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

Review of industry progress in remedying poor value workplace pensions published

On 13 December 2016, the DWP and FCA published a joint report summarising the findings of their review of industry progress in remedying poor value workplace pension schemes. The report follows a recommendation for such a joint review in the Independent Project Board (“IPB”) final report. The IPB –  established in response to the OFT’s 2013 market study which found that £30 billion of savers’ funds in DC workplace pensions were at risk of delivering poor value for money – recommended that scheme providers put in place plans, by the end of 2015, to reduce fees and charges to provide better value for money.

The joint report finds that providers have made significant progress towards meeting the IPB’s recommendations to reduce cost and charges. It outlines the next steps and actions that will be taken by the DWP and FCA, as well as the main actions they expect from pension providers, IGCs, and trustees.

Andrew Bailey, Chief Executive at the FCA, said “We have seen good progress towards the goals that the IPB laid out but this is not the end of the story. Firms should continue to work to ensure that value for money is being consistently delivered […] We will be contacting the providers who have not yet taken satisfactory actions to remedy poor value schemes and we expect them to act swiftly to ensure good value for customers.”

New financial guidance body – consultation launched

On 19 December 2016, the DWP and HMT launched a consultation seeking views on the creation of a single financial guidance body to replace MAS, TPAS and Pension Wise.

The document also sets out the Government’s response to its March 2016 consultation – the “Public financial guidance review: proposal for consultation” – which had made an earlier proposal of replacing MAS with a new money guidance body, and bringing TPAS and Pension Wise together as a pensions guidance body.

The new consultation sets out a plan for how publicly funded debt advice, money guidance and pensions information and guidance will be brought within the remit of one body, “no earlier than autumn 2018”. The aim is that the new body will “complement financial guidance provided by the third sector and industry, provide more targeted support for consumers and generate efficiencies”, ensuring that “consumers can access the high quality, impartial financial guidance and debt advice that they need to make effective financial decisions”.

The Government also expects the new body to take on a strategic role, working with the charity and financial services sectors to understand and meet consumer need “in a value for money way”.

It is intended that MAS, TPAS and Pension Wise would continue to operate as normal until the introduction of the new body.

The consultation runs until 13 February 2017.

EIOPA report covers growth of digital technologies

On 16 December 2016, EIOPA issued its fifth Consumer Trends Report, which highlights the impact of digital technologies on consumers in the insurance and pensions sectors in Europe. The report notes the “slow but steady penetration of digital technologies in the pensions sector”, as a result of digitalisation and financial innovations in the conduct of business and business models.

Gabriel Bernardino, Chairman of EIOPA, stated that the changes “cannot be ignored by supervisors and regulators. While recognising the benefits of the digital era, EIOPA is following very closely the potential threats for consumers such as the availability and affordability of insurance for some consumers”.

FCA launches consultation on changes to FSCS

On 14 December 2016, the FCA announced that it was inviting views on the future funding of the FSCS, and launched a consultation on a number of specific changes to its scheme rules. This review was promised in the FCA’s April 2016 Policy Statement which reported on the main issues arising from Consultation Paper 15/30.

The FCA is inviting responses on a number of options for changing both the funding of the FSCS and the coverage it provides to consumers. These options include updating limits on consumer coverage in light of the pension freedoms.

Currently, a consumer who makes a non-insurance investment can only receive a maximum of £50,000 compensation per failed firm, whereas a consumer who invests via a life insurance contract would, under PRA rules, get 100% of their money back. The compensation limit for drawdown products is capped at

£50,000 (assuming that it is not a contract for insurance), but for insurance-based annuities it

is 100% of the loss with no upper limit. The FCA’s paper debates harmonising these compensation limits, while emphasising the need to strike an appropriate balance “between providing protection for consumers and ensuring FSCS funding is sustainable and affordable for firms”.

The FCA asks for responses to its Consultation Paper by 31 March 2017, with the aim of publishing final rules and a further Consultation Paper on proposed rule changes in autumn 2017.

FRC publishes revised Technical Actuarial Standards

The FRC published a revised set of Technical Actuarial Standards (TASs) on 14 December 2016, following consultation. The new TASs include TAS 100, which extends the scope of FRC technical actuarial standards to cover all technical actuarial work (the current standards only apply to specific areas of work and work reserved to actuaries) – and three specific TASs, including TAS 300 in relation to pensions.

The FRC has also published pages linking to feedback on the consultations, tracked changes versions of the documents, and documents mapping the requirements of existing TASs to the new standards, both TAS 100 and 300.

Melanie McLaren, Executive Director, Audit and Actuarial Regulation said, “By extending the scope of our standards we are aiming to ensure that users of actuarial information (such as pension scheme trustees, pension scheme sponsors and insurance company directors) can rely on the quality of all technical actuarial work.”

The revised standards will come into force on 1 July 2017, replacing the existing standards.

At the same time, the IFoA issued a new international actuarial standard and guidance to support the updated FRC technical standards.

FRC to review companies’ pension disclosures in 2017

The FRC announced on 15 December 2016 that it will undertake thematic reviews of certain aspects of companies’ corporate reports and audits in 2017, where it believes there is scope for improvement and particular shareholder interest.

One of the areas for review is to be pension disclosures, with the aim of “encouraging more transparent reporting of the relationship between a company and its pension plans”, as “continued low interest rates and the economics of defined benefit pension arrangements have increased the need for companies to improve the transparency of their pension arrangements”.

FRC consults on levy

On 15 December 2016, the FRC issued its Plan and Budget for 2017/18 for consultation.

The FRC pension levy normally applies to all DB and DC schemes with 1,000 members or more. In relation to its levy for 2017/18, the FRC is proposing to exempt pension schemes with fewer than 5,000 members, which would have the effect of removing around 1,200 small schemes from the funding group.

The levy rate to be applied to the schemes that remain in scope is informed by the latest available data on scheme membership provided by TPR, and takes into account the proposed smaller levy population. The proposal is therefore that the pension levy rate increases to £3.12 per 100 members.

The consultation closes on 17 February 2017.

PPF confirms Levy Determination for 2017/18

On 15 December 2016, the PPF confirmed its provisional levy rules for 2017/18, following the consultation in the autumn.

It also confirmed the levy estimate of £615m, originally published in September 2016 and which remains unchanged from 2016/17.

David Taylor, Executive Director and General Counsel at the PPF, commented that the PPF had concluded that overall the levy model “is working well.  While there are some steps that could be taken to improve it further, we believe the appropriate point to review and potentially update aspects of the model is for the next triennium. Therefore, consistent with our goal to keep the rules stable over three year periods, we are making only limited changes for 2017/18.” The changes for 2017/18 include a mechanism for stakeholders to notify Experian, the PPF’s insolvency risk services partner, where the move to new UK accounting standard FRS102 would otherwise cause an artificial movement in their rating. The rules extend the opportunity to certify impacts from FRS102 where accounts from different years are compared but have been calculated on different bases.

In the consultation paper the PPF also proposed to undertake additional work to develop the approach to charging a levy to an eligible scheme which ceases to have a substantive sponsoring employer after a restructuring.

David Taylor said: “We will put in place a special rule recognising the risk profile of schemes which cease to have a substantive sponsoring employer, should that be necessary. For that reason alone, the rules published today are not absolutely final, but our intention is only to change them in relation to this one area, if at all. Accordingly we encourage schemes to act on the levy rules now, for example putting in place and certifying risk reduction measures. This can both improve security for members and help to reduce bills by minimising the risk to the PPF – something we are keen to encourage.”

The final 2017/18 levy determination will be published by 31 March 2017.

More substantial changes are expected for the next triennium (2018/19), on which the PPF plans to consult in spring 2017.

TPR publishes response to 21st Century trusteeship and governance discussion paper

On 16 December 2016, TPR published a response to its 21st Century trusteeship and governance discussion paper.

TPR states that it will undertake a “targeted education and enforcement drive” during 2017. It will seek to make its expectations clearer about what “good looks like” and use data to more effectively target its communication approach as well as tailoring its methods to the scheme size, type and compliance history.

Andrew Warwick-Thompson, Executive Director for Regulatory Policy at TPR, said: “We know there are many highly experienced and skilled trustees, and some schemes are managed very effectively. However, too many occupational pension scheme members and sponsors are suffering financial detriment from poor stewardship […] We are not prepared to accept two classes of scheme member – those that benefit from good governance and administration, and those that do not”.

TPR therefore plans to:

  • set out clearly the higher standards it expects of a professional trustee
  • define what it means by a “professional trustee”
  • continue to encourage and support lay trustees through the development of the Trustee toolkit and targeted guidance and self-help tools
  • seek to encourage employers to allow lay trustees time off for preparation and board meetings, and to provide the additional financial support needed for them to receive effective training.

TPR will launch its education drive in spring 2017, but continues to welcome comments on any aspect of scheme governance.

Best wishes for the festive season and 2017

This is our last 7 Days of 2016. The first edition of the new year will be published on Tuesday 3 January 2017.

With best wishes for 2017 from all at Sackers.