Pensions Bulletin 2021/40

Our viewpoint

Pensions Regulator sets out its stall on its expanded powers

On 29 September the Pensions Regulator published a number of documents relating to the expanded powers given to it through the Pension Schemes Act 2021, which come into force on 1 October 2021.  The documents comprise the following:

  • A finalised policy on how the Regulator intends to investigate and prosecute the two new criminal offences relating to DB schemes: avoidance of employer debt and conduct risking accrued scheme benefits – following consultation in March (see Pensions Bulletin 2021/12)
  • A finalised Code of Practice 12, expanded to include how the Regulator will apply its new Contribution Notice powers – this follows consultation in May (see Pensions Bulletin 2021/23). The code-related guidance has also been finalised.  The Code will now need to be laid before Parliament before coming into force and will be presented in the new “single code” format when it is finalised later this year

The Regulator’s clearance guidance has also been updated.

Furthermore, the Regulator has launched a new consultation on three draft policies as follows:

  • Overlapping powers – where the Regulator has the option to pursue both criminal and/or regulatory powers in respect of the same set of circumstances
  • Monetary penalty powers – new penalty powers to impose high fines for avoidance and information gathering related scenarios
  • Information gathering powers – the use of section 72 notices, interviews and inspections in the context of the Regulator’s enforcement cases, including its approach to the new fixed and escalating penalty powers for non-compliance

Consultation closes on 21 December 2021.

A more detailed News Alert is under preparation and will be issued later this week.  [update: the News Alert has now been published]


As we’ve known for some time now, the Pensions Regulator’s powers are being expanded and strengthened from 1 October.  This extensive suite of documents, delivered just two days before the Regulator’s powers come into force, will need careful digestion by all those involved in DB pension schemes to ensure compliance with the new requirements.  More to come from LCP in the coming days, and we’re also running a webinar on 15 October.

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PPF expects huge fall in levy for 2022/23

The Pension Protection Fund has published its proposals for the calculation of the 2022/23 PPF levy, with little change in the levy calculation formulae to those used for 2021/22.  In particular, the Levy Scaling Factor (0.48), Scheme-Based Multiplier (0.000021) and risk-based levy cap (0.25% of Smoothed Liabilities) remain the same as last year.  Measures introduced last year to support schemes through the pandemic (including the Small Schemes Adjustment and flexible payment of levies) also remain in place.

The PPF’s modest proposed changes actually see a fall in expected levy take to £415m (from an expected £520m in 2021/22).  The key contributors to this reduction include the following:

  • Changing the assumptions used in the levy roll forward to reflect improvements in buyout pricing in recent years – this has caused £65m of the expected reduction in levies
  • An improvement in insolvency risk for a number of credit-rated sponsors

It had been expected that the pandemic would have significantly worsened the insolvency scores of many scheme sponsors, but as yet the effect has not been as severe as predicted.  That may change as more Covid-affected accounts are filed.  The PPF will continue to monitor the Covid effect on accounts submitted over the next few months.

The consultation acknowledges the ruling in the Hughes judgment that the Compensation Cap is now unlawful.  The PPF intends to issue updated section 179 valuation guidance later in the year to clarify the appropriate treatment in these valuations.

Consultation closes on 9 November 2021, with the final rules and Policy Statement expected to be published at the end of December 2021.


Good and perhaps surprising news that PPF levies are expected to reduce so significantly in 2022/23; an unexpected result also made possible by the PPF’s current strong funding position.  However, schemes should not make the mistake of thinking a reduced overall levy equates to a reduced levy for individual schemes – where sponsors’ insolvency scores have worsened over the Covid period individual levies could increase substantially.  The PPF also warns that the full economic impact of the pandemic is yet to unfold, with the potential for the risks the PPF faces increasing, and with the possibility of significantly larger claims in future.

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DWP regulations made for value for money tests and other DC governance issues

The regulations covering a number of important matters regarding DC scheme governance, including reporting to members on value for money and smoothing performance fees, have now been made having been approved by both Houses of Parliament.  This follows their finalisation in draft form in June (see Pensions Bulletin 2021/26).

The Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021 (SI 2021/1070) come into force on 1 October 2021, but with effective dates as set out in the following recap:

  • Value for money – trustees of schemes with total assets of less than £100m, and that have been operating for at least three years, are required to demonstrate that they are providing value for their members and to report on this in their annual Chair's Statement and to the Pensions Regulator via the next scheme return. This applies in relation to the first scheme year ending after 31 December 2021
  • Net investment performance – trustees of all “relevant schemes” (broadly most schemes that provide DC benefits that are not AVCs), regardless of size, must state in the Chair’s Statement the net investment (performance) returns for their default(s) and self-selected funds. This applies for the first scheme year ending after 1 October 2021
  • Smoothing – the performance fee element of charges must be smoothed over five years when assessing whether or not a scheme complies with the charge cap. This takes effect for the first “charges year” ending after 1 October 2021
  • Statement of Investment Principles – a previous exemption is corrected and the requirement to produce a default Statement of Investment Principles extended to those schemes containing ‘with profits’ default arrangements. This takes effect from the later of 1 April 2022 and three months after the end of the first scheme year ending after 1 October 2021
  • Closed funds – the costs disclosure requirements are extended to funds that are closed to future contributions. This applies for the first scheme year ending after 1 October 2021
  • Wholly insured schemes – these schemes are excluded from some requirements of the Statement of Investment Principles to do with the trustees’ policies regarding asset managers. This takes effect from the first scheme year ending after 31 December 2021


These regulations have been made very close to the notional coming into force date of 1 October, although for many schemes the practical commencement of the new requirements will be after the end of the first scheme year ending after that date.  But all schemes with non-AVC DC assets should now review these new requirements in order to check if and how they are affected.

The good news is that the regulations make clear that the threshold of £100m assets below which schemes must demonstrate value for money is tested against total DB and DC assets.  Therefore, by virtue of the size of their DB assets, many hybrid schemes will be exempt from this test.  However, the Government’s call for evidence launched at the same time as these draft regulations were settled (see also Pensions Bulletin 2021/26) makes clear that the Government’s ambitions in this area will target larger schemes in due course.

Finally, an observation on the impact assessments accompanying these regulations: the costs associated with these changes appear to us to be massively understated, assuming, for example that the average time cost for a trustee is £29.11 per hour and that it is the trustees themselves – not consultants and lawyers – who will do the additional work.  The impact assessment goes on to state that the costs of a value for money assessment are estimated to be £190 for small schemes rising to £1,770 for schemes with more than 1,000 members and that it will take trustees only “approximately 3 hours to compare their transaction costs, charges, returns on investments to at least three other larger pension schemes”!

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DC schemes encouraged to invest in long-term assets

The Productive Finance Working Group, first convened in November 2020, has published a series of recommendations with the intention of facilitating greater investment in longer term, less liquid assets – particularly by DC pension schemes.

The Group is advocating this approach because it claims that “One way of potentially achieving higher returns, net of cost, is by investing in longer-term, less liquid assets, managed appropriately and as part of a diversified portfolio. For example, evidence suggests that investment in such assets could be associated with a 1%-7% increase in returns over the long term” and that “Investment in less liquid assets could also help reduce risk through greater portfolio diversification”.

In its report, the Group has set out recommendations in 4 areas, backed up by 13 specific actions as follows:

  • Shifting the focus to long-term value for DC pension scheme members: DC scheme decision-makers (including trustees) and consultants should actively consider how increasing investment in less liquid assets could generate better value for their members. This should be supported by proactive communication from the DWP and the Pensions Regulator on investment in less liquid assets.  Trade bodies should further raise awareness of the benefits and operational considerations of investment in less liquid assets, including on how to manage the risks.  Asset managers and DC schemes should work together to consider appropriate methodologies to accommodate performance fees within the charge cap.  As schemes continue to consolidate, the DWP should consider in the future how to reconcile performance fees with the purpose of the charge cap and trustees’ ability to invest in a broad range of assets, including less liquid ones
  • Building scale in the DC market: the DWP should continue with a DC schemes consolidation agenda where it is clear that schemes are not providing value for members. DC schemes themselves should consider whether their scale is a barrier to good member outcomes including to the potential benefits of greater investment in less liquid assets
  • A new approach to liquidity management: industry participants and trade bodies should develop guidance on good practice on liquidity management at a fund level, in consultation with the FCA and the Bank of England, focusing on appropriate ranges for dealing frequency and notice periods for the different asset types. Drawing on this guidance, asset managers should develop products, including Long Term Asset Funds (see Pensions Bulletin 2021/20), that suit DC schemes’ needs and give trustees greater confidence in investing in less liquid assets.  The FCA should support this by providing information to trustees about how asset managers are required to price units, in particular in an LTAF context
  • Widening investment in less liquid assets: the FCA should consult on removing the 35% cap on investment in illiquid assets for all permitted links, where the underlying investor is not self-selecting their investments. The FCA should also review the application of the Financial Promotion rules to the LTAF, including the classification of the LTAF as a non-mainstream pooled investment, once LTAFs are established.  In addition, the FCA should consider further the appropriateness of applying this framework to the LTAF as part of its review of the potential safe distribution to retail investors more broadly

The Group has also published a road map by which it expects its recommendations to have been fully implemented by Q2 2022.


The Group has set themselves an ambitious agenda, but with official buy in at the highest levels, it does seem that much of this has the potential to be delivered.  Once the barriers are removed we will then need to see to what extent DC schemes change their investment outlook to take on longer term less liquid assets.

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GMP fixed rate revaluation to fall to 3.25% pa

The DWP is proposing to cut the fixed rate of GMP revaluation from 3.5% pa to 3.25% pa – the new rate being applied to those with GMPs leaving pensionable service between 6 April 2022 and 5 April 2027.

Formerly contracted-out schemes have had a choice as to how they revalue GMPs of their early leavers and in recent years that choice has been limited to revaluing either in line with national average earnings or by applying a fixed rate.  The fixed rate is reviewed by the DWP every five years and adjusted if necessary, so that it continues to allow for future expectations of increase in national average earnings over the period that the GMPs will be revalued for those who have yet to leave pensionable service.

The DWP relies on advice from the Government Actuary’s Department as to earnings expectations and this time round GAD has recommended a fixed rate revaluation of between 3% pa and 3.5% pa; DWP choosing to split the difference and put forward 3.25%.

Consultation closes on 18 November 2021.


This consultation is largely for noting, it being very unlikely that the fixed rate will be anything other than 3.25% pa from next April.  The new rate will also impact very few people as, for the most part, only active members of formerly contracted-out DB schemes, who have been in service since at least 1997 and are thinking of leaving between 2022 and 2027 will be affected.

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Royal Mail consults on its CDC scheme

The Royal Mail has launched a member consultation on its proposed “Royal Mail Collective Pension Plan”, made possible by the Pension Schemes Act 2021 containing the primary legislative framework for such risk-sharing schemes.

Some details are in the public domain including the following:

  • The Plan aims to give an income in retirement equal to 1/80th of Pensionable Pay each year the member pays in, plus increases to help this income keep up with inflation. However, these increases are not guaranteed and can be taken away if, for example, investments perform poorly or lots of members live longer than expected
  • A partner income of half the member’s income is payable on the member’s death, and this is subject to the same upwards and potentially downwards adjustment as the member’s retirement income

There is a separate lump sum entitlement of 3/80ths of Pensionable Pay for every year worked, with the likelihood of annual increases; any such increase being guaranteed once given.  This is delivered outside the CDC framework.

Consultation closes on 21 November 2021.  Once the scheme is launched, members who have been with Royal Mail Group for more than one year would stop building up benefits in the Royal Mail Pension Plan and the Royal Mail Defined Contribution Plan and start building them up in the Collective Plan instead.


It has been acknowledged that good communication with members is vital to the success of CDC schemes.  This consultation gives us a glimpse of the communication strategy the united front of the Royal Mail, CWU and Unite will be employing and how they are explaining the differences between CDC and the existing pension plans.

With the wheels of CDC implementation well and truly in motion for Royal Mail it will be interesting to see how many other companies now publicly come out and join them.

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GMP equalisation – implementation stage member communications guidance issued

The industry group looking at practical issues regarding GMP equalisation has published follow up guidance to that on planning member communications issued in August 2020 (see Pensions Bulletin 2020/32).

This latest guidance from the Pensions Administration Standards Association sets out broad principles schemes can follow when implementing their communications to members, the member’s perspective and the normal context of other scheme communications, timing communications activity and delivery milestones, who to communicate with, what to tell them and why, planning for data to use in communications and post equalisation considerations for ‘business as usual’ communications.

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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.