In this week’s update, we report on the progress of the private members’ bill on GMP conversion and the Dormant Assets Bill, the updating of The Pensions Regulator’s compliance and enforcement policies for the PSA 2021, confirmation that Clara-Pensions has completed the Regulator’s superfund assessment process.
We also look at the PPF’s update on implementation of the Hughes court ruling on the compensation cap, the latest DWP consultation on performance fees and the charge cap, the Teachers’ Pension Scheme McCloud related consultation, the appointment of a new Shadow Work and Pensions Secretary and finally on the ICO’s £140,000 fine for illegal pensions cold calling.
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill: progress update
The private members' Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill put forward by Margaret Ferrier MP which aims to clarify and amend the guaranteed minimum pension conversion legislation, is continuing its progress through Parliament. It had its second reading in the House of Commons on 26 November 2021 and is currently in the Committee Stage.
The House of Commons research briefing explains that the bill amends current GMP conversion legislation to make clear that the legislation applies to survivors as well as earners, gives a regulation-making power regarding the conditions that must be satisfied with regard to survivors' benefit and who must consent to the conversion, and removes the requirement to notify HMRC. GMP conversion is currently being considered by many schemes in connection with their GMP equalisation exercises.
The bill has received the support of both the Pensions Minister and the then Shadow Secretary of State for Work and Pensions so, at present, it is looking positive that the bill may well end up on the statute books and, if so, would bring some much-welcomed clarification on this area.
Dormant Assets Bill: progress update
The Dormant Assets Bill which will legislate to include additional assets from the insurance and pensions, investment and wealth management, and securities sectors in the current dormant assets scheme is continuing its way through Parliament. Having completed its passage through the House of Lords on 23 November 2021 and having attracted cross-party support, the bill received its second reading in the House of Commons on 6 December 2021.
The scheme allocates dormant financial assets which have not been accessed for several years and which have not been reunited after relevant attempts have been made to return the assets to their owners to good causes. Following a 2020 consultation the Government confirmed in its January 2021 response that it planned to expand the scheme to other financial products beyond the UK bank and building society accounts which it currently includes.
The Pensions Regulator confirms it is updating compliance and enforcement policies for PSA 2021
The Pensions Regulator has included wording in its compliance and enforcement policy documents to confirm that these are presently being looked at to "reference our new Pension Schemes Act 2021 powers and regulatory approach". The policies will stay in 'full force' until they are revised. See the Regulator's defined benefit funding regulatory and enforcement policy, DC compliance and enforcement policy, public service pension schemes compliance and enforcement policy, and its prosecution policy.
The Pensions Regulator confirms first DB superfund has passed assessment
On 30 November 2021, The Pensions Regulator confirmed Clara-Pensions as the first defined benefit superfund to have completed its assessment process and to "have met tough standards of governance and administration set out by The Pensions Regulator to protect savers". This is a key milestone in the superfunds' regime and has been a long time in the making – Clara-Pensions was set up more than four years ago and it is only now that it is finally able to transact business.
The superfunds' (and other models') interim regime commenced in June 2020 with trustee and employer guidance following in October 2020. These models aim to consolidate several schemes in one place by substituting a DB scheme's sponsoring employer with a capital-backed vehicle or a special purpose vehicle.
PPF publishes update on 'uncapping'
The Pension Protection Fund has provided a further update (see our 1 October insight for the previous update) on its implementation of the Hampshire and Hughes court cases.
These rulings mean that the compensation cap needs to be disapplied and that certain PPF and Financial Assistance Scheme members are due increases and are owed arrears because the value of PPF compensation must be at least 50% of the value of the member's full benefits in the ceding scheme and some PPF members do not receive this amount.
The PPF has now provided FAS pensioners owed a Hampshire increase with the arrears owing, is 'no longer' applying the compensation cap to new PPF pensioners and has begun removing the PPF cap with the expectation being that payments can be 'scaled up' in the New Year. However, the PPF does not think that the cap will be disapplied for most of currently capped PPF pensioners until the end of next year given the complexities involved.
The PPF is still in the process of deciding whether it will impose a six-year time limit on payments and will announce its decision as soon as it can.
The PPF's announcement closely follows the 30 November 2021 publication of new versions of valuation guidance and information notes to reflect the Hampshire, Hughes and Bauer court judgments when undertaking scheme valuations. (The Bauer ECJ December 2019 decision confirmed that receiving less than 50% of the value of the benefits accrued under a pension scheme from the PPF could be 'manifestly disproportionate' if this meant the member would be living under the at-risk-of-poverty threshold.)
DWP publishes consultation on proposals to remove performance-based fees from charge cap
Following on from the announcement in the Autumn Budget 2021 that there would be a consultation on further changes to the charges cap, the DWP published a consultation on 30 November 2021 on these changes. The proposal is to remove certain 'well-designed' performance-based fees from the statutory 0.75% charge cap which applies to default funds of occupational DC schemes used for auto-enrolment.
The modifications will be brought in via amendments to the Occupational Pension Schemes (Charges and Governance) Regulations 2015.
The inclusion of performance-based fees within the charge cap creates difficulties for their use in DC schemes. By removing this type of fee from the cap it is hoped that DC schemes will be able to overcome the barriers to long-term illiquid investment in assets such as green infrastructure, venture capital and private equity and invest in a "broader range of illiquid assets that have the potential to result in positive outcomes for members".
The changes will mean that the smoothing of performance fees changes which we reported on in our September insight update will not be required and consequential changes to legislation will be needed to remove the statutory provisions which came into force on 1 October 2021.
The consultation closes on 18 January 2022.
McCloud: Teachers' Pension Scheme consultation
The Government is continuing with its consultations on the public sector pension schemes' changes which are required to remove the unlawful discrimination identified in the 2018 McCloud case. On 30 November 2021, the Department for Education published draft regulations and an accompanying consultation to implement the first phase of the McCloud remedy as reported on in our 19 November Insight.
The first set of regulations will close the two legacy final salary sections of the Teachers' Pension Scheme to future accrual on 31 March 2022 and move active members to the reformed scheme on the following day, 1 April 2022. A second set of regulations will follow which will implement the second 'phase' of the remedy – the implementation of the 'deferred choice underpin' (see our 19 November insight for explanation).
The consultation closes on 24 January 2022.
New Shadow Work and Pensions Secretary appointed
Jonathan Ashworth, Labour MP for Leicester South, has been appointed as the Shadow Work and Pensions Secretary. He replaces Jonathan Reynolds who had been in the position since April 2020.
ICO issues £140,000 fine for illegal pension cold calls
The Information Commissioner's Office has fined EB Associates Group Limited its biggest fine for 'instigating' in excess of 107,000 illegal cold calls about pensions. The Government made pension cold calls illegal in January 2019.s