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
- Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021
- DWP consults on GMP fixed rate revaluation
- DWP statistics on workplace pension participation and savings trends
- NAO report on state pension underpayments
- PASA publishes communications guidance
- Pensions minister confirms AE reforms to be expected in “mid-2020s”
- PPF update on compensation cap
- PPI DC Future Book 2021
- Taskforce on Pension Scheme Voting Implementation report
- TPR reminds schemes of VFM changes
Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021
The Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021 were made on 20 September 2021 and come into force on 1 October 2021. These regulations place new administration and governance requirements on trustees of occupational DC pension schemes, requiring trustees of certain DC schemes to disclose their investment returns and to demonstrate that they are providing value for their members. The regulations also increase flexibility for schemes to take account of performance fees payable to fund managers when calculating the DC default fund charge cap. They also make other minor technical changes, including to the ways in which specific types of scheme must comply with the requirements to produce a SIP. For further detail on the changes, please see our Alert.
TPR has now revised its guidance to take into account the new requirements around value for members (see below).
On 23 September 2021, the DWP published a consultation seeking views on a proposed reduction in the rate of revaluation applied to GMP fixed rate revaluation for early leavers, from 3.5% to 3.25% per annum. The GMP fixed rate is reviewed every five years; the current rate has applied from 6 April 2017, meaning that any new rate would be applied for those leaving pensionable service on or after 6 April 2022. The consultation closes on 18 November 2021.
The DWP has taken GAD’s advice on the rate that should apply, and published this alongside the consultation.
On 21 September 2021, the DWP published its latest statistics on Workplace Pension Participation and Savings Trends between 2009 and 2020. This edition provides additional information on the pension saving and contributions trends over the COVID-19 pandemic. The statistics show that, after years of increasing participation during the roll-out of AE, participation rates have now stabilised. Trends in the number of savers stopping contributions have remained relatively stable during the COVID-19 pandemic.
The National Audit Office (“NAO”) has published a report on its investigation into the underpayment of state pensions (see 7 Days). The NAO estimates 134,000 pensioners may have been underpaid an amount in excess of £1bn (an average of £8,900 each) but notes there is still uncertainty as to the actual number of individuals affected and the full value of these underpayments. The NAO have attributed these underpayments to “repeated human error over many years, some level of which was almost inevitable given the system’s high degree of manual review and complex rules.”
On 27 September 2021, the cross industry GMP Equalisation Working Group published guidance on communication with members, entitled “Guide to GMP Communications – Implementation Stage”. This follows previously issued guidance on the early planning stages of the communications process in August 2020 (see 7 Days). The guidance is intended “to support trustees and administrators where they’re starting to communicate with members and deliver equalisation”.
The guidance includes:
- broad principles schemes can follow when implementing their communications
- detail on the member’s perspective and the normal context of other scheme communications
- detail on timing for the communications activity and delivery milestones
- detail on who to communicate with, what to tell them and why
- planning for data to use in communications
- post equalisation considerations for “business as usual” communications.
On 21 September 2021, Minister for Pensions and Financial Inclusion, Guy Opperman, confirmed that the Government is committed to implementing the 2017 Automatic Enrolment Review recommendations in the “mid-2020s” in order to “expand coverage” of AE.
In response to a written question, Mr Opperman said: “We are committed to… lowering the age for being automatically enrolled from 22 to 18 and abolishing the automatic enrolment lower earnings limit, so that contributions are payable from the first pound of earnings… We will do this in light of the impact of the pandemic and our overall support for economic recovery, while continuing to support long-term saving, balancing the needs of savers, employers and tax-payers.”
Following the July Hughes judgment in which the Court of Appeal ruled that the imposition of the PPF compensation cap constitutes unlawful age discrimination, the PPF has published an update on the progress it has made regarding the removal of the cap.
The PPF’s general approach will be to offer the option of a lump sum to members who retired after their scheme’s assessment date (with no tax charge to members), as well as increasing and paying arrears on monthly compensation. The PPF is still finalising whether it will implement a six-year time limit on such payments. The PPF will write to members who retired after their scheme entered assessment to gather information about their LTAs.
The PPF has also said that Financial Assistance Scheme (“FAS”) members are entitled to a pension increase to ensure they receive 50% of the value of their accrued old age benefits.
On 23 September 2021, the Pensions Policy Institute (“PPI”) published its seventh edition of The DC Future Book which outlines data on the DC landscape with analysis and projections of future trends. This edition also looks at the impact of the COVID-19 pandemic on DC investment strategies, how trustees have responded and what lessons can be learnt.
On 20 September 2021, the Taskforce on Pension Scheme Voting Implementation (“TPSVI”) published a report setting out its recommendations for giving pension savers a voice in how their savings are invested and to strengthen the role of those who manage those savings. The Taskforce was launched in December 2020 to address problems in the voting of equity shares by pension schemes (see 7 Days).
The three main recommendations are that:
- pension scheme trustees should either set their own voting policy, or explicitly accept responsibility for those policies exercised on their behalf by their asset managers
- all asset managers should offer asset owners the opportunity to set an “expression of wish” as to how votes are exercised on their behalf, regardless of how they invest
- the FCA should clarify via guidance that there is no breach of fund rules in acting on an expression of wish and “set expectations of asset managers for: better disclosure of voting policies; more granular and comparable reporting of how votes are cast; and more comprehensive explanations for those votes”
The Taskforce also calls on the Government, regulators and industry to sign up to four “Key Principles for Voting”, covering expressions of wish, “form over substance” in respect of the nature of relationships, transparency over voting entitlements in products, and co-operation in the voting chain.
On 23 September 2021, a TPR press release reminded smaller scheme that they must prepare “a more rigorous value for money (“VFM”) assessment” in line with regulations coming into force with effect from 1 October 2021 (see above). Under these regulations, trustees of DC schemes with less than £100 million in assets must compare their scheme’s costs, charges and investment returns against other schemes. They must also carry out a self-assessment of their scheme’s governance and administration in line with key metrics. To help schemes prepare the new assessment, TPR has updated several pages of its guidance including its value for members guide and guidance on the Chair’s statement.
This sits alongside the DWP statutory guidance issued in June (see 7 Days).