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
- FCA and HMT launch consultation on the advice guidance boundary
- PASA issues “connection ready” dashboards guidance
- TPR requests voluntary reporting of significant cyber incidents in updated guidance
- TPR sets out its expectations and approach during corporate transactions
- PPI publishes research report on the role of CDC in decumulation
- PPF publishes Purple Book 2023
- Tax tribunal comments on use of AI in litigation
On 8 December 2023, the FCA and HMT launched a consultation on proposals to close the “advice gap” as part of the advice guidance boundary review. The proposals include:
- clarifying when firms can give consumers support without giving regulated financial advice (following clarification on the existing framework in August 2023)
- a new approach allowing firms to provide support tailored to groups of people in similar circumstances
- a new form of simplified advice to enable firms to provide more affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.
There is a section on specific considerations for pension scheme trustees. Feedback is sought on how the support trust-based schemes provide is affected by the advice guidance boundary, including around decumulation, taking into account the DWP’s proposed new decumulation policy framework.
The consultation closes on 28 February 2024.
On 5 December 2023, PASA issued its “connection ready” dashboards guidance. The guidance looks at what it means for a scheme to be “connection ready”, including understanding the time and effort required, the interdependencies between connecting to dashboards and ongoing administration, and the need for proper planning. A call to action for schemes and providers was published alongside the guidance, outlining the top five actions schemes need to take to prepare for connection.
Further publications are expected to follow, including practical tips and checklists to help schemes prepare.
TPR updated its cyber security guidance on 11 December 2023. The updated guidance asks trustees to report significant cyber incidents to TPR on a voluntary basis (in addition to any other reports, eg to Action Fraud or the ICO), to help it build a better picture of cyber risk. A significant cyber incident is one likely to result in a significant loss of member data, major disruption to member services, or a negative impact on a number of other pension schemes or pension service providers.
On 7 December 2023, TPR published a speech by Nausicaa Delfas, Chief Executive of TPR, on TPR’s supervisory expectations and approach during merger and acquisition (“M&A”) transactions. The speech sets out how companies should approach M&A activity, including by:
- engaging with trustees from the outset
- treating the scheme fairly with other creditors
- keeping TPR updated as detail of the deal emerges
- staying “true to their word”. If an arrangement is “watered down” after the transaction has taken place, TPR could take further action.
TPR will assess transactions to ensure any material detriment to the scheme is appropriately mitigated with the aim of resolving risks consensually, with use of its powers a last resort. Companies are reminded that in certain circumstances they can apply for clearance for assurance that TPR will not use issue contribution notices or financial support directions in relation to the transaction in the future.
The speech notes that the Government will bring forward the long-awaited legislation to introduce new notifiable events “in due course”. In the meantime, TPR expects trustees to reach out to TPR in respect of any M&A activity.
On 5 December 2023, the PPI published a research report on the role of CDC in decumulation. Currently, single or connected employers can set up “whole-life” CDC schemes, including the accumulation phase. The Government intends to legislate to enable multi-employer CDC schemes and decumulation-only CDC schemes in the future, alongside other developments including the proposed new policy framework to support individuals in decumulation.
The report explores the “trade-offs” in how a decumulation-only CDC scheme may operate under the pensions regime in the UK. It sets out a model for a CDC decumulation scheme, considers the level of benefits offered and the predictability of future benefit levels, and examines other issues associated with the implementation of CDC decumulation schemes in practice.
The PPF published the Purple Book on 6 December 2023. The book gives a comprehensive picture of the risks faced by PPF-eligible DB pension schemes in the UK, covering the period 1 April 2022 to 31 March 2023. The latest edition found that:
- there has been a year-on-year acceleration in the improvement in the net funding position, with more than 80% of schemes in surplus on a section 179 basis
- the total number of DB schemes has fallen slightly from 5,131 to 5,063 as a result of schemes winding up, merging or claiming on the PPF, though there remains a “long tail” of smaller schemes in the DB market
- the proportion of schemes invested in private equities has risen but the proportion of assets invested in UK-quoted equities has fallen to a new record low.
In an appeal against an HMRC penalty, it was found that the authorities provided to support the appellant’s case were not genuine judgments but had been generated by an artificial intelligence system such as ChatGPT (“AI”). The fictitious cases were “plausible but incorrect” because each case had similarities to real cases (eg same surname, similar facts or similar wording). The judge discusses the harms of citing invented judgments, including causing the Tribunal and HMRC to “waste time and public money”. The case exemplifies the danger of relying on AI to substantiate a legal position. See our case summary for details.