7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• New legislation published
• DWP backs plans for first UK Collective Defined Contribution scheme
• Government responds to CMA investment consultants market investigation
• FCA publishes final rules on its Directory
• FCA publishes final report from Investment Platforms Market Study
• FRC to be replaced with “enhanced” regulator
• PPI publishes Briefing Note 111

New legislation published

The following pieces of legislation have been published:

• the Social Security Benefits Up-rating Order 2019 was made on 11 March 2019. Amongst other things, it confirms the increase in the full state pension from £164.35 to £168.80, a rise of 2.6%, in line with the “triple lock” (the Government’s current commitment to raise the state pension in line with the higher of prices, earnings or 2.5%). The Social Security Benefits Up-rating Regulations 2019, made on 12 March 2019, contain provisions necessary to give full effect to the 2019 up-rating exercise
• The Pensions Increase (Review) Order 2019 was made on 12 March 2019. It provides for increases in the rates of public service pensions.

DWP backs plans for first UK Collective Defined Contribution scheme

Today, 18 March 2019, the Government has published the response to its November 2018 consultation on “Delivering collective defined contribution pension schemes”.

The DWP’s proposals pave the way for the first CDC schemes in the UK, into which contributions can be pooled and invested, giving members a target level of benefit. Various protections will be built into the system, for example, to ensure intergenerational fairness.

The DWP’s initial priority is to legislate for CDC schemes that are set up by single or associated employers (the model proposed by the Royal Mail and the Communication Workers Union). However, the Government intends that the legislation should be capable of being adapted quickly in future to accommodate other models of CDC, such as decumulation-only vehicles and DC master trusts.

Legislation to implement the proposals is to be introduced “as soon as Parliamentary time allows”. Meanwhile, the DWP is working with TPR on a new authorisation regime for CDC schemes, and with HMRC to ensure that CDC schemes fit within the existing pensions tax framework.

For more details, please see our forthcoming Alert.

Government responds to CMA investment consultants market investigation

On 12 March 2019, the DWP, TPR and HMT published their response to the CMA’s investment consultants market investigation, addressing the recommendations the CMA had made in its final report. The remedies included the introduction of mandatory tendering when pension trustees first purchase fiduciary management services, and a requirement to run a competitive tender within five years if a mandate was previously awarded without one.

The response confirms that:

• the DWP will look to pass the necessary legislation to enable TPR to oversee duties on trustees. It intends to produce draft regulations and consult on them this year. Subject to the outcome of that consultation and Parliamentary time, it aims to bring regulations into force and replace the CMA order in 2020
• TPR will develop guidance to help trustees in running a competitive tender process for fiduciary managers and consider how to support trustees tendering for investment consultancy services. It will also consider broader guidance on engaging with fiduciary managers and investment consultants to support trustees to gain the most benefit from the package of remedies. TPR will aim to consult on the guidance in Summer 2019
• HMT will consider the CMA’s recommendation that it extend the FCA’s regulatory perimeter to cover services provided by investment consultants, “in the context of competing priorities for both the government and the financial services sector”.

FCA publishes final rules on its Directory

The FCA has published a Policy Statement containing its final rules on the new public register for checking the details of key individuals working in financial services.

Advisers who are not “senior managers” under the FCA’s incoming Senior Manager & Certification Regime will no longer be included in the current Financial Services Register from 9 December 2019. The new Directory will contain full details of all authorised individuals, but firms have until 9 December 2020 to upload this data.

As such there could be up to a 12-month period when certain advisers might not be searchable. Given that trustees are required to check FCA registers to ensure advice in relation to pension transfers has been provided by authorised advisers, this may cause delays to the process. As TPR has stated that it is currently reviewing its existing guidance for DB to DC transfers, we would expect this issue to be addressed.

FCA publishes final report from Investment Platforms Market Study

On 14 March 2019, the FCA published the final report from its Investment Platforms Market Study (“IPMS”), confirming its findings and the remedies that it is taking forward.

In relation to switching platforms, the report notes that “improving the switching process, including communicating clearly to customers who are switching their investments, remains a priority for us. We welcome and support the progress industry is making to improve the switching process in the platforms, investments and pension sectors through STAR, a not-for-profit joint venture, to improve transfer times and customer communications”. STAR is in the process of implementing a framework which sets expectations for end-to-end standards, customer communications, and provides oversight and transparency. The FCA encourages firms not already involved in this initiative to consider taking part “as a way of improving the switching process and achieving better outcomes for consumers”.

The FCA states that it will review progress made by industry later this year and, if needed, again in 2020 and take further regulatory action if required.

The FCA published a consultation paper at the same time, setting out the its policy remedies from the IPMS. The proposed changes are designed to reduce the barriers to effective competition experienced by consumers who use platforms and similar services, as described in the IPMS Final Report.

FRC to be replaced with “enhanced” regulator

It has been announced, following Sir John Kingman’s review of the FRC, that the body will be replaced with a new “enhanced” regulator, to be known as the Audit, Reporting and Governance Authority.

On 11 March 2019, BEIS published a consultation seeking views on the recommendations made by the Independent Review of the Financial Reporting Council, to create a new regulator responsible for audit, corporate reporting and corporate governance.

It is intended that the new regulator will, for the first time:

• be a statutory body with powers such as those to direct changes to accounts to be made, rather than applying to court to do so, and more comprehensive, visible reviews for greater transparency
• have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding companies and professional advisors to account
• regulate the biggest audit firms directly (rather than those being delegated).

There will also be greater sanctions available to the regulator in cases of corporate failure, including new powers to require rapid explanations from companies and, in the most serious cases, to publish a report about the company’s conduct and management.

The Government states that it “intends to move swiftly to implement these reforms and overhaul the sector”. Until the new regulator is in place, the Government will be working with the FRC, taking forward 48 of the Review’s recommendations to address shortcomings that were identified.

The consultation closes on 11 June 2019.

PPI publishes Briefing Note 11

The Pensions Policy Institute has published Briefing Note 111: DC scheme default strategy policy considerations.

The note is the second in a series looking at DC scheme default strategies, and outlines the current considerations and policy debates relevant to such default strategies.