providers) to consider making the pledge to combat pension scams; evidence given to the oral session indicated that the Regulator believes there is more the pensions industry can do and it sees making the pledge as a vital component of this. The Regulator reported on 23 December 2020 that over 100 pledges have been made so far. Our insight article discusses the pledge initiative in more detail.
Judicial review of £95,000 cap on public-sector exit payments
Development:
Public sector unions including ALACE/LLG, UNISON and GMB/Unite have been granted permission to seek judicial review of the regulations which were introduced on 4 November 2020 to restrict public-sector exit payments to £95,000.
Key point:
GMB, UNISON and ALACE all note their opposition to the changes on their websites, with GMB referencing its belief that the provisions are 'flawed and unworkable', UNISON noting that it will 'continue to' oppose the changes 'through any means available' and ALACE talking about its deep concerns of the 'profound impact' on both high earners and 'long-serving staff'. Our insight article provided further details of the cap and the impact on pensions.
The government intends to expand the Dormant Assets Scheme to include pension products
Development:
The Government has outlined in its response to the consultation on expanding the Dormant Assets Scheme (the Scheme) that it intends to legislate to include additional assets from the insurance and pensions, investment and wealth management, and securities sectors in the Scheme. This expansion could potentially release more than £800 million for social and environmental causes.
Since 2011, the Scheme has released over £745 million for social and environmental initiatives from over £1.35 billion in dormant bank and building society accounts. The Scheme operates under three principles; that the first priority is to reunite owners with their assets, owners can reclaim the amount owed at any point and the Scheme is voluntary.
Key point:
The February to July 2020 consultation looked at ways in which the Scheme should be expanded; the UK scheme is not as wide in scope as other international equivalents. At the time of the consultation, the Government did not wish to include pensions or retirement income products in the Scheme. However, following a general response supporting their inclusion, the Government has now changed its stance and intends to include certain pension products.
Edinburgh woollen mill enters administration with a pension deficit
Development:
Edinburgh Woollen Mill, the clothing and homeware manufacturer group, entered administration on 5 November 2020 shortly before the Arcadia Group 30 November 2020 insolvency. The pandemic had caused issues for the company as a 'non-essential' retailer despite non-payment of rent and the availability of the furlough schemes and ultimately its difficulties resulted in insolvency. The administration followed strategic option discussions which commenced in August 2020 and attempts to seek a buyer for either all or parts of the group during September and early October 2020.
The administrators' 24 December 2020 proposals estimate that around £51m is owed to unsecured creditors and that the £17.5m defined benefit pension scheme's deficit represents the most significant proportion of this debt. The Pension Protection Fund (the PPF) has provided reassurance to the scheme's members regarding the fund's protection.
Key point:
It is a difficult time for the high street that has also seen the recent Arcadia and Debenhams administrations, both of which involve defined benefit pension schemes too and possible PPF entry (with the potential for a transfer of the Arcadia schemes to the Pension SuperFund recently emerging). These are unlikely to be the last retailers which find they cannot survive the economic fallout from the pandemic and others may well follow in the coming months.
DWP report on small pension pots
Development:
The Department for Work and Pensions’ (DWP) report on small pots sets out recommendations of the 'small pots working group' set up in September 2020 to deal with the increasing number of small, deferred pension pots in the auto-enrolment pensions market.
The group believes that the consolidation of small pots should become the norm. This will require 'automatic and automated' solutions to operate alongside member-initiated transfers and consolidation with suitable member safeguards.
The report recommends setting up operational focussed groups to consider the administrative challenges of mass transfer and consolidation systems, and suitable governance systems. It also recommends that the DWP and pensions industry undertake an initial costs/benefit analysis in the latter half of 2021 to assess the two models suggested for prioritisation (default small pot consolidation and automatic pot follows member).
Key point:
Small pots have been an issue for some time since the introduction of auto-enrolment and it is encouraging that steps are now being taken to resolve the problem. However, there is still some way to go before the necessary 'automated and automatic' systems are set up to deal with the problem.
Ban on corporate directors consultation announced
Development:
The Government has launched a consultation seeking views on the introduction of principles to limit corporate director appointments so as to improve business transactions and deal with economic crime by prohibiting the appointment of corporate directors unless its own board is made up of natural persons whose identities have been verified. Essentially there are concerns that ‘the use of corporate directors can muddy the waters around ownership and provide a screen behind which to conduct illicit activity’. The consultation closes on 3 February 2021.
Key point:
This would potentially affect trustee boards set up as a company with a professional trustee company acting as a corporate director on the board. In recognition of such problems, it is proposed that a principle-based easement be introduced to allow the appointment of a company as a director of another company where:
- all of its directors are, in turn, natural persons; and
- the identities of the natural person directors are subjected to Companies House verification of identity before the appointment.