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
- Briefing papers on pensions dashboards and the future of pensions policy
- FCA evaluation on financial advice market
- Fifteenth version of the Purple Book published
- HMRC issues Pension Schemes Newsletter 126
- Launch of new working group to address stewardship barriers
- PPI briefing note on engaging with ESG
- WPC writes to TPR
The House of Commons Library has published two new briefing papers:
- a briefing paper looking at the debate on the pensions dashboard, which is being developed to enable people to view all their lifetime pension savings (including their state pension) in one place, and
- a briefing paper which explores a range of issues that will form part of a Westminster Hall debate on the future of pensions policy, including various clauses and amendments of the Pension Schemes Bill, pensions scams, auto-enrolment and State Pension reform.
It has also updated its briefing paper on the Pension Schemes Bill.
On 3 December 2020, the FCA published an evaluation of the impact of the Retail Distribution Review (“RDR”) and the Financial Advice Market Review (“FAMR”), its review focusing on financial advice, guidance and information services available for retail investments and pensions.
In summary, the FCA found that “the financial advice market is improving, albeit slowly”. However, it also found that many consumers are holding their money in cash rather than investing it, so are “missing out on the potential opportunity to make their money work better for them in the longer term”.
The FCA acknowledges that the current regulatory framework may pose challenges to further market development in sufficiently meeting consumer needs, and recognises its own role in making sure the regulatory challenges noted in the evaluation are explored and addressed where possible.
The FCA will use the evidence from the evaluation and the feedback to its Call for Input on Consumer Investments to inform its work addressing some of the regulatory challenges. It expects to carry out this work during the first half of 2021 and will provide a further update at that point.
The FCA notes that its research was completed before March 2020 so longer-term changes resulting from COVID-19 will need to be considered as part of the development of any future work.
The PPF published the fifteenth edition of the Purple Book on 2 December 2020, which gives a comprehensive picture of the risks faced by DB pension schemes in the UK, reviewing 5,318 (99.8%) of the estimated 5,327 private DB schemes eligible for the PPF. The data is based on information that eligible schemes are obliged to provide to TPR, and covers the period from 1 April 2019 to 31 March 2020.
The latest edition found that, as of March 2020, the DB scheme aggregate funding ratio declined to 94.9%, largely due to market movements following the COVID-19 pandemic. This resulted in lower gilt yields driving up liability values and a fall in equity value.
It also reveals:
- the universe of DB schemes continues to shrink. There are now 5,327 eligible schemes, down from 5,436 in 2019 and 7,751 in 2006. The number of members in those schemes is now 9.9 million, compared with 10.1m in 2019 and 14m in 2006
- 63% of DB schemes in deficit had a combined deficit of £229bn, up from £160bn in March 2019, and
- on an estimated full buy-out basis, the net funding position worsened to a deficit of £668.5bn from a deficit of £644.92bn in 2019, although the funding ratio improved slightly from 71.52% to 71.8%.
Despite the statistics, the PPF commented that it remains “on a strong footing to continue protecting the UK DB pensions universe”.
On 3 December 2020, HMRC published Pension Schemes Newsletter 126. The newsletter covers a number of issues, including:
- guidance on migration to the Managing Pension Schemes Service
- guidance on residency status reports, including a reminder to scheme administrators operating relief at source that they should submit the 2019/20 return as soon as possible, and an update on the format of APSS106 – registered pension schemes relief at source annual claim
- a repeat of the reminder from Pension Schemes Newsletter 119 that HMRC has not and will not be issuing notices to file pension schemes returns for 2019/20
- guidance on signing in to online services with a link to a step by step guide
- clarification on in-specie contributions, and
- a reminder that members who exceeded their AA for 2019/20, and who do not have sufficient unused AA to carry forward to cover the excess, should declare this on their self-assessment tax return, even if the scheme is paying the tax charge.
On 1 December 2020, the DWP announced the launch of a new working group which is intended to improve trustees’ stewardship of the companies they are investing in. The working group will be tasked with:
- helping drive solutions to “voting system issues”, with specific reference to addressing present obstacles
- increasing the number of asset managers who are prepared to engage with their clients’ preferences
- recommending regulatory and non–regulatory measures to ensure the convergence of asset managers’ approaches to voting policy and execution with trustees’ policies.
The formation of the working group was a key recommendation in the AMNT’s recent report, “Bringing shareholder voting into the 21st century: An examination of the barriers to effective stewardship and how to overcome them”.
On 2 December 2020, the PPI published a briefing note on engaging with ESG. This briefing note provides an overview of historical developments and regulatory changes that have led to the current ESG landscape in the UK and is the first in a series of three publications intended to delve deeper into the attitudes and approaches currently being implemented in relation to ESG, with the aim of highlighting areas where further support or intervention could be beneficial in order to improve engagement and implementation of appropriate risk management.
On 30 November 2020, Stephen Timms MP, chair of the WPC, wrote to TPR to “highlight the importance of protecting the interests of Arcadia Group pension scheme members amid ongoing uncertainty about the future of the retail company”.
The letter calls for clarity on the status of the £385 million package previously agreed by TPR, Arcadia and the group’s owner Lady Green. It also asks what is being done to protect Arcadia scheme members from pension scammers and about the guidance on DB superfunds (see our Alert for details).