Pensions Bulletin 2021/19

Our viewpoint

Asset class information provided by DB schemes to change

A consultation being run jointly by the Pensions Regulator and the Pension Protection Fund proposes changes to the asset class information collected annually by the Regulator from DB schemes through the scheme return.  The Regulator uses this information to help measure investment risk, which will take on increasing importance under the new DB funding regime, whilst the PPF uses it to help calculate the PPF levy.

The context for the consultation is the significant changes that have taken place in asset allocation over the last 15 or so years, resulting in the need for more information to assess the investment risks (a) within increasingly extensive bond holdings and (b) within a smaller allocation to growth assets given the diversification that has taken place away from traditional equities over this period.

The proposals themselves are largely derived from the asset categories used in the PPF levy bespoke stress calculation – which appear likely to be used as the basis for measuring investment risk in the Regulator’s new approach to regulating scheme funding.  Changes to the asset class information to be collected in relation to growth assets include removing the hedge fund and commodities asset classifications and introducing Diversified Growth Fund (DGF) and absolute return funds categories.

A three-tiered approach is proposed, with smaller schemes (with section 179 liabilities below £20m) seeing only minor changes, whilst larger schemes (up to £1.5bn of section 179 liabilities) will be asked to provide more granular data – which the Regulator believes will make it easier for schemes to demonstrate they meet the requirements for “Fast Track” funding.  The largest of all schemes (over £1.5bn of section 179 liabilities) will continue to carry out the bespoke stress calculation as required under PPF levy rules and have to submit asset information commensurate with this.  Smaller schemes will continue to have the option to provide additional data on a voluntary basis.

Some changes are also proposed for the PPF’s roll-forward methodology for section 179 valuations.  The PPF will also review the stress factors applying to the updated set of asset classes, as well as the risk factor stresses required to be calculated for the largest tier schemes.

Consultation closes on 10 June 2021 and it is intended that the scheme return changes will operate in time for the introduction of the new DB funding code – currently estimated to be towards the end of 2022.  The PPF would then expect to propose changes to the PPF levy rules, consulting on them in the normal way.


The proposals seem sensible given the change in asset allocations over recent years and the Regulator’s need to have a more detailed understanding of investment risks, although it may be a surprise to some that a three-tiered approach has been chosen.  Schemes with material asset allocations in commodities and hedge funds (that would not be considered DGFs or absolute return funds) might wish to look at the effect of this potential change on their future PPF levies.

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MPs launch inquiry on climate change and pensions

Parliament’s Work and Pensions Committee has launched an inquiry into the Government’s approach to ensuring pension schemes consider the risks posed by climate change and the role schemes can play in meeting emission reduction targets.  Ahead of COP26 the Committee is seeking views on how the UK Government’s approach to pension scheme stewardship can inform - and should be informed by - approaches taken internationally.

The Committee is asking six questions and the deadline for responding is 18 June:

  • How should pension schemes contribute to setting COP26 targets and helping to achieve those targets once agreed
  • What role should international standards have in supporting pension schemes to assess climate change risks when considering scheme investments
  • Are there suitable financial products to enable pension funds to make climate-conscious investments, and how should such investment be facilitated and supported
  • How should the UK seek to share and learn from international best practice
  • What regulatory changes or other Government action has been most effective in delivering change in the UK; and what changes on the part of governments elsewhere should the UK learn from
  • Do pension schemes have suitable information to assess climate risk, or do there need to be international reforms to financial reporting


To date it has been the Government (as distinct from MPs) setting the pace for schemes on climate change issues.  This is a belated opportunity for MPs to sense check Government intervention in this area, although by the time they report, presumably after the summer break, all the current proposed interventions should be in place.

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FCA consults on stronger nudge to consumers to seek pension guidance

The Financial Conduct Authority has proposed new rules to require pension providers to ‘nudge’ consumers to Pension Wise in order to benefit from guidance before they access their DC pension savings. This includes booking an appointment with Pension Wise if the consumer wishes.  This follows from the requirement in the Financial Guidance and Claims Act 2018 for the FCA to make rules about this (see Pensions Bulletin 2018/19), and research published by MaPS last summer (see Pensions Bulletin 2020/30).

Currently, pension providers are required to signpost consumers to Pension Wise guidance and encourage them to seek appropriate pension guidance or advice to help them understand their options.  However, take up of Pension Wise guidance remains low.

The FCA’s proposals mean consumers will be given a further opportunity to take Pension Wise guidance, including making the appointment arrangements for them, before they access their pension.

The FCA is proposing that when a consumer has decided, in principle, how to access their savings, a provider must:

  • Refer the consumer to Pension Wise guidance
  • Explain the nature and purpose of Pension Wise guidance
  • Offer to book an appointment, and where the consumer accepts the offer, book the appointment or provide the consumer with sufficient information to book their own appointment

Where consumers intend to transfer their benefits to another scheme to access their money, the consultation paper clarifies that the scope of the proposed nudge is limited only to those consumers transferring for that reason – not those who transfer for other reasons such as to consolidate their savings or to move to a lower charging provider.

The consultation paper also discusses ideas to introduce a cooling off period, should a consumer want to opt out of the appointment.  This is to ensure that an opt-out is not simply seen as the quickest way to access pension savings.  The cooling off period could operate by either requiring a minimum time before providers can accept a consumer’s opt-out decision or requiring consumers to explicitly confirm their opt-out decision through a separate communication.

The FCA also discusses the possibility of there being an earlier nudge, as this may be more effective than that required by the Act.  Respondents are encouraged to submit their views, but the FCA has not made any firm proposals at this stage to extend its rules in this respect.

Consultation closes on 29 June 2021 and the FCA intends to publish a final Policy Statement in Q4 2021.

It seems likely that the equivalent DWP consultation on regulations for occupational pension schemes will follow shortly (see Pensions Bulletin 2020/09).


Whilst introducing a cooling off period for opting-out members is sensible to stop consumers taking the path of least resistance to accessing their pension savings, care needs to be taken so that this isn’t seen by consumers as pension providers deliberately blocking access to their savings.

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Pensions news and statistics from HMRC

HMRC’s April pension schemes newsletter, published last Friday, covers nine topics of varying degrees of interest, including the following:

  • An announcement that the process of deleting credentials for users who have not signed into a tax service for three years has begun.  This presumably includes those who have not signed into the Pension Schemes Online service (see Pensions Bulletin 2021/13)
  • HMRC’s annual allowance calculator has been updated to include the 2021/22 tax year, to enable individuals to plan current savings
  • A note that regulations relating to the reporting of certain non-taxable payments following a member’s death have been laid before Parliament (see Pensions Bulletin 2021/18)

Separately, HMRC has updated its publication of statistics relating to flexible payments from pensions, to incorporate statistics for the first quarter of 2021.  HMRC notes that compared to the first quarter of 2020 the (taxable) amount withdrawn increased by 6%, from £2.5bn to £2.6bn, but this was spread over 10% more people, so the average amount withdrawn fell by 4%.

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This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.