Pensions Regulator updates its DC investment guidance

On 27 June the Pensions Regulator published part of the long-awaited update to its investment guidance, enabling DC trustees to finalise necessary adjustments to their investment processes and member communications – with reference to environmental, social and governance considerations (including climate change considerations), the stewardship of the companies trustees invest in and the arrangements that trustees have with their asset managers.  The guidance also covers other developments in investment regulation and thinking since the previous guidance was issued in 2016.

This DC guidance forms part of a suite of guides designed to support the Regulator’s DC Code of Practice.

Guidance was first promised for November 2018, when the DWP finalised regulations last September setting out new requirements centred around the statement of investment principles (see Pensions Bulletin 2018/36).  It remained undelivered when another set of regulations were finalised in early June setting out further new requirements, also centred around the statement of investment principles, as a result of the DWP implementing requirements arising from the revised Shareholder Rights Directive (see Pensions Bulletin 2019/23).

Both sets of regulations impact DB as well as DC schemes, but the Regulator’s guidance is concerned only with DC schemes.

In our News Alert we examine these regulations in the context of DC schemes and the Regulator’s guidance.  Trustees of both DB and DC schemes now have only a few months left to deliver their first update to their statement of investment principles to comply with the first set of regulations.

Comment

The Regulator’s guidance for occupational schemes has been delivered only in part and far too late, putting DC trustees and their advisers on the back foot.  It should have been delivered much sooner, covering the Regulator’s expectations in relation to the first set of regulations, and updated later to cover the second set of regulations.

Experian and PPF finalise 2019/20 insolvency scores

The company insolvency scores for the 2019/20 PPF levy season, which will feed into the levies due to be invoiced this autumn, have now been finalised and are available on Experian’s Pension Protection Score portal.

As a reminder, the Insolvency Risk element of the 2019/20 PPF levy calculation is derived from the average of the 12 month-end insolvency risk scores between April 2018 and March 2019.  That average is then converted into a Levy Band with an associated Levy Rate, which in a simple single employer scheme situation becomes the Insolvency Risk used.  Multi-employer schemes and schemes with parental guarantees have other adjustments applied.

It’s now worth checking on the portal that the finalisation process has left the significant employers in a scheme in the expected Levy Bands as we are seeing a number of changes to the data held by Experian.

Comment

Insolvency scores are a vital but not always easy to understand part of the PPF levy.  A worsening of just one Levy Band can increase the risk-based part of the levy by 50%, so it’s worth checking the finalised insolvency score position is as expected.

MPs look at the work of the Pensions Regulator

On 26 June Parliament’s Work and Pensions Committee started work on a fresh inquiry into the Pensions Regulator’s priorities and approach by inviting the Regulator’s new Chief Executive, Charles Counsell, in for a grilling.

The questioning included topics such as the Regulator’s change project (‘clearer, quicker and tougher’), its ongoing negotiations with Arcadia, current challenges to DB funding, its suitability and readiness to regulate collective defined contribution schemes and DB consolidation vehicles, investment consultancy and fiduciary management services, DC master trusts, the pensions dashboard and DC chairs’ statements.

In response to questioning about legislation not yet being in place, Mr Counsell hoped that we would see the Pensions Bill this autumn.  He also indicated that the Regulator would turn its attention to DC master trusts to ensure that they deliver value for money for their members, which then played into related comments about how working with the FCA the Regulator will have something more broadly to say about the customer journey and delivering value for money regardless of the nature of the pension vehicle, which he thought would be transformational.

Comment

This wide-ranging session is an illustration of the number of issues on the new Chief Executive’s agenda.  But many of them are completely dependent on the Pensions Bill on which all we know is that it is delayed.

Advisory Group publishes pensions on divorce guidance

The final edition of guidance on how pensions should be treated on divorce has been published by an independent and multi-disciplinary group of professionals specialising in the field of financial remedies and pensions on divorce.  This follows consultation on draft guidance by this group last April (see Pensions Bulletin 2018/17).

Written with legal practitioners, financial experts and judges in mind, and running to over 160 pages, the guidance is a comprehensive treatment of the subject.  The ground covered includes the valuation of pension rights, how to deal with such rights fairly (including the use of a pension on divorce expert), an explanation of the operation of pension offsetting (which remains the dominant practice), the impact of the pension freedoms, the tax treatment of pension benefits on divorce and the treatment of state pensions.  There is also a wealth of information in numerous appendices, including suggestions for where the law may need to change.

The authors of the report hope that the existence of this guidance will enable more predictable and consistent outcomes for divorcing parties in future in England and Wales than research has indicated has been the case to date.

Comment

This lengthy but accessible guidance will also be of interest to pensions practitioners as it will enable them to appreciate the pensions issues that can arise between divorcing parties, the various ways in which fairness can be achieved between divorcing parties and what a pension on divorce expert is and what that person does.

GMP equalisation and pensions tax – HMRC says good progress made but no update before the autumn

HMRC’s latest pension schemes newsletter contains promising news in relation to its part of the GMP equalisation puzzle.  HMRC reports that there have been two meetings with its Working Group since it was set up in April, with a third due in early July.  The current focus is on looking at what certainty can be delivered within the existing legislation, supported by guidance where appropriate.  Good progress is reported on exploring a number of approaches and checking whether they have the desired outcome and avoid potential unintended tax consequences.

However, it is unlikely that HMRC will be able to update the guidance before the autumn.  HMRC also warns that the issues can be complex and it is possible that it may not be able to resolve these using the existing legislation.  it concludes with a commitment to finding a “pragmatic and proportionate outcome to all the pensions tax issues”.

The newsletter also reports on certain administrative matters relating to relief at source, master trust supervision and the Managing Pension Schemes service project (finalisation of Phase One, and a call for more volunteers for the feedback panel).  It also clarifies that individuals should tell HMRC about annual allowance charges on the SA100 tax return where more than one scheme is being used for Scheme Pays.

Comment

It is helpful that HMRC is giving an outline of how it is structuring its GMP equalisation work and some idea of (the perhaps not unsurprising) timeline.  This will help the pensions industry in its planning.

Action Fraud warns about pension scams again

Action Fraud have marked 1 July by publishing a four step process through which individuals can protect themselves from pension scams.  We understand that this is part of a new advertising push to alert individuals to the ever-present danger of pension scams.