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

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

The Corporate Insolvency and Governance Act 2020 (see our Alert) introduced permanent provisions relating to corporate insolvency, alongside temporary measures intended to provide businesses with protection during national COVID-19 restrictions. As the pandemic is still ongoing, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021 (which came into force on 22 June 2021) extend temporary modifications relating to winding-up petitions until 30 September 2021. These restrictions are intended to help protect companies from aggressive creditor action while they continue to be financially impacted.

The draft Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021

The draft Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021 have been made and come into force on 1 October 2021. These draft 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.

Pension Schemes Act 2021 (Commencement No 2) Regulations 2021

On 23 June 2021, the Pension Schemes Act 2021 (Commencement No 2) Regulations 2021 were made. These are the second commencement regulations to be made under the PSA21. Coming into force on 25 June 2021, the changes ensure that the affirmative procedure (namely, approval by both Houses of Parliament) will apply to certain regulations in relation to contribution notices.

These regulations will include the draft Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021 (see 7 Days), which are expected to come into force in October 2021.

Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

A Private Members’ Bill aimed at amending and clarifying existing GMP conversion legislation has been introduced in the House of Commons. Details of the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill are awaited and its second reading is not due to take place until 26 November 2021.

Data protection updates

UK adequacy decisions adopted

A temporary bridge, enabling the continued free flow of personal data from within the EU/EEA to the UK whilst an adequacy decision was pending had been due to fall away on 30 June 2021 (see 7 Days). However, the EU Commission has today, 28 June 2021, announced that it has adopted the two UK adequacy decisions.

The adequacy decisions include a so-called “sunset clause”, which limits their duration, meaning that the decisions will automatically expire four years after their entry into force. The adequacy findings may then be renewed if the UK continues to ensure an adequate level of data protection. During the next four years, the Commission will “continue to monitor the legal situation in the UK and could intervene at any point, if the UK deviates from the level of protection currently in place”.

The ICO has welcomed the decision, noting that “approved adequacy means that businesses can continue to receive data from the EU without having to make any changes to their data protection practices. Adequacy is the best outcome as it means organisations can carry on with data protection as usual”.

Data flow in the opposite direction (ie from the UK outwards to the EU/EEA, and to any countries covered by an EU adequacy decision as at 31 December 2020) remains permitted, and is not affected by this decision. They will be kept under review by the UK Government, however, which now has the power to make its own adequacy decisions.

Supplementary measures adopted for data transfers to third countries in response to Schrems II

On 18 June 2021, the European Data Protection Board (“EDPB”) adopted the final version of its Recommendations 01/2020 on measures that supplement transfer tools to ensure compliance with the EU level of protection of personal data. These were first adopted in November 2020 following the ECJ’s ruling in Schrems II and now take account of feedback from the public consultation (see 7 Days).

The recommendations aim to help data exporters under the EU GDPR assess third countries and to identify appropriate supplementary measures where needed. They include a six-step roadmap for applying the principle of accountability to data transfers in practice.

The EDPB notes that the recommendations will be helpful when implementing the new standard contractual clauses (which include a warranty that the parties have no reason to believe that the laws and practices in the third country prevent the data importer from fulfilling its obligations) and assist exporters in determining when supplementary measures are required.

FCA consults on climate-related disclosure rules

The FCA has launched a consultation on proposals to introduce climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA-regulated pension providers. This sits alongside the recently finalised requirements for occupational schemes (see our Alert). Under the proposals, firms would be required to publish an annual TCFD report on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. Firms would also be required to produce a baseline set of consistent comparable disclosures in respect of their products and portfolios, including a core set of metrics.

The FCA is also consulting on extending climate-related disclosure requirements to issuers of standard listed equity shares. These issuers will be required to include a statement in their annual financial report setting out whether they have made disclosures consistent with the TCFD’s recommendations. Where they have not done so, an explanation will be needed as to why, what steps they are taking to do so and over what timescale.

The FCA proposes to publish guidance to assist those in scope of this new requirement, but this is not included in the current consultation. The new rule is intended to take effect for accounting periods beginning on or after 1 January 2022.

Both consultations close on 10 September 2021 and the FCA intends to confirm its policy on climate-related disclosures before the end of the year.

The FCA is also looking for stakeholder “discussion and engagement” on other topical ESG issues including those related to green, social or sustainable debt instruments, and the increasingly prominent role of ESG data and rating providers. It intends to publish a feedback statement in the first half of 2022.

GAD recommends cost control reforms

On 22 June 2021, GAD announced the outcome of its review of the cost control mechanism used in public service pension schemes, which was established as part of wider reforms introduced by the Public Service Pensions Act 2013. This is a risk-sharing arrangement that seeks to maintain the level of employer support for public service pension schemes. Where the costs of schemes change beyond set limits, then member benefits within that scheme can be altered to bring costs back to the original level.

HMT had requested the review following concerns about the mechanism’s operation. GAD’s response outlines various recommendations as to how it could be improved.

HMT consultations on public service pension reforms

On 24 June 2021, HMT published two consultations:

  • Public service pensions: cost control mechanism consultation which sets out the Government’s proposed changes to the cost control mechanism, following its review (see above). In particular, the consultation seeks views on three changes recommended by GAD with the intention of establishing “a fairer balance of risks” between taxpayers and scheme members, and creating a more stable mechanism
  • Public service pensions: Consultation on the discount rate methodology seeks views on the methodology used to set the SCAPE discount rate (used in the valuation of unfunded public service pension schemes to set employer contribution rates). Views are being sought on the objectives and the most appropriate methodology for setting the discount rate going forward.

Both consultations close on 19 August 2021.

HMRC issues Pension Schemes Newsletter 130

On 25 June 2021, HMRC published Pension Schemes Newsletter 130. The newsletter covers a number of issues, including:

  • an extension to some of the temporary changes to pension processes as a result of COVID-19
  • issues on migration to the Managing Pension Schemes service (from Pension Schemes Online)
  • the need to sign into HMRC’s online pension services to retain access to these, and
  • guidance for SIPP and small self-administered scheme pensions on commercial property holdings.

PASA publishes data report

PASA’s Data Working Group has published a report titled “Data is at the heart of every scheme”, reminding schemes of key areas impacted by inadequate data management. It calls on the industry to require “a much greater emphasis on data”.

PRAG publish guidance on pension fraud risks

On 24 June 2021, the Pensions Research Accountants Group (“PRAG”) published a guidance note on the types of fraud that pension schemes may suffer and how schemes can manage their risks in this area. The guidance is primarily intended for trustees and managers and seeks to help them consider where fraud risks might lie in their schemes, setting out case studies for the main fraud types.

TPR issues 2021 Annual Funding Statement analysis

On 24 June 2021, TPR published its annual funding statement analysis for 2021, intended to give further context to (but not to supersede) its 2021 annual funding statement.

The analysis shows that most major asset classes invested in by UK pension funds achieved substantially positive returns over the three years to 31 December 2020 and the three years to 31 March 2021. The “significant and uneven impact” of the COVID-19 crisis on employers of many schemes means that recent trends in employer affordability based on historic data are likely to be of limited use, and TPR has therefore excluded these from the analysis.

TPR’s plans for equality, diversity and inclusion

On 24 June 2021, TPR published its Equality, Diversity and Inclusion Strategy which outlines “how it plans to lead by example to create a fairer and more inclusive culture across the pensions industry and work with others to address inequality among savers”. The aims of the strategy include:

  • building a collective understanding of why pensions inequalities occur and work in partnership with others seeking to reduce them
  • promoting higher standards of equality, diversity and inclusion among TPR’s regulated community.

By the end of 2021, TPR will create a strategy with stakeholder representatives “which will support and set targets for the development of more diverse and inclusive boards of trustees/managers. This plan will also agree how to share resources and best practice in the long term”.