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 DC Code to come into force

On 18 July 2016, The Pensions Act 2004 (Code of Practice) (Governance and Administration of Occupational Trust-based Schemes Providing Money Purchase Benefits) Appointed Day Order 2016 was made.

This provides that TPR’s new DC Code of Practice No. 13 will come into force on 28 July 2016. The accompanying “how to” guides are expected to be released at the same time.

For further details, please see our forthcoming Alert.

Guidance on contracted-out DB pension schemes updated

The DWP and HMRC published updated guidance on 19 July 2016, for employers and trustees, in relation to the end of contracting out from 6 April 2016. The guidance explains the impact of the changes to the contracting-out legislation, reflecting the fact that they are now in force, with fact sheets explaining what the changes are and what trustees and employers are required to do in relation to their DB schemes.

In the same week, the DWP’s webpages relating to GMPs were updated, including the links to the GMP checker service.

DWP updates Hybrid Schemes Quality Requirements Rules

On 21 July 2016, the DWP published an updated version of the Hybrid Schemes Quality Requirements Rules 2016. The rules set out the detailed quality requirements that a hybrid pension scheme must satisfy to be used for an employer’s automatic enrolment duties, and came into force on 6 April 2016.

A “minor and technical error” (in cross-referencing) was corrected by the update.

FCA speech notes pensions challenge

In a speech delivered at the FCA’s Annual Public Meeting on 19 July 2016, Andrew Bailey, FCA Chief Executive, said that pensions present “the biggest single challenge ahead in the provision of financial services in this country”.

Referencing the recent reforms and the introduction of retirement flexibilities in 2015, he described the “complex landscape” of pensions and the retirement income market, and noted the FCA’s activities in the consumer protection and scheme governance arenas.

FSCS Annual Report and Accounts show rise in payouts

The FSCS has published its Annual Report and Accounts 2015/16. In particular, the accompanying press release notes the rise in compensation paid in relation to pensions, stating that claims against the life and pensions advice sector led to a compensation bill of just less than £84m, up from £35m the previous year.

The rise was attributed in large part to the increase in the average pay-outs against advisers recommending high-risk non-standard investments to hold in SIPPs, which rose year-on-year from £29,500 to £38,600.

Government Response to report on automatic enrolment published

The Government’s response to the Work and Pensions Committee report on automatic enrolment was published on 22 July 2016.

In its response, the Government:

  • agreed that there is a need for new legislation to tackle “the problem of unstable Master Trusts”
  • agreed to develop and test messaging about the consequences of non-compliance for the next stage of the automatic enrolment campaign
  • noted employer concerns regarding their potential liability in making scheme choices, and offered reassurance on this issue. It noted, however, that employers should ensure that they would be able to evidence that they have had “due regard” in their choice of qualifying scheme
  • noted the Committee’s concerns about the potential impact of the LISA on automatic enrolment, and that an Impact Assessment would be carried out
  • confirmed that the DWP has a legislative commitment to review some of the specifics of automatic enrolment in 2017

House of Commons Library publishes briefing paper

On 20 July 2016, the House of Commons Library published a briefing paper on Brexit and the implications for pensions. Noting that “the implications of Brexit for pensions are as yet unknown”, the note brings together initial responses from relevant organisations.

PPF publishes Annual Report and Accounts 2015/16

The PPF released its 2015/16 Annual Report and Accounts on 21 July 2016.   The figures show a £4.1 billion surplus and a funding ratio of 116.3 per cent, which the PPF states puts it “in a strong position to face the future”.   Andy McKinnon, the PPF’s Chief Financial Officer, said: “We had a successful year despite the challenging economic backdrop. Our robust strategy has put us in a strong position to manage the uncertainties ahead and our long-term risk model predicts that we will achieve financial self-sufficiency by 2030 in 93 per cent of scenarios. Members of defined benefit pension schemes in the UK can be reassured that we will protect their financial future should their employer fail.”

Intended to place the financial results in their broader, long term context, the PPF also published its annual Funding Strategy Update (as at 31 March 2016) on the same day. This document describes the framework in which the PPF makes its financial decisions and how it assesses financial risks to the fund.

PPI issues Briefing Note 83

The PPI released its latest Briefing Note (83) (How could the effect of rises in state pension age be mitigated for the most vulnerable?), on 20 July 2016.

Commissioned by Age UK, the Briefing Note sets out the history of the SPA, explores current and future increases to it, and examines the implications of some potential policies which could mitigate the effects of increases on vulnerable people.

The note contains high level analysis of a range of mitigation policies, and is aimed at encouraging discussion, rather than making recommendations for policy reforms.

TPR publishes research on DC standards

On 20 July 2016, TPR published its latest research report on standards in DC schemes, examining whether DC schemes are fulfilling the standards set out in TPR’s new DC code (see above). TPR is urging trustees to put the Code, accompanying guidance, and its other trustee support facilities (such as the Trustee toolkit) to good use to ensure that schemes meet the requirements set out in legislation.

TPR’s research shows that larger schemes consistently out-perform smaller schemes on all aspects of governance and administration. TPR wants to prevent members in sub-standard schemes from suffering unsatisfactory outcomes and is encouraging debate on how best to address this challenge through its 21st century trustee initiative.

Key findings included:

  • a strong correlation between scheme size and the number of legislative governance standards being met. Half of master trusts in the survey met at least 75% of the relevant standards, compared to 25% of large, almost a third of medium, and only a minority of small and micro DC schemes
  • the boards of master trusts and larger DC schemes were confident that they understood the requirements of the annual chair’s statement, but confidence was lower in small schemes (74%) and in micro schemes (59%).

Executive Director of Regulatory Policy Andrew Warwick-Thompson said: “Members have the right to expect that their scheme will pay them the right benefits at the right time. That’s why good governance is so fundamental to pension trustees’ duties. I’m concerned that some trustees aren’t keeping pace with new legislative requirements, or even meeting the basic ‘hygiene factors’ such as keeping accurate member records or completing a scheme return to TPR.

“But this is not just about smaller schemes, standards need to improve across the board. Well-run master trusts can offer a number of benefits to members. However, I’m concerned that just half of master trusts are meeting 75% of the relevant standards. That’s why we welcome the Government’s proposal to give TPR new powers to regulate these schemes more effectively.”

TPR publishes paper on the role of a 21st century trustee

As part of its work to examine how trustee boards can meet the challenge of scheme governance in the 21st century, on 22 July 2016 TPR published a discussion paper setting out what it is doing to educate and support trustees of both DC and DB schemes.

Drawing on the findings of its research in a number of key areas, TPR is also looking at what more it and the wider pensions industry can do to raise standards of trusteeship.

TPR asks a number of questions in the paper, on subjects ranging from the role of the chair of trustees, awareness and understanding of the TKU framework, whether professional trustees should be required to be qualified or registered by a professional body, and whether qualifications or a Continuous Professional Development framework would be appropriate for all trustees.

TPR’s primary focus remains on education and support for trustees. But TPR will also continue to take enforcement action where appropriate.

Written responses to the discussion paper are requested by 9 September 2016.

For more details, please see our forthcoming Alert.