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
- Money Laundering and Terrorist Financing (Amendment) Regulations 2019
- Queen’s Speech
- Pensions Minister reappointed
- BEIS consultation outcome on the quality and effectiveness of audit
- EIOPA publications
- FCA publishes final rules to extend the remit of IGCs
- FCA’s Bailey confirmed as new Governor of the Bank of England
- FOS 2020/21 plans and budget, and future strategy consultation
- House of Commons Library briefing papers updated
- PPF consultation on insolvency risk scoring
- PPF publishes GMP equalisation Information note
- TPR issues leverage and liquidity research
- TPR compliance and enforcement bulletin
- PSV v Bauer (Judgment of the CJEU – 19 December 2019)
- Best wishes for the festive season and 2020
On 20 December 2019, the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were published. The regulations implement Fifth Money Laundering Directive (“MLD5”) amendments in the UK (the deadline for which was 10 January 2020), and amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The regulations follow HMT’s consultation from April 2019 on the transposition of MLD5. The explanatory memorandum notes that the government will publish its formal response to this consultation “soon”. HMRC’s “Trust or company service provider guidance for money laundering supervision” has also not yet been updated.
The Queen’s Speech, marking the formal opening of Parliament and setting out the Government’s agenda for the coming session, was delivered on 19 December 2019.
Detail included in the background briefing notes makes specific reference to a Pension Schemes Bill, the previous version of which (see our Alert) fell on the dissolution of Parliament before the general election (see 7 days). The DWP’s press office has released a video featuring Guy Opperman which suggests that the Bill has been “refined” (without explaining exactly how), and that it will be taken forward “very early in the new year”.
Following the 12 December election, Guy Opperman has been reappointed as Minister for Pensions and Financial Inclusion. The Secretary of State for Work and Pensions, Thérèse Coffey, has also retained her position. Frank Field, the Chair of the Work and Pensions Committee, lost his seat in the election.
This independent review, led by Sir Donald Brydon as part of the Government’s wider package of corporate governance reforms, considered how the audit process and product could be developed to better serve the needs of users and the wider public interest.
The report’s 64 recommendations are aimed primarily at the audit of Public Interest Entities (listed companies, and credit and insurance firms). They include the establishment of “a new corporate auditing profession with a unifying purpose and set of principles”.
On 17 December, EIOPA published the results of its 2019 Institutions for Occupational Retirement Provisions (IORPs) Stress Test. For the first time, this exercise covered the analysis of ESG factors for IORPs. The report notes “the absence of the UK sector from the exercise”.
On 18 December, EIOPA published its December 2019 Financial Stability Report of the (re)insurance and occupational pensions sectors in the EEA. As well as noting the challenges posed by a “prolonged low yield” and “persistently low interest” environment, the report notes the risks posed to pension schemes by cyber and climate change related issues.
On the same date, its Consumer Trends Report 2019 for the EEA looked at the ongoing shift from DB towards DC schemes, and the changes and innovations taking place to address the issue.
The FCA published a policy statement on 17 December 2019 setting out final rules to extend the remit of Independent Governance Committees (“IGCs”), with new duties in two areas. This follows on from its consultation in April this year.
IGCs currently provide independent oversight of the value for money of workplace personal pensions in accumulation, i.e. before pension savings are accessed. The new rules are intended to extend their remit with:
- a new duty for IGCs to consider and report on their firm’s policies on ESG issues, member concerns, and stewardship for the products they oversee, and
- a new duty for IGCs to oversee the value for money of investment pathway solutions for pension drawdown.
The policy statement also includes related guidance for providers of pension products and providers of investment-based life insurance products.
The final rules and guidance come into force on 6 April 2020. The FCA also intends to publish the findings of its review of the effectiveness of IGCs in Q2 2020.
The current FCA chief executive Andrew Bailey has been confirmed as the next Governor of the Bank of England.
He will take on the role from 16 March 2020, with the current governor, Mark Carney, agreeing to extend his term until 15 March to allow for a smooth transition.
On 16 December 2019, FOS published a consultation on its proposed plans and budget for 2020/2021, and its future strategy looking ahead to 2025 and beyond.
The consultation notes that complaints about SIPPs, including disputes over due diligence, continue to rise – and that FOS is “currently upholding around six in ten complaints involving SIPPs: far higher than the average across our casework”.
The consultation is open until 31 January 2020, with the final plans and budget, strategy paper and feedback, due to be published before the end of the current financial year.
The House of Commons Library has updated two briefing papers:
- “The Pensions Regulator: Powers to protect pension benefits”, looking at TPR’s current powers to protect pension scheme benefits and summarising recent discussions on developing those powers (including in the 2017 Green Paper, 2018 White Paper and consultation) and the proposed measures to strengthen them in the Pension Schemes Bill (see our Alert)
- “Pension tax rules – impact on NHS consultants and GPs”, looking at the impact of the tapered annual allowance on some senior NHS clinicians and GPs. It notes that, on 18 December 2019, the Department of Health and Social Care confirmed that it would “carry out an urgent review of the pensions annual allowance taper problem”, and that this review would report at the next Budget.
On 19 December 2019, the PPF launched an online consultation on the changes proposed to its insolvency risk methodology from 2021/22. This marked the start of the PPF’s new partnership with Dun & Bradstreet (D&B) and the introduction of a range of new services.
The consultation document notes that it forms the first part of wider consultation on the levy methodology that will conclude with the setting of rules for the 2021/22 levy in December 2020. It also states that subsequent consultations will cover other aspects of the assessment of insolvency risk, such as whether the current grouping of scheme employers into ten bands, and the associated levy rates, remain fit for purpose.
The consultation is open until 5.00pm on 11 February 2020.
On 16 December 2019, the PPF published an Information note “to assist schemes preparing to submit s179 valuations and certify Deficit-Reduction Contributions (DRCs)”. The note contains questions and answers relating to GMP equalisation.
TPR published new research on leverage and liquidity of DB pension schemes on 17 December 2019, which “was undertaken to help TPR and the Bank of England to assess the potential for systemic risks to arise due to the use of leverage in DB pension schemes”.
TPR states in its press release that its “initial analysis of the data shows that encouragingly many schemes are well-diversified and are actively monitoring the risks in their portfolios that may arise in relation to leverage and liquidity. However, the research also shows that some schemes are pursuing more risky investment strategies that seek extra returns, which could be damaging in the event of adverse economic shocks”. Fred Berry, TPR’s Head of Investment Consultancy, states that TPR will now “analyse the survey responses in more detail and consider how [it] can use the findings to help trustees to improve their risk management practices further”.
On 18 December 2019, TPR published its most recent quarterly compliance and enforcement bulletin. The report, which shows how TPR has used its powers, includes anonymous case studies aimed at “demonstrating how employers and pension schemes can avoid putting savers at risk and falling foul of the law”.
The accompanying press release reminds trustees that TPR urges them to engage early with the Regulator during corporate transactions and to “be transparent to protect savers”.
This reference from the German Federal labour court required the CJEU, once again, to consider the scope and interpretation of Article 8 of Directive 2008/94/EC (protection of employees’ pension rights in the event of their employer’s insolvency).
The CJEU concluded that, in some cases, the current minimum level of protection (of at least 50% of acquired pension benefits) will not be sufficient. This follows on from the Advocate General’s opinion calling into question the interpretation of Article 8.
For further detail see our case report.
This is our last 7 Days of 2019. The first edition of the new year will be published on Monday 6 January 2020.
With best wishes for 2020 from all at Sackers.