8 December 2022
- FCA consults on rules to govern pensions dashboard providers
- FCA finalises default investment option for non-workplace pensions
- PDP consults on design standards for pensions dashboards
- Purple Book shows further improved position for schemes
- PPF updates its actuarial factors
- DWP not to implement Hampshire or Bauer judgments
- State pension transitional protection increases put through
The Financial Conduct Authority has announced the publication of a consultation on standards for operators of qualifying pensions dashboards (ie any pensions dashboard other than that to be operated by the Money and Pensions Service). The consultation sets out an authorisation, supervisory and enforcement regime that will apply to those organisations who wish to provide such services.
The consultation paper itself is extraordinarily lengthy, running to well over 300 sides. This is because, in part, such operators will need to comply with many of the FCA’s existing requirements and expectations of a regulated financial services firm, in addition to requirements that are specific to the provision of a dashboard service. The consultation paper includes the FCA’s approach to fees, regulatory reporting, record keeping, prudential requirements and conduct rules.
Providers will also be subject to certain aspects of the DWP’s regulations (which mainly focus on trustee duties) including meeting certain technical standards.
The FCA acknowledges that potential providers will want to do more than make available a carbon copy of the MaPS ‘find and view’ dashboard service and so specifically provides that these providers will be able to offer additional services so long as they meet certain conduct standards. These ‘post-view’ services could include investment advice (including robo-advice) or guidance, as well as providing models, calculators and other similar tools.
Consultation on the FCA’s proposals closes on 16 February 2023. The FCA aims to publish a Policy Statement and finalised rules in summer 2023, with potential providers being able to seek authorisation shortly after this.
There is an awful lot for potential providers to digest in this consultation. From its tone, the FCA would appear to want to heavily regulate such providers as it is very conscious of the consumer harms that may arise if these dashboard services are not properly governed.
These include dashboard users becoming a target for investment scams, users taking irreversible financial decisions based on dashboard data alone (despite the data’s limitations), and access to personal data not being secure. It seems that respondents to this consultation will have to weigh up whether what is being proposed is proportionate to the risks that the FCA is seeking to manage.
In the same announcement as above, but on an entirely unrelated topic, the Financial Conduct Authority has set out final rules requiring non-workplace pension providers (such as those providing SIPPS – other than SIPPS marketed as ‘empty wrappers’) to offer non-advised pension savers a default investment option – to support those finding it difficult to make a choice as to where to invest their retirement savings. Providers can continue to offer wider options for more engaged pension savers. How such a default investment option is constructed is left to the provider.
Under the rules, savers will also be warned about the risk of inflation eroding the value of significant and sustained levels of cash holdings, through being sent a ‘cash warning’. These warnings will be repeated at least once a year if the saver continues to meet the conditions for such warnings to be issued.
Firms will have until 1 December 2023 to implement these rules, but given the current levels of inflation, the FCA is encouraging providers to send cash warnings now.
These rules are broadly similar to those set out in a consultation that was launched in November 2021 (see Pensions Bulletin 2021/50). The finalised rules appear to be eminently reasonable and hopefully will help to nudge a certain segment of pension savers who fail to engage (or become disengaged) with the choices and challenges presented by DC retirement savings during the accumulation phase.
The Pensions Dashboards Programme has now formally launched its consultation on what is the last of its standards to be finalised – that on how data must be presented to users of dashboard services. This follows the PDP releasing its updated standards in November (see Pensions Bulletin 2022/43) and running a call for input on the design standard in July and August 2022.
The consultation is intended to run alongside the FCA’s consultation on standards for operators of qualifying pensions dashboards (see article above). This is because the design standards are aimed particularly at qualifying pensions dashboards. The MaPs-built dashboard, that will be hosted on the MoneyHelper website, will seek to conform to this standard as far as possible.
Consultation closes on 16 February 2023 and the PDP is hosting a webinar discussing the design standards in more detail on 8 December 2022.
This standard is reasonably accessible to the lay reader and is worth a quick skim to see how MaPS envisages the user experience to be on qualifying dashboards.
It is worth noting that this consultation closes less than two months before the first connection window (for large master trusts) opens on 1 April 2023. Although connection is not directly contingent on this design standard, it does demonstrate how “close to the wire” matters are becoming as the Dashboards behemoth looms ever closer.
In the 17th edition of the Purple Book published on 1 December 2022, the Pension Protection Fund shows a further improved position as at 31 March 2022 compared to that in its 16th edition.
As at 31 March 2022, 34% of schemes were in deficit on a section 179 basis, with an aggregate deficit for these schemes of £61bn – down from £129bn at 31 March 2021. It is these schemes that count should insolvency strike their sponsors. Also, since 31 March 2021, the aggregate funding ratio on a section 179 basis has increased from 102.8% to 113.1%.
The aggregate proportions of schemes’ assets invested in equities and bonds were broadly unchanged from those recorded for the 2021 Purple Book – the proportion in equities rose slightly from 19.0% to 19.5% while the proportion in bonds fell slightly from 72.0% to 71.6%. The number of schemes in the PPF’s universe has continued to fall as more schemes wind up, merge, or enter PPF assessment.
These results are not a surprise and were foretold in the PPF’s annual report and accounts. The improved financial position is mainly due to market movements from financial conditions as at 31 March 2021 (see Pensions Bulletin 2022/28) – rising gilt yields since then driving down liability values by more than the corresponding decrease in asset values, together with large increases in equity values.
The Pension Protection Fund has updated its actuarial factors once more; with the latest set coming into force on 1 March 2023. Rising interest rates have meant that the factors settled on earlier this year, to operate from 1 October 2022, have become dated and so needed to be updated again.
Each year the PPF reviews and potentially updates its actuarial factors to ensure that the cost of providing each member’s PPF compensation remains actuarially equivalent regardless of the choices they make as to how and when to take their compensation. In recent years an annual update has sufficed, with changes taking place from 1 October.
As a result of these latest changes:
- The tax-free lump sum delivered for a given amount of annual compensation given up at normal retirement age will fall
- Those taking early retirement will get a lower level of annual compensation, whilst those taking late retirement will get a higher level of annual compensation
This is all to be expected. Trustees of occupational pension schemes may also need to review and potentially update their actuarial factors for the same reason as the PPF has had to.
The Government Bill that seeks to bring to an end the special status of retained EU law in the UK statute book (see Pensions Bulletin 2022/35) has completed Committee stage in the House of Commons, but not without many substantial amendments being put to it by Opposition parties, most notably the Labour Party.
As is to be expected, all of these were lost or not put to the vote, whilst all the Government amendments, which appeared to be of a technical nature, were carried.
During debate it became clear that the Government intends to use the Bill so that the Department for Work and Pensions doesn’t have to implement two cases that impact the design of PPF compensation – namely the Hampshire judgment (see Pensions Bulletin 2018/36) and the Bauer judgment (see Pensions Bulletin 2020/01). Both cases were decided before the UK completed its withdrawal from the EU, but under the Bill there will be no compulsion for Government departments to implement outstanding EU case law.
The Retained EU Law (Revocation and Reform) Bill now awaits Report Stage in the Commons, shortly after which it should make its way to the Lords. Quite what they will make of it remains to be seen.
Implementation of Hampshire has been a protracted and complicated affair for the PPF. As it is taking place in advance of UK domestic legislation codifying the ECJ judgment we will have to wait and see regarding the timing of moving back to pre-Hampshire PPF design. In any case it seems that we will have a two-tier compensation structure for larger pensions in future.
Two sets of regulations have been laid which for those reaching State Pension Age on or after 11 April 2023:
- Increase that part of any transitional new State Pension, which when calculated as at 6 April 2016, was above the then full rate (the “protected payment”), by the increase in the CPI (so by 23.5% for the seven year period ending on 5 April 2023)
- Increase that part of any pension debit or credit on divorce, that has been applied to such a “protected payment”, by the increase in the CPI since the debit or credit was created on or after 6 April 2016
The State Pension Revaluation for Transitional Pensions Order 2022 (SI 2022/1251) and The State Pension Debits and Credits (Revaluation) Order 2022 (SI 2022/1250) come into force on 10 April 2023 for most purposes.
These are part of the annual adjustments necessary to the new State Pension and are broadly as expected.
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.