In our latest update we look at the final stages of the Pension Schemes Bill’s progression through the House of Commons, the interim report of the Government-Regulator TCFD Taskforce and the proposals for pension schemes, the Regulator’s latest compliance and enforcement bulletin and the Institute and Faculty of Actuaries’ paper on pension scheme cybercrime risk.
Pension Schemes Bill completes the final House of Commons stages
The Pension Schemes Bill (the Bill) completed its final stages in the House of Commons on 16 November 2020 and will be returning to the House of Lords for consideration of the House of Commons’ amendments. MPs considered and debated the following proposed amendments, none of which have been taken forward:
- Employer debt: amendments were proposed that would allow trustees not to pursue an employer debt below a de minimis threshold and that were designed to alleviate employer debt issues in closed non-associated multi-employer schemes which have recently been the subject of legal proceedings and Pensions Regulator (Regulator) scrutiny with regards to the Plumbing and Mechanical Services (UK) Industry Pension Scheme;
- Open and closed schemes & regulations: provisions requiring scheme funding regulations to consider the funding and investment differences experienced by open and closed defined benefit (DB) schemes;
- Transfers & member guidance: introduction of 'red flag' transfer provisions into the Bill which would allow trustees to refuse a transfer out upon the identification of certain warning signs and member guidance provisions under which members and survivors would have received an impartial pensions guidance appointment prior to accessing benefits;
- Pensions dashboards: changes on pensions dashboards to initially restrict the provision of services to exclude financial transactions and commercial operators and further protective provisions relating to vulnerable users and education;
- Superfunds: a requirement for primary legislation to place a duty on the Regulator to regulate DB pension superfunds within six months of the Bill receiving Royal Assent; and
- Climate-change: proposals which would require occupational pension schemes to develop, set and implement a strategy to ensure that a scheme's investments and stewardship are aligned with the objectives of the Paris Agreement and a goal to achieve net-zero greenhouse gas emissions by 2050.
The Bill is now in the final stages of the Parliamentary process and is still on track to come into force by the end of this year. We will continue to report on developments. Click here for the most recent details of the Bill's progress.
Climate change: Joint Government-Regulator TCFD Interim Report and Roadmap
On 9 November 2020, the Joint Government-Regulator TCFD Taskforce published its Interim Report together with a roadmap setting out the UK's approach to implementing the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The 'Regulator' side of the Joint Taskforce is made up of the Financial Conduct Authority (FCA), the Prudential Regulation Authority and the Regulator.
The plan is to make it a requirement for large companies and financial institutions in the UK to make TCFD-aligned disclosures (rather than operating a comply or explain system) by 2025 with many of the mandatory requirements coming into effect earlier, by 2023. The TCFD published a report in 2017 making 11 recommendations for all organisations on the disclosure of climate-related financial risks and opportunities.
The roadmap sets out the strategy for seven categories of organisation: listed commercial companies; UK-registered companies; banks and building societies; insurance companies; asset managers; life insurers and FCA-regulated pension schemes; and occupational pension schemes.
Trustees' duties in respect of 'environmental, social and governance' matters have been strengthened in a number of respects in the past couple of years and there are now several other initiatives in the pipeline, including changes to be introduced by the Bill and the related TCFD proposals. As the Regulator wrote in its recent 1 October 2020 blog on climate change:
"There's no stepping away from the questions raised by climate change…This is no passing fad. It's fundamental, given the long-term nature of pension schemes climate change will be a fundamental consideration."
Regulator compliance and enforcement quarterly bulletin July to September 2020
The Regulator has issued its latest quarterly bulletin, which shows a significant increase in the use of its powers. In particular, with respect to automatic enrolment, there has been a 191.4% increase in unpaid contribution notices (from 352 to 1,026) and a 17% increase in compliance notices, compared to the previous 3 months. During the same 3-month period, the Regulator has used its information gathering powers 30 times, issued 2 section 89 regulatory intervention reports, issued 16 penalty notices relating to failures to prepare compliant chair’s statements and obtained its first confiscation order under the Proceeds of Crime Act (POCA) against the director of a charity’s pension scheme corporate trustee, who stole £250,000 from the scheme. A second confiscation order has been obtained in respect of another matter which will be reported on in the next bulletin.
The Regulator certainly seems to be demonstrating a “clearer, quicker and tougher” approach with regards to the use of its enforcement powers. With new powers due to be added to its arsenal when the Pension Schemes Bill comes into force, is this a warning sign of things to come?
The Institute and Faculty of Actuaries’ paper on pension scheme cybercrime risk
The Institute and Faculty of Actuaries (IFoA) has published a paper on pension scheme cybercrime risk. The paper can be found at the IFoA’s website and sets out which parties in relation to a pension scheme are responsible for certain cyber risks and how these risks can be managed.
Cybercrime poses a significant risk to pension schemes. With cybercriminals becoming more and more sophisticated, it is vital that pension scheme trustees understand the types of cyber risk their scheme could be vulnerable to and how to manage these. As ultimate responsibility for these risks rests with the trustees and with a requirement for trustees to have adequate internal controls in place, this is an issue that trustees should be addressing and keeping under review.