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 Bill progress
- DWP response to review of default charge cap
- ECPA paper focuses on importance of employer longevity
- EDPB updates documents on end of Brexit transition period
- EDPB & EDPS adopt joint opinions on new sets of SCCs
- FCA launches DB Advice Assessment Tool
- Investment Association and PLSA launch stewardship steering group
- PPI report on the issue of small DC deferred pots worldwide
- TPR response on DB funding code of practice consultation
- TPR updates COVID-19 guidance on DC scheme management and investment
The Pension Schemes Bill will return to the House of Lords on Tuesday 19 January 2021 for its final stages during which the Lords will consider the Commons’ amendments.
On 11 January 2021, the Pensions Minister confirmed that the extension of TPR’s powers and the new criminal sanctions under the Bill are not intended to be retrospective, and that TPR is expected to produce guidance on the new powers following consultation with the pensions industry.
On 13 January 2021, the DWP published its response to the Review of the Default Fund Charge Cap and Standardised Cost Disclosure, following a consultation (see our Alert) in June 2020, together with the results of the Pension Charges Survey 2020.
The DWP has decided not to reduce the current charge cap of 0.75% “at this time” after evidence from the survey found the average charge across schemes is 0.48%.
It has also decided not to extend the scope of the charge cap to include transaction costs after evidence showed it could “stifle innovation and diversification and the ability to manage volatility risks”. In addition, the survey found that there has been increased monitoring of transaction costs by trustee boards for the purpose of the annual governance statement.
The Government will introduce a de minimis pot size, initially set at £100, below which flat fees cannot be charged in default funds. If a member has multiple pots within the same scheme, the de minimis would apply across all the pots being charged. The Government will keep this de minimis level under review. It will also take the recommendations of the Small Pots Working Group into account when considering broader action to prevent small pot proliferation.
The feedback to the call for evidence showed support for improving disclosure and increasing the uptake of standardised cost disclosure templates (“CTI templates”, see 7 Days). The Government is to closely monitor the voluntary adoption of the CTI templates and will look to introduce legislation in the future if it does not see satisfactory voluntary take-up levels.
The Employer Covenant Practitioners Association (“ECPA”) has published a paper emphasising the importance of understanding sponsor longevity as part of the evaluation of the employer covenant for DB schemes. The paper examines a range of approaches for assessing employer longevity and factoring it into scheme funding and investment decisions.
On 13 January 2021, the EDPB updated its statement on the end of the Brexit transition period, which it adopted on 15 December 2020. It also updated its accompanying information note. The updates reflect the bridging mechanism for EU to UK data transfers included in the EU-UK trade and co-operation agreement of 24 December 2020.
Following consultation on revised standard contractual clauses (“SCCs”), the European Data Protection Board (“EDPB”) and the European Data Protection Supervisor (“EDPS”) have adopted joint opinions on two sets of SCCs – for contracts between controllers and processors (“the Controller-Processor SCCs”), and for the transfer of personal data to third countries (“the Third Country Transfer SCCs”).
The Controller-Processor SCCs will have an EU-wide effect and are intended to ensure full harmonisation and legal certainty across the EU for contracts between controllers and their processors. The Third Country Transfer SCCs will replace the existing SCCs for international transfers and take into account the ECJ’s decision in Schrems II.
Since the retirement flexibilities were introduced in 2015, the FCA have regularly assessed the suitability of advice given by firms advising on pension transfer and have consistently found that levels of unsuitable advice are too high.
On 15 January 2021, the FCA published a press release announcing the launch of its DB Advice Assessment Tool (“DBAAT”). The tool sets out the key factors to consider when checking the suitability of advice and disclosure, enabling firms to understand how the FCA assesses the suitability of DB pension transfer advice and what is expected.
The DBAAT is used to assess advice given before October 2020. An updated tool that incorporates rule changes that came into force on 1 October 2020 will be published in the coming months. The FCA will also publish Finalised Guidance alongside the updated DBAAT, following its earlier consultation on advising on pension transfers.
The IA and the PLSA have jointly launched a new steering group to examine how stewardship and a focus on long-term investment can be better integrated into the investment process to create sustainable value for savers and investors. The new steering group brings together asset owners, investment managers and other relevant stakeholders to consider a range of issues, including:
- the role investment managers’ disclosures play in the information flow between investment managers and asset owners in their approach to stewardship
- the role of asset owners in ensuring stewardship plays a key role in their approach to manager selection and ongoing performance and oversight assessment.
Among other matters, the steering group is intended to help deliver on the recommendations presented by the Asset Management Taskforce Stewardship Working Group in its report, “Investing with purpose: placing stewardship at the heart of sustainable growth”, which was published in November last year and aims to better embed stewardship into the investment process.
The PPI has published a report which explores whether other countries have faced challenges related to multiple small pension accounts, and how these have been dealt with. The main findings were that:
- without unique identification numbers, centralised transfer and consolidation systems are less effective
- systems of transfer and consolidation are easier for employers to comply with when there is a large central platform, or several connected platforms
- unified data standards help to ensure a less costly and speedier transfer system.
The report is intended to support the cross-sector working group on small pension pots which launched in September 2020 and which has been given the remit to make interim recommendations on the issue for the UK. The working group’s report on small pension pots was published in December 2020.
On 14 January 2021, TPR published an interim response to its first consultation on the new DB funding code of practice. It confirmed that whilst there was “general support” for the principles and regulatory approach proposed in the consultation, there were also some concerns on how the principles would be applied in practice through the proposed twin-track regime, including:
- risks associated with where Fast Track guidelines would be set (such as schemes “levelling down” and possible increases in costs of DB pension provision)
- proposed Fast Track guidelines for open schemes (with some “myth busting” provided in a recent TPR blog post)
- potential loss of flexibility (eg through benchmarking the Bespoke route against Fast Track)
- an increased evidential burden when submitting a Bespoke valuation
- the Bespoke route being perceived as second best
- what a greater trustee focus on covenant visibility will mean for schemes’ ability to rely on covenant beyond the medium term.
A full response to the first consultation is to be provided through the second consultation document which TPR expects to be published in the second half of 2021, after the Pension Schemes Bill has been enacted and the DWP has launched its consultation on the underlying draft funding regulations. As well as providing a full response to the first consultation, the second consultation will set out the draft code, and TPR’s proposed regulatory approach.
On 11 January 2021, TPR updated its guidance on COVID-19 and DC scheme management and investment to include a new section on transfer requests where a member’s pension savings are held in a gated (temporarily closed) fund.
TPR acknowledges that payment of a CETV is likely to be problematic where all or part of a member’s investment is held in a gated fund. However, where this is the case, TPR does not consider that it has the power under legislation to grant an extension to the statutory timeframe for payment of a CETV.
TPR therefore reminds trustees that they must process these transfer requests promptly and that it may fine trustees who fail to take all reasonable steps to pay a transfer value within the statutory timeframe. According to the guidance, reasonable steps might include exploring with the receiving scheme whether the monies from the gated section could follow once the fund has re-opened and, if so, offering the member a partial transfer as an interim measure.