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

• DWP announces new ministerial team
• DWP publishes analysis of workplace pension participation and saving trends
• EIOPA publishes annual report
• FCA publishes findings of review into pension lifestyle investment strategies
• FOS annual review reveals increase in pension complaints
• Briefing papers published
• PensionsEurope publishes two new reports on workplace pensions
• PPF publishes Strategic Plan 2017-2020
• TPR releases analysis of Tranche 12 data
• TPR to begin AE spot checks in Birmingham

DWP announces new ministerial team

Ministerial appointments have been announced following the results of the recent General Election.

David Gauke MP takes over as Secretary of State for Work and Pensions from Damian Green MP, who is now First Secretary of State and Minister for the Cabinet Office.

Richard Harrington moves from the DWP, where he was Parliamentary Under Secretary of State for Pensions, to the Department for Business, Energy and Industrial Strategy (“BEIS”).

Guy Opperman, MP for Hexham, has been confirmed as the new pensions minister, with an expanded title of Parliamentary Under Secretary of State for Pensions and Financial Inclusion. Commenting on his appointment, the new Minister noted that “automatic enrolment has been a huge success and I look forward to our efforts to build on this.” The ongoing review of State Pension age will also fall within his remit.

The Queen’s Speech is due to take place on 21 June 2017. We understand that after this, the next Queen’s Speech is to take place in 2019. This is to allow extra time for scrutiny of legislation relating to Brexit, in the House of Commons and in the House of Lords.

DWP publishes analysis of workplace pension participation and saving trends

On 15 June 2017, the DWP published its fourth analysis of statistics on workplace pension participation and savings trends of employees eligible for automatic enrolment in a workplace pension. The analysis covers the years 2006 to 2016.

The statistics include detailed breakdowns of the impact of measures introduced by the Government to increase the number of pension savers, as well as the amount of pension savings made nationally.

According to the figures, 78% of eligible employees participated in a workplace pension in 2016, with 77% saving into one “persistently” – that is, in at least three of the last four years.

EIOPA publishes annual report

EIOPA published its annual report for 2016 on 15 June 2017.

The report aims to give a “comprehensive and thorough account” of the activities carried out by EIOPA in the implementation of its mandate and programme of work during 2016. Among other things, it provides a “detailed account of the results achieved in relation to the objectives set in the Work Programme 2016, financial land management information, as well as the risks related to the organisational activities and measures taken to address them”.

The report looks at how EIOPA is meeting its “strategic objectives”, including “improving the functioning of the EU internal market in the field of pensions and insurance”, and “strengthening the financial stability of the insurance and occupational pensions sectors”. The report also reviews EIOPA’s continued work towards the creation of a pan-European Personal Pension product.

FCA publishes findings of review into pension lifestyle investment strategies

On 14 June 2017, the FCA published the findings of its review of life insurance companies’ pension lifestyle investment strategies.

Following the introduction of the pension freedoms in 2015, the FCA set out its expectation that firms should review the appropriateness of lifestyle investment strategies and communicate to customers how their strategy related to their retirement options. It has now carried out a review of sample firms to understand the approaches being taken.

The FCA states that it is pleased “that most firms had reviewed the appropriateness of lifestyle strategies for new business and post-2012 auto-enrolment contracts, had created new default funds and lifestyle glidepaths, and had communicated with relevant customers when migration exercises have taken place.”

However, it raises concerns regarding existing and legacy business, in relation to the timeliness of review by companies, and the continuing lack of clear communication.

The FCA notes that it will be following up with firms where it has identified concerns, and that it will be inviting companies in the sector to a roundtable event in Q2 2017 to discuss the findings.

FOS annual review reveals increase in pension complaints

The Financial Ombudsman Service (“FOS”) released its annual review for the last financial year on 13 June 2017.

The review shows that overall, complaints about pensions increased by 15%, from 4,495 in 2015/16 to 5,160 in 2016/17. Complaints relating to personal pension plans rose by 20%, and those relating to self-invested personal pensions (“SIPPs”) and small self-administered schemes (“SSASs”) rose by 34%. One third of all claims relating to pensions were upheld by FOS.

Briefing papers published

The House of Commons Library published two briefing papers on 16 June 2017.

The first looks at some of the questions frequently raised by constituents with their MPs in relation to State Pensions.

The second examines the application of the section 75 employer debt provisions to multi-employer pension schemes.

PensionsEurope publishes two new reports on workplace pensions

PensionsEurope launched two new reports at its annual conference on 8 June 2017, both focussed on developing the thinking around workplace pensions in Europe.

“Towards a New Design for Workplace Pensions” aims to provide a framework for modern pension solutions and achieve good pension outcomes for members and beneficiaries, by linking the best of the DB and DC worlds. Using experiences from countries across Europe with DB systems, the paper identifies the necessary features of a good pension system – adequacy, sustainability, reliability and efficiency. PensionsEurope intends to launch a follow-up report, looking at how these principles might be applied, including the potential impact on employers and employees, as well as the political impact and the impact on regulators.

“Principles for Securing Good Outcomes for members of Defined Contribution Pension Plans throughout Europe” discusses the evolution of DC pension plans. Specifically, it considers what a good outcome for the pension system might be and sets out the principles that will support this.

PPF publishes Strategic Plan 2017-2020

On 15 June 2017, the PPF published its Strategic Plan 2017-2020. This sets out how the organisation intends to meet its objectives, focussing on funding, customer service and risk, over the next three years.

In the Strategic Plan, the PPF announces its intention to bring Financial Assistance Scheme (“FAS”) member services in-house, having completed a project to insource PPF member services in 2015. This follows work with DWP to assess the best approach to FAS administration in the long-term.

The plan sets out the PPF’s financial projections for the next three years, which includes an estimated £32 billion in assets under management by 2020.

The PPF states that it will continue to evolve its insolvency risk model, which is used to calculate the pension protection levy, to ensure the levy is as reflective of risk as possible.

Alan Rubenstein, Chief Executive, PPF said: “Our operating environment contains many uncertainties. We have a good understanding of our risks and mitigate them where they are within our control. However, the future performance of the UK and global economies, and the volatile funding levels among the schemes we protect, pose particular risks. Nevertheless, we are confident that our funding strategy puts us in a good position to face the future.”

TPR releases analysis of Tranche 12 data

On 13 June 2017, TPR released an analysis showing the expected positions of DB schemes with valuation dates between 22 September 2016 and 21 September 2017 (known as “Tranche 12” schemes).

TPR notes that the data shows how challenging market conditions have led to a jump in deficits and lower funding levels for certain DB schemes. TPR also notes that, while the majority of DB schemes remain affordable, it feels that many should do more to tackle increased deficits and reduce risk to pensioners.

The data provides context to TPR’s annual funding statement, published last month, which sets out TPR’s expectations for where schemes should increase contributions and cut risks.

Key points of the Tranche 12 analysis include:

• many Tranche 12 schemes experienced relatively favourable market conditions when conducting their last valuations (2014, Tranche 9) and as such will have been more significantly impacted by the current market conditions than schemes in earlier tranches
• although asset returns have been better than expected, generally this has not been enough to offset the increase in liabilities due to the change in market conditions, meaning overall deficits have increased and funding levels have fallen
• about 50% of Tranche 12 schemes have the resilience to maintain the same pace of funding and many will be able to increase their contributions if the circumstances of the scheme require it
• a further 37% of schemes have an employer covenant which TPR considers adequate to support the scheme but their current contribution and/or risk strategies pose unnecessary longer-term risks. Such risks may be addressed by increased funding, now combined (for some schemes) with a reduction in the level of risk
• for the group of FTSE350 companies which paid both deficit repair contributions (“DRCs”) and dividends in each of the previous six years, the ratio of DRCs to dividends declined from around 10% to around 7%. This has mainly been driven by the significant increase in dividends over the period, without a similar increase in contributions.

TPR Executive Director for Regulatory Policy, Andrew Warwick-Thompson, said: “Our annual funding statement this year takes a more directive approach than in previous years. We have been clear in what our expectations are; where we expect higher contributions into a scheme, and where we expect a scheme to reduce risk to an appropriate level and / or to seek legally enforceable support from its group or parent company. We also want more schemes and sponsors to make use of the flexibilities within the funding framework. […] Having made our expectations so clear […], if we see a situation where we believe a scheme is not being treated fairly, we are likely to intervene. For example, if a company is paying out more in dividends than in deficit reduction contributions, we will expect to see a short recovery plan. And we will expect that recovery plan to be underpinned by an appropriate investment strategy.”

TPR to begin AE spot checks in Birmingham

On 16 June 2017, TPR announced that it was extending its new regime of spot checks for compliance with automatic enrolment duties to Birmingham-based employers from this week.

Darren Ryder, TPR’s Acting Director of Automatic Enrolment, said: “The vast majority of employers become compliant ahead of their deadline but these visits help us to identify why some have not, so we can take action where we need to.”

Visits will begin in other towns and cities across the UK in the following weeks.