In this week’s update we highlight the Regulator’s annual DC survey results, the WPC inquiry into pension scams, and further expected PASA GMP equalisation guidance. We also cover a recent decision of the Pensions Ombudsman upholding a member’s complaint and claim for compensation in respect of investment losses arising from delays in the implementation of a transfer.
Regulator update on relationship supervision activities during the pandemic
The Pensions Regulator (the Regulator) has added further information about its relationship supervision activities during the pandemic confirming that it will continue to update those schemes which are in Relationship Supervision, either through the scheme's supervisor or other communication vehicles such as the regulatory round-up newsletter. As an interim step, the Regulator will to consider its engagement with schemes as COVID-19 circumstances develop and will reintroduce the full evaluation cycle when this is possible.
Regulator annual DC survey – greater attention to climate change needed
Development:
Reporting on the results of its annual survey of DC schemes, the Regulator has warned that not enough DC schemes are "paying proper attention to risks and opportunities from climate change". Although the number of DC schemes which consider climate change in their investment strategies has doubled since 2019 to 43% the Regulator considers that this is still insufficient.
The survey conducted between January and March 2020 included 200 schemes that had more than 100 members and/or were used for automatic enrolment and 16 master trusts. In addition to assessing how many schemes had taken account of climate change, its objectives included:
- monitoring cyber security controls, compliance with value for members, having a suitably designed default investment strategy and meeting the new CMA investment and fiduciary management requirements;
- understanding administration; and
- assessing the influence and awareness of, and attitudes towards the Regulator.
Key point:
The clear take from the survey is that many schemes need to place a greater focus on climate change. The Regulator notes that trustees must already consider climate change as part of their statement of investment principles and the Pension Schemes Bill due to receive Royal Assent imminently will require effective governance of climate change risks and opportunities. Although these new requirements are being introduced in a phased approach starting generally with larger schemes with £5bn or more of assets (see our Insight Article), trustees need to "build their capacity in this area now".
The Regulator will be publishing a strategy this Spring setting out how it will assist trustees meet climate change challenges.
WPC inquiry: pension scams - review of £500 pension advice allowance & transfer fraud regulations
Development:
At the 27 January 2021 oral evidence session of the Work and Pensions Committee inquiry into protecting pension savers, it was noted that HM Treasury will review the take-up and effectiveness of the pension advice allowance. This allows members with money purchase or hybrid benefits to withdraw up to £500 in a tax year on three instances to pay for retirement financial advice.
Speaking at the session, the Pensions Minister confirmed that regulations under clause 125 of the Pension Schemes Bill designed to prevent transfers involving fraud are expected to be introduced by September or October 2021.
Key point:
He also noted that the allowance was a 'good product' but the amount may not be sufficient to achieve an 'efficacious outcome' and is 'very late in the day' in a saver's retirement journey with earlier involvement being more appropriate perhaps in the form of a 'mid-life MOT'.
GMP equalisation – update from PASA working group covering 2021
Development:
PASA's (the Pensions Administrations Standards Association) GMP equalisation working group has published a January 2021 update setting out details of the achievements of the group over 2020 and looking at the year ahead.
Key point:
The update contains links to the various sets of guidance issued in 2020 including guidance on GMP rectification, data and communications. It notes that many schemes are still in the early stages of GMP equalisation exercises which is partly because of questions which remain particularly in respect of GMP conversion. The working group intend to produce the following in 2021:
| Detail | Expected date |
|---|---|
| Guidance covering the tax implications of GMP equalisation | End of February 2021 |
| Document on GMP conversion including example case studies | End of April 2021 |
| Second set of guidance on communications: guide to GMP communications – implementation stage | No date given |
| Examples on anti-franking to assist understanding and covering specific GMP equalisation complexities | Second quarter of 2021 |
| Guidance on past cash equivalent transfer values | Update on timescales to be given during q1 2021 |
Previous guidance issued by the working group has been useful in assisting trustees navigate their way through the complexities of GMP equalisation and we expect that the forthcoming guidance will also provide valuable further direction.
Pensions ombudsman awards compensation for investment loss because of transfer delays
Development:
The Pensions Ombudsman's recent determination in the case of Mr G (PO-21110) serves as a reminder of the importance of processing transfer requests without delay even where, aside from any delay, the transfer would be within statutory timescales. Any hold up in the process could result in a finding of maladministration with attaching liability for any resulting investment loss suffered by the member.
The member, Mr G, wished to transfer his £1.4m pension benefits to a self-invested personal pension (SIPP) and the transfer amount was paid to the SIPP provider within the six-month statutory timeframe. However, the monies were not invested under the SIPP for another seven weeks because, despite earlier requests for details of any court orders attaching to Mr G's benefits, the SIPP provider was not provided with the requested confirmation from the scheme administrator until six weeks after the monies were transferred.
The SIPP operator's internal processes and contractual terms and conditions with the member meant that it was not able to invest the transferred monies until this confirmation was received.
The Pensions Ombudsman upheld the member's complaint against the trustee and scheme administrator because it had not provided the requested information in a 'timely manner'.
Key point:
The member was awarded £22,022 by way of investment loss and a further £5,500 arising from estimated loss because the member would not be able to pay the investment loss monies into the SIPP as to do so would likely result in him losing fixed protection tax status. The Trustee was also directed to pay £500 for significant distress and inconvenience.
This is not the first time that the Ombudsman has found maladministration where a process has been completed within the statutory timescales but there has been a delay of some kind along the way. In this complaint the administrators were aware of the outstanding information request but still delayed – in other cases the risk of liability for resulting investment loss arising might be minimised by asking the member whether there are any specific timeframes or information requirements and ensuring that internal processes are sufficiently robust to deal with these requests in a 'timely fashion'.
ICSWG trustee guide for assessing investment consultants' climate competency
Development:
The Investment Consultants Sustainability Working Group (the ICSWG) is a partnership of 17 firms set up in 2020 to support and accelerate sustainable investment initiatives in the UK. It has produced a guide setting out five themes with 'positive' and 'best practice' indicators against which trustees can assess investment consultancy climate competency; firmwide climate expertise and commitment, individual consultant climate expertise, tools and software, thought leadership and policy advocacy and assessment of investment managers and engagement.
Key point:
The ICSWG hope that the guide will provide trustees with practical assistance in assessing investment consultants and help develop good practice.