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
- Pension Schemes Act 2021 (Commencement No. 1) Regulations 2021
- Consultation response on changes to NHS pension scheme regulations
- PDP call for input on staged compulsory connection to dashboard
- PMI case study on covenant risk management
- PPI report on DC scheme investment in illiquid assets
- TPR 2021 Annual Funding Statement
- TPR consultation on code of practice changes
- TPR blogs on liquidity risk and helping savers improve pensions outcomes
- Mr R (PO – 24554) (No maladministration where transfer finalised within one month of publication of Scorpion guidance)
The Pension Schemes Act 2021 (Commencement No. 1) Regulations 2021 were made on 24 May 2021 and, among other matters, brought certain provisions of the PSA21 into force on 31 May 2021 for the purpose only of making regulations, including:
- Section 103(4) (contribution notice – meaning of “employer resources test”) (see our Alert)
- Section 109(2) (duty to give notices and statements to TPR in respect of certain events)
- section 110(2) (interviews)
- section 125(2) and (6) (exercise of right to cash equivalent) (see our Alert).
On 27 May 2021, the Department of Health and Social Care (“DHSC”) published its response to the consultation on changes to the NHS Pension Scheme regulations (see 7 Days). The DHSC has confirmed that, among other changes, it will equalise the entitlement to survivor pensions of male survivors of female scheme members in opposite-sex marriages or civil partnerships with that of male survivors of female members in same-sex marriages or civil partnerships, following the decision of the Employment Tribunal in Goodwin v Secretary of State for Education in June 2020.
The changes will be implemented through the National Health Service Pension Schemes and Injury Benefits (Amendment) Regulations 2021 which will come into force on 1 July 2021.
On 27 May 2021, the Pensions Dashboards Programme (“PDP”) published a call for input and accompanying blog post on proposals for the staged compulsory connection of pension providers to the dashboards ecosystem. The feedback will help inform policy development ahead of the legislation that will bring this compulsion into effect.
The PDP proposes that staging should comprise three waves based on membership (the total number of the pension provider’s members):
- wave one: largest schemes (1000+ memberships)
- wave two: medium schemes (100 to 999 memberships)
- wave three: small and micro schemes (99 or less memberships)
Wave one would start in April 2023 and would run for up to two years. In this wave, the PDP recommends three distinct cohorts:
- cohort one: master trusts and FCA regulated providers of personal pensions, starting Spring 2023
- cohort two: DC schemes used for AE, during 2023
- cohort three: all remaining occupational schemes with 1,000+ memberships (in order of size) with the largest DB schemes to onboard in 2023
The call for input will run until 9 July 2021.
On 27 May 2021, the Pensions Management Institute (“PMI”) published a case study on covenants and how to protect recourse in a corporate transaction. The case looks at a situation where a scheme’s trustees were faced with a leveraged takeover bid for the sponsor company and sets out the key risks and the negative impact on the covenant, the action taken, and the key takeaways from the case.
The Pensions Policy Institute (“PPI”) has released a report which explores DC scheme decision-makers’ beliefs around investing in illiquid assets. Based on interviews with ten “gatekeepers” of DC scheme investment decisions, it addresses myths and barriers regarding illiquid investments, what change needs to happen and who should drive this change.
On 26 May 2021, TPR published its annual funding statement. Primarily aimed at schemes with valuation dates between 22 September 2020 and 21 September 2021 (“Tranche 16”), the statement is also relevant to schemes “undergoing significant changes that require a review of their funding and risk strategies”.
Unsurprisingly, the current pandemic (and its knock-on effect on covenant monitoring and contingency planning) remains a high priority. The statement also acknowledges the need for trustees and employers to continue working together to manage unexpected events, whilst retaining “a focus on the long term – most specifically around planning and risk management”.
Key points include:
- As economic uncertainty continues, trustees need to be alert to the risks of weakening covenants (and covenant leakage) and remain engaged with employers.
- Schemes should also still be pursuing a long-term funding target, with suitable short-term modifications to reflect the current economic situation. The approach to risk management largely follows that of previous years, with schemes asked to determine which of 10 broad categories they fall into (taking into account both COVID-19 and Brexit) in order to identify their key risks and actions.
- In future, under changes being made by the PSA21, DB scheme trustees will be required to produce a funding and investment strategy. With draft regulations to implement this change still pending, TPR provides a welcome update on the timing of its revised DB funding code. The second consultation on the draft code is now scheduled to take place “towards the end of 2021”, with the code itself not expected to come into force “until late 2022 at the earliest”.
For more detail, please see our Alert.
On 27 May 2021, TPR published a consultation on draft changes to Code of Practice 12 (to be titled “Contribution Notices: Circumstances in relation to the material detriment test, the employer insolvency test and the employer resources test”). The proposed changes address the two new tests for imposing a Contribution Notice (“CN”), part of TPR’s anti-avoidance armoury, being introduced under the PSA21.
Key points include:
- The consultation covers changes to both the code and accompanying code-related guidance. TPR has also taken the opportunity to update and clarify the code and corresponding examples in its guidance based on its experience of using its CN powers to date.
- Those potentially in the frame for a CN are the scheme employers and anyone associated or connected with them.
- TPR’s new powers are expected to take effect from this autumn and TPR confirms that they will not apply to acts taking place before then.
The consultation closes on 7 July 2021.
For more detail, please see our Alert.
On 28 May 2021, TPR published a blog highlighting the need for trustees to improve their understanding of the liquidity risks their schemes are exposed to and how those risks can be monitored and mitigated.
TPR Executive Director of Regulatory Policy, Analysis and Advice David Fairs said that “investment in illiquid assets may offer trustees the opportunity to capture an illiquidity premium, improve the overall risk and reward trade-off and improve outcomes for their scheme members”. However, he commented that “the extent to which trustees decide to invest in illiquid assets should be determined by their scheme characteristics, including their investment, risk management, governance and funding arrangements and consideration of the holding structure for those investments and the degree of investor protection embedded.”
Mr R (PO – 24554) (No maladministration where transfer finalised within one month of publication of Scorpion guidance)
TPO has rejected a complaint that Aegon did not carry out appropriate due diligence when transferring a pension fund to a Small Self-Administered Scheme (“SSAS”). In giving its determination, TPO discussed the issue of timeframes within which schemes should reasonably be expected to institute new processes following the publication of key guidance on identifying and preventing scams.
For more detail, please see our case report.