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Article | Corporate and Trustee Briefing

UK pensions news headlines – March 2019

Pensions Corporate Consulting|Pensions Risk Solutions
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By Paul Barton and Janine Bennett | March 25, 2019

Our monthly round-up of the latest developments in pensions.

Our regular round-up of pensions developments covers the Government’s plans to strengthen the powers available to The Pensions Regulator (TPR), TPR’s annual defined benefit funding statement and a consultation on investment by defined contribution (DC) schemes.

There are new rules on ‘wake-up packs from the Financial Conduct Authority, an FCA consultation on disclosure of costs and charges and new rules for asset managers. We also cover the new Money and Pensions Service, a new mid-life MOT website, a draft Order from the Competition and Markets Authority, new guidance on winding-up DC schemes and new standards for professional trustees, a pause on the valuation of public service pensions, calls for changes to the retail prices index, a look at the Rookes review and an inquiry into contingent charging on defined benefit transfers. We finish with the latest statutory annuity illustration rates and a Financial Reporting Council consultation on stewardship.

New powers for The Pensions Regulator

The Government has set out plans for amending the notifiable events framework and moral hazard provisions supported with increased powers for the Regulator. The headline announcement was the prospect of jail terms of up to 7 years for “wilful and reckless behaviour in relation to a pension scheme”. Our e-alert covered the development in more depth though it remains to be seen if there is enough Parliamentary time available.

TPR’s annual DB funding statement

The Pensions Regulator has called for long-term funding targets and a tougher stance on dividends in its annual defined benefit schemes funding statement. Our e-alert and webinar covered this issue in more detail.

DC pension schemes: investment and consolidation

The Department for Work and Pensions (DWP) has launched a consultation encouraging DC schemes to invest more in illiquid assets whilst also requiring smaller DC schemes to assess whether they should consolidate into a larger scheme. The consultation also considers a further method of assessment for compliance with the charge cap, which is intended to accommodate performance fees. The deadline for responses is 1 April 2019. Our e-alert covered the issues in greater detail.

FCA publishes rules following the Retirement Outcomes Review

Following last year's consultation, the Financial Conduct Authority (FCA) has announced new rules and guidance on 'wake up packs' that must be sent to consumers as they approach retirement, and the disclosure of charges by pension providers. It has also published a new consultation on a second package of proposals covering investment pathways, ensuring investment in cash is an active choice and actual charges disclosure. The deadline for responses is 5 April 2019. Our e-alert covered the topic more fully.

FCA consults on disclosure of costs and charges to members

The FCA is also consulting on rules to require more information on charges and transaction costs to be disclosed to members of workplace personal pension schemes. These proposals are closely aligned with the existing obligations for trustees of defined contribution trust-based schemes. Based on feedback from its ‘Call for Input’ in 2018, the FCA is also consulting on changes to the methodology used by asset managers to calculate transaction costs for trustees and Independent Governance Committees (IGCs). It is concerned about poor transaction cost disclosure and encourages providers to review their current practices. It states that “Further action in this area could include more detailed investigations into specific firms, individuals or practices.”

The consultation ends on 28 May 2019. The FCA will publish its final policy statement later in 2019, with the final rules expected to come into force from April 2020. Our e-alert contains more details.

FCA publishes new asset management rules

In addition, the FCA has published new rules and guidance to improve the quality of information available to investors in response to its asset management market study last year with a view to providing greater clarity to investors. The new rules and guidance set out how fund managers must describe their objectives and investment policies so that they are more helpful to investors. They also require managers to explain their use of benchmarks and how investors should assess the performance of the fund. The new rules come into force on 7 May 2019 for new funds and 7 August 2019 for existing funds.

Money and Pensions Service – new name makes for disclosure changes

On 4 March 2019, legislation was laid before Parliament to change the name of the recently formed Single Financial Guidance Body (SFGB) to the Money and Pensions Service (MPS) with effect from 6 April 2019. As a result, references to the Pensions advisory Service (TPAS) in disclosure material now need to be changed to the MPS - note that the interim name of the SFGB was not implemented in legislation so it didn’t have to be communicated to members. Please see our e-alert.

DWP’s mid-life MOT website

The DWP has launched a new website to provide ‘a package of support’ to give individuals ‘access to free, professional and independent guidance to help … with pension planning, working options and staying healthy.’ John Cridland put forward the concept of a mid-life MOT as part of his independent review of the State Pension Age and the DWP announced as part of its 2017 review of automatic enrolment that it would consider the policy implications of doing so.

The new website contains information on the state pension, and signposts visitors to The Pensions Advisory Service, Money Advice Service, and Pension Wise for further information. (These three bodies still have separate websites, even though they have been incorporated into the Money and Pensions Service (referred to above)).

CMA consults on draft Order

Following on from publication of its final report (see January’s Headlines for more details) , the Competition and Markets Authority (CMA) has published the draft of an Order to give effect to many of the remedies set out in that report on its investigation into the investment consultant and fiduciary management markets. It is accompanied by an Explanatory Note and a Notice of Intention to make an Order. The deadline for response is 10am on 13 March 2019. We are in the process of preparing our response on the Draft Order as part of the consultation.

TPR’s DC winding up guidance

TPR has published guidance for trustees of DC occupational pension schemes. It divides the winding-up process into four stages covering the decision to wind up, preparing for and entering formal wind up, securing members’ benefits and completing the process.

New standards for professional trustees

Professional trustees will be expected to demonstrate that they meet a new set of standards published by the Professional Trustee Standards Working Group. The standards include fitness and propriety, governance skills, ongoing professional development and managing conflicts of interest. There are also additional standards for those who act as chair or sole trustee of the board. Central to these standards is an accreditation process, part of which is to have passed the Pensions Management Institute’s (PMI) Level 3 Award in Pension Trusteeship.

Public service pensions

The Chief Secretary to the Treasury, Liz Truss, has announced a 'pause' in the valuation process for public service schemes. As a result, previously-anticipated benefit increases (under the ‘cost control mechanism' introduced in 2015) will be put on hold until the impact of the recent Court of Appeal decision (concerning age discrimination inherent in transitional provisions made for judges and firefighters) has become clear. The government is seeking permission to apply for leave to appeal.

Calls for RPI change

The House of Lords Economic Affairs Committee has published a report on the retail prices index (RPI) in which it suggests that the UK Statistics Authority could be failing in its "duty to 'promote and safeguard the quality of official statistics'". It requests changes to the calculation of RPI to ensure the government acts fairly when using inflation measures. See Sarah Greenwood’s article exploring the finds and looking into the possible implications for pension schemes.

Rookes review into British Steel member experience

An independent report by Caroline Rookes into the communications and support provided to members of the British Steel Pension Scheme restructure has made a number of recommendations, including a call for better communication and co-operation between the regulators. In a joint statement, the FCA, TPR and TPAS (now part of the Money and Pensions Service) have welcomed the report and published a joint protocol "to ensure we work in a co-ordinated way to support members of pension schemes".

The report gave some consideration of the role of social media in communicating with members, and this is an issue we explore more fully here.

Inquiry into contingent charging on DB transfers

On a similar theme to the previous item, the Work and Pensions Select Committee has carried out an inquiry into contingent charging on DB transfers. It sought evidence regarding the impact of contingent charging on the quality of advice and to explore the impact of any ban on contingent charging on consumers and firms and how any negative effects could be minimised. The deadline for response was 31 January 2019.

SMPI rates get slightly worse

The cost of index-linked annuities for 2019-20 statutory money purchase illustration (SMPIs) dates will be around 3% to 5% higher than for 2018-19 SMPIs. This is because gilt yields have fallen since last year, as confirmed by the publication of the mid-February 2019 yields and the annual update of mortality tables used. As a result, projected pensions in SMPIs with 2019-20 illustration dates will be around 3% to 5% lower, all other things being equal. This contrasts with the 6% to 9% decrease in annuity costs between 2017-18 and 2018-19 illustration dates which resulted in correspondingly higher pension projections.

Many schemes will, however, be using last year's yields for their statements this year (ie where SMPIs are dated up to 5 April 2019). As a result, they will be allowing for the decrease in annuity costs between 2017-18 and 2018-19 illustration dates. Please see our e-alert for more details.

FRC consults on stewardship

The Financial Reporting Council (FRC) is consulting on changes to the UK Stewardship Code, which applies to fund managers, pension fund trustees and other asset owners. The draft code is based on a new definition of stewardship, which identifies its primary purpose as “looking after the assets of beneficiaries that have been entrusted to the care of others”. It makes explicit reference to environmental, social and corporate governance (ESG) factors, and signatories are expected to take into account material ESG issues when fulfilling their stewardship responsibilities. These changes align with recent changes to trust-based pension schemes. The consultation closes on 29 March 2019 and the final version is expected to come into effect in July 2019.

The FRC and the FCA have also published a discussion paper on “what constitutes effective stewardship, the challenges in delivering an effective regulatory framework for stewardship in the UK and how to strike the right balance between regulatory rules and voluntary codes of best practice.” The deadline for responses is 30 April 2019.

Authors

Paul Barton
Consultant
Willis Towers Watson

Janine Bennett
Consultant

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