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
- Commencement regulations bring remaining master trust provisions into force
- DWP sets out its agenda for workplace pensions
- FCA publishes retirement income market data bulletin
- HMRC updates guidance on its Scheme Reconciliation Service
- HMRC updates form APSS202 – intention to rely on Enhanced Lifetime Allowance
- ONS publishes Occupational Pension Schemes Survey
- PPI Briefing Note on default investment strategies
- TPR publishes master trust authorisation forms and guidance
- TPR feedback on master trust readiness review
- TPR statistics on the master trust market
- TPR acts to address issues in small schemes
- TPR appoints Executive Director of Strategy and Risk
- Grenville Hampshire v the Board of the Pension Protection Fund (Judgment of the CJEU)
The Pension Schemes Act 2017 (Commencement No. 2) Regulations 2018 will bring into force the remaining master trust provisions of Part 1 of the Pension Schemes Act 2017 from 1 October 2018. These include the new requirements for authorisation and TPR’s supervision of master trusts – see our Alert: Pension Schemes Act 2017 – new regulatory regime for master trusts.
Guy Opperman, the Parliamentary Under Secretary of State for Pensions & Financial Inclusion, made a written statement in both Houses of Parliament on 4 September 2018 setting out some of the DWP’s priorities in relation to workplace pensions. Among other things, the statement notes that:
- the pensions dashboard will be industry-led and “facilitated by government”, with the government seeking to “protect pension savers and personal information by legislating where necessary”
- the new Single Financial Guidance Body is expected to be established in October 2018, ahead of a formal launch in January 2019, when it will deliver money and pension guidance, and debt advice
- the DWP is currently considering responses to its consultation on “Protecting defined benefit pension schemes – a stronger Pensions Regulator” and hopes to publish its conclusions “towards the end of this year”
- the DWP is investigating how to facilitate consolidation of DB schemes, looking among other things at the establishment of ‘superfunds’. It intends to publish a consultation on this “in the autumn”
- collective DC schemes are back on the agenda. The DWP is currently working through proposals for the first CDC schemes in the UK and intends to launch a formal consultation in the autumn.
The FCA published the latest issue of its quarterly Data Bulletin on 6 September 2018. In Issue 14, the FCA looks at recent trends in the retirement income market, tracking what action consumers take the first time they access a pension pot.
The FCA’s findings indicate that overall, consumer behaviour in accessing pensions remains consistent with the same period in the previous financial year. While there has been a decline in the number of full cash withdrawals made, drawdown products and partial withdrawal products taken have increased. The FCA also notes that the shift away from annuities in the wake of the introduction of the pension freedoms in April 2015 has stabilised, with a slight increase in the number of annuities purchased.
On 7 September 2018, HMRC updated the GMP data section of its Scheme Reconciliation Service (SRS) guidance.
The deadline for submitting queries to HMRC’s SRS, which helps pension schemes reconcile their membership and GMP data against the records held by HMRC, is 31 October 2018. HMRC aims to respond within three months from when it starts work on a query and estimates that the final SRS queries will be answered by “early 2019”.
If you require advice in relation to GMP reconciliation and rectification, please speak to your usual Sackers contact.
Lifetime allowance enhancements may be available in some international non-residence situations or on transfers from recognised overseas pension schemes to UK registered pension schemes.
On 7 September 2018, HMRC published an updated version of its Enhanced Lifetime Allowance (international) form (APSS202). This form should be used to notify HMRC of an individual’s intention to rely on:
- section 221 of the Finance Act 2004 – individuals who are relevant overseas individuals
- section 224 of the Finance Act 2004 – a transfer from a recognised overseas pension scheme.
The time limit for this notification is 31 January following the end of the tax year five years after the end of the tax year in which the accrual period ends, or in which the recognised overseas scheme transfer took place.
On 6 September 2018, the ONS published its Occupational Pension Schemes Survey for 2017.
The survey, which gathers information about scheme membership, benefits and contributions from a sample of both private and public sector occupational trust-based pension schemes, aims to provide a detailed view of the nature of occupational pension provision in the UK. According to the ONS, in 2017:
- total membership of occupational pension schemes in the UK was an estimated 41.1 million (compared with 39.2 million in 2016) – the highest level recorded by the survey
- active membership of occupational pension schemes was 15.1 million, split between the private sector (8.8 million) and the public sector (6.3 million)
- active membership of private sector DC schemes was 7.7 million (6.4 million in 2016)
for private sector DC schemes, the average total contribution rate (member plus employer) was 3.4%, falling from 4.2% in 2016.
The PPI’s Briefing Note 108, the first of two to examine default investment strategies, looks at how well the objectives of pension schemes’ default investment strategies meet the needs of their memberships.
The note observes that default strategies are often a good option for many members as they generally cost less, reduce the need for stakeholders to tackle inertia, and avoid triggering the behavioural biases that can lead to poor investment decision making when members are left to their own devices. However, it goes on to state that default funds are not always the best option for all members as they are generally designed to meet the needs of the average member, and may not meet the needs of members who have different characteristics from the average.
Briefing Note 108 focuses primarily on objective setting, but also touches on the use of language around default strategies, beliefs and constraints (especially costs), how these flow through to default strategy design, and how they can help support a quantitative approach to assessing value for money.
Master trust schemes applying for authorisation will need to complete a number of forms to support their application. TPR has now published some of the forms, alongside updated guidance to help schemes with their applications.
The revised guidance (renamed as a “Guide to completing the systems and processes questionnaire”) includes a section explaining the changes TPR has made with a view to helping applicants prepare their systems and processes questionnaire, narrative and evidence for formal application from 1 October 2018.
TPR states that further supporting material will be “available shortly”, such as a financial information checklist (including a business plan checklist), forms and guidance relating to the “fit and proper person” checks, and a master trust application index.
TPR received 33 draft applications as part of its master trust “readiness review” process. This was an opportunity for master trust schemes to submit a draft authorisation application to TPR and obtain feedback on the quality of evidence submitted and whether it would be sufficient for TPR to assess whether the scheme met the criteria.
To help schemes focus on their final authorisation application, TPR has put together details of the lessons learned from the readiness reviews, highlighting where schemes may need to make improvements for authorisation. The document sets out some key tips for master trust schemes, as well as detailed feedback on each criterion in the application process.
TPR notes that schemes must make sure they are satisfied that their application meets the authorisation criteria. It should be clear how the master trust meets both legal requirements and the expectations of TPR’s master trust code and guidance.
TPR suggests that master trusts may find it helpful to get a third-party review to check the quality of their application.
In its monthly report for September 2018, TPR sets out the latest facts and figures on the current master trust market.
TPR notes that it has identified 89 master trusts in the market, down one on its August 2018 figure. TPR explains that this slight fluctuation is the result of trustees seeking advice on whether they meet the definition of a master trust as outlined in legislation.
TPR also notes that it had expected the introduction of master trust authorisation to drive consolidation of the market. So far, three schemes have wound up and a further 21 have decided not to apply for authorisation and are winding up their scheme, transferring their members to an alternative master trust scheme or other appropriate vehicle. The remaining 65 master trust schemes are either expected to apply for authorisation or trigger their exit from the market in the coming months. TPR is expecting more schemes to leave the market before the authorisation window closes in April 2019.
Research and a response published by TPR today (10 September 2018), indicates that the majority of DB pension savers are in relatively well-run schemes that are showing year on year improvements, but that smaller DB schemes are lagging behind. The research was carried out with a view to understanding the extent to which trustees and employers meet the expectations TPR sets out in its DB funding code and related guidance, and what barriers trustees face in running their schemes. As well as assessing compliance with the principles set out in the DB code, the survey covered TPR’s expectations on scheme governance and tested awareness, and the action trustees have taken as a result of TPR’s 21st Century Trusteeship campaign.
As part of its new regulatory approach, TPR explains that it is stepping up its proactive involvement with smaller schemes to assess their performance in key risk areas, including governance, covenant, investment and funding. It will provide clear, directive feedback to the trustees of all small schemes. Schemes which do not act on the feedback may face further action.
To set clear expectations for DB trustees, TPR has started work on a new DB funding code, as outlined earlier this year in the Government’s DB pensions White Paper (see our Alert). The code will aim to introduce clearer funding standards to help trustees and employers to agree good funding outcomes for their schemes and which should, alongside any expansion of TPR’s powers, better equip TPR to take enforcement action.
TPR has announced the appointment of Jo Hill as its Executive Director of Strategy and Risk.
Ms Hill will join TPR in November 2018, from her position as Director of Market Intelligence, Data and Analysis at the FCA. She will be responsible for ensuring TPR’s new “clearer, quicker and tougher” regulatory approach continues to influence how it works with the pensions industry to protect workplace savers. This will include TPR’s plan for more proactive oversight on an ongoing basis of some the highest risk schemes across DB, DC and public service pensions. She will also lead on making better use of data to scan the wider horizon for emerging risks and plan accordingly.
The CJEU has decided that the EU Insolvency Directive “requires Member States to guarantee each individual employee, without exception, compensation corresponding to at least 50% of the value of their accrued entitlement” under their occupational pension scheme.
Please see our case report for further detail.