Welcome to our final edition of Trustee Agenda for 2019.
In this edition we feature an article on the much-anticipated Pension Schemes Bill. Amongst other things, the Bill includes a package of measures aimed at strengthening the powers of the Pensions Regulator as well as some fundamental changes to the scheme funding regime. Although Parliament has been dissolved ahead of the general election since the Bill was published, we understand it is a Bill with cross-party support and so is likely to be re-introduced, regardless of the outcome of the general election.
We also place the spotlight on the Investment Consultancy and Fiduciary Management Market Investigation Order, which came into force earlier this year. The Order states that trustees must not continue to receive investment consultancy services, unless they have set strategic objectives for their investment consultant by 10 December 2019 – so that deadline is looming.
Finally, we draw attention to the ECJ decision in Safeway v Newton which relates to the equalisation of normal pension ages for men and women, and will be of interest to trustees of schemes which purported to equalise normal pension ages by way of an announcement to members.
As always, do let me know if there are any particular topics or issues you would like to see covered in future editions of Trustee Agenda.
In the meantime, all best wishes for the festive season and the new year.
Claire Petheram
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Summary
What next for the Pension Schemes Bill?
> The long-awaited Pension Schemes Bill was published in October, but less than a month later its progress was stalled by the dissolution of Parliament. It seems unlikely that we have seen the last of the Bill though, so it’s worthwhile getting to grips with its contents.
> The Bill includes a package of measures aimed at strengthening the powers of the Pensions Regulator, as well as some fundamental changes to the scheme funding regime. These are significant changes which, if enacted, could have far-reaching consequences for sponsoring employers and trustees of defined benefit (DB) pension schemes.
Setting objectives for investment consultants
> Following the Competition & Markets Authority’s (“CMAâ€) investigation into investment consultancy and fiduciary management services to pension scheme trustees, the CMA published an Order in June 2019 setting out new requirements for trustees who make use of these services. This article focuses on the requirements under the CMA’s Order to set objectives for investment consultants by 10 December 2019. We also take a look at developing practice amongst trustees and investment consultants as to what an appropriate set of objectives might look like.
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Summary
Still hope for schemes grappling with historic equalisation issues?
> The European Court of Justice recently handed down its decision in Safeway v Newton, a case relating to the equalisation of normal pension ages (NPAs) for men and women. The ECJ ruled that schemes cannot retrospectively equalise benefits on the less favourable basis, even where this is allowed by UK law and the scheme rules.
> This decision will be of interest to trustees of schemes which purported to equalise NPAs by way of an announcement to members and only made a formal amendment to the scheme rules at a later date.
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What next for the Pension Schemes Bill?
The long-awaited Pension Schemes Bill was published in October. Less than a month later, Parliament was dissolved ahead of the general election. This means the Bill will make no further progress at this time. But it seems unlikely that we’ve seen the last of the Bill: Pensions Minister Guy Opperman has stressed that the Bill has cross-party support, so we could well see it being re-introduced regardless of the outcome of the general election. As a result, it is worthwhile getting to grips with the contents of the Bill.
So, what’s in the Bill? It includes a package of measures aimed at strengthening the powers of the Pensions Regulator, as well as some fundamental changes to the scheme funding regime. These are significant changes which, if enacted, could have far-reaching consequences for sponsoring employers and trustees of defined benefit (DB) pension schemes. This article summarises the key provisions likely to be of interest to trustees.
Strengthening the Pensions Regulator’s powers
The Bill includes a raft of provisions aimed at strengthening the Regulator’s powers. These include:
New criminal offences
The Bill would introduce two new criminal offences:
> Avoidance of employer debt: a criminal offence would be committed if a person:
> does an act or engages in a course of conduct that prevents the recovery of a Section 75 debt, prevents a Section 75 debt becoming due, compromises or settles a Section 75 debt, or reduces the amount of a Section 75 debt that would otherwise become due;
> intends the act or course of conduct to have such an effect; and
> does not have a reasonable excuse.
> Conduct risking accrued scheme benefits: a criminal offence would be committed if a person:
> does an act or engages in a course of conduct that detrimentally affects in a material way the likelihood of accrued scheme benefits being received;
> knew or ought to have known that the act or course of conduct would have that effect; and
> does not have a reasonable excuse.
The Bill provides that these offences are punishable by an unlimited fine or up to seven years’ imprisonment (or both). The Bill would also allow the Regulator to impose a civil penalty of up to £1m on individuals who are party to such acts.
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Declarations of intent
The Bill provides that employers (and those associated or connected with the employer) must give notice to the Regulator of certain events as soon as reasonably practicable after the person giving the notice becomes aware of the event. The events that are caught would be set out in regulations, but the following transactions are expected to trigger the requirement:
> sale of a controlling interest in a sponsoring employer;
> sale of the business or assets of a sponsoring employer; and
> granting of security on a debt to give it priority over debt to the scheme.
The notice would have to be accompanied by a statement including:
> a description of the event;
> a description of any adverse effects of the event on the scheme;
> a description of any steps taken to mitigate those adverse effects; and
> a description of any communication with the trustees about the event.
The Bill provides that a copy of the notice and accompanying statement must be given to the trustees at the same time. Failure to comply with the new requirements would allow the Regulator to impose a civil
penalty of up to £1m. This new penalty would also apply to a failure to comply with the existing notifiable events regime.
Contribution notices
Since 6 April 2005, the Regulator has been able to issue contribution notices (CNs) and financial support directions (FSDs) as a means of imposing DB funding liabilities on parties who are not necessarily employers in the relevant scheme. The Bill includes several changes relating to CNs:
> New grounds for issuing a CN: the Bill includes two new grounds for issuing a CN. These would apply where an act (or a failure to act) satisfies the “employer insolvency test†or the “employer resources testâ€. In broad terms:
> the “employer insolvency test†would be met where there is a deficit in the scheme on a buy-out basis (ie the amount that would be needed to enable the scheme to secure its benefits with an insurance company) and, if a Section 75 debt had become due at the relevant time, the act or failure would have materially reduced the amount of the debt likely to be recovered by the scheme; and
> the “employer resources test†would be met where the act or failure reduced the value of the resources of the employer and that reduction was a material reduction relative to the amount of the employer’s estimated Section 75 debt.
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In both cases, the target may be able to rely on a statutory defence.
> Changes to the reasonableness test: the Regulator may only issue a CN if it considers it reasonable to do so. The existing legislation sets out certain “reasonableness†criteria. The Bill would amend these so that the Regulator can also take into account:
> any failure to comply with the new declaration of intent requirements; and
> the effect of the act or failure on the scheme’s assets or liabilities.
> Change to the relevant time for calculating the amount due under a CN: the amount payable under a CN can be anything up to the full buy-out deficit in the scheme. Currently, this is calculated as at the date of the act or failure. The Bill would change this so that the buy-out deficit is calculated as at the end of the scheme year which ended most recently before the Regulator gives its determination notice.
> New sanctions for failing to comply with a CN: the Bill provides that failure to comply with a CN would allow the Regulator to impose a civil penalty of up to £1m. Non-compliance would also be a criminal offence punishable by an unlimited fine.
Although an earlier consultation included proposed changes to the FSD regime, no provisions in relation to FSDs are included in the Bill.
Information-gathering powers
The Bill would extend the Regulator’s information-gathering powers by:
> extending the Regulator’s power to require individuals (including trustees) to attend an interview – the Bill provides that neglecting or refusing to attend an interview (or to answer a question when attending an interview) would be a criminal offence punishable by a fine of up to £5,000;
> extending the Regulator’s power to inspect premises; and
> giving the Regulator the power to impose fixed and escalating civil penalties (as an alternative to criminal sanctions) for non-compliance with the Regulator’s information-gathering powers.
Provision of false or misleading information
The Bill provides that the provision of false or misleading information to the Regulator or the trustees would allow the Regulator to impose a civil penalty of up to £1m.
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Changes to the scheme funding regime
The Bill includes a package of changes to the scheme funding regime. These include:
> Funding a nd investment strategy: trustees would be required to determine (and from time to time review and revise) a strategy for ensuring that scheme benefits can be provided “over the long termâ€. This would need to specify the funding level the trustees intend to achieve and the investments they intend to hold as at a date to be specified in regulations. Trustees could be required to take into account prescribed matters and follow prescribed principles in determining or revising the strategy (including requiring the trustees to adopt prescribed actuarial methods or assumptions in specifying the funding level). The strategy would have to be agreed with the employer (or trustees would have to consult with the employer where trustees are currently only required to consult with the employer in relation to funding matters).
> Statement of strategy: trustees would need to prepare (and from time to time review and revise) a written statement signed by the chair. This would have to set out the scheme’s funding and investment strategy (in Part 1) and the following supplementary matters (in Part 2):
> the extent to which the funding and investment strategy is being successfully implemented and, where it is not, the steps the trustees propose to take to remedy the position;
> the main risks faced by the scheme in implementing the funding and investment strategy and how the trustees intend to mitigate or manage them; and
> the trustees’ reflections on any significant decisions taken by them in the past that are relevant to the funding and investment strategy (including any lessons learned that have affected other decisions or may do so in the future).
Trustees would have to consult with the employer when preparing or revising Part 2 of the statement.
> Technical provisions: the Bill provides that the scheme’s technical provisions must be calculated in a way which is consistent with the scheme’s funding and investment strategy.
> Actuarial valuation: trustees would be required to send a copy of the actuarial valuation to the Regulator as soon as reasonably practicable after receiving it.
> Recovery plan: regulations may set out the matters to be taken into account (or the principles to be followed) in determining whether a recovery plan is appropriate.
> Regulator’s powers: failure to comply with the requirements in relation to the funding and investment strategy would trigger the Regulator’s Section 231 powers (these currently include the power to modify the future accrual of benefits; give directions relating to the calculation of the scheme’s technical provisions; give directions as to the period within which, and manner in which, any failure to meet the statutory funding objective is
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to be remedied; and impose a schedule of contributions). The Regulator’s Section 231 powers would also be extended so that it may direct the trustees to revise the scheme’s funding and investment strategy. Civil penalties of up to £5,000 in the case of an individual and £50,000 in any other case would apply where there is non- compliance with these new requirements.
What else is included in the Bill?
Other key areas covered by the Bill include:
> changes to the legislation governing cash equivalent transfer values (CETVs) – the Bill provides that trustees would be prevented from paying a CETV unless certain conditions are satisfied. These would be set out in regulations, but could include conditions about the member’s employment or place of residence;
> providing a framework for pensions dashboards – this includes provisions that would require schemes to provide information to pensions dashboards, together with a compliance regime, with much of the detail to be set out in regulations; and
> providing a framework for collective defined contribution (CDC) schemes.
Notably, however, there is no mention of DB consolidation/superfunds.
What does it mean for trustees?
There are three key take-aways for trustees:
> Criminal offences and financial penalties: a summary of the new offences and financial penalties is set out in the table below. The Regulator has recognised that criminal prosecution would be a high bar, but the risk of criminal sanctions and significant fines would make both employers and trustees more cautious about activities that might fall within the scope of these offences.
> Declarations of intent: the declaration of intent requirements would mean greater engagement with the Regulator and trustees at an earlier stage of a corporate transaction. Trustees should benefit from having more information about the sponsoring employer’s activities, but there is a risk it would become a box-ticking exercise with limited benefits in practice.
> Scheme funding: the new requirements would signify a shift towards long-term funding targets, with an increased focus on the endgame. The increased levels of prescription could also result in a more interventionist Regulator.
Trustees don’t need to take any action for the time being. If the Pension Schemes Bill is re-introduced following the general election, we will keep you updated on its progress through Parliament. In the meantime, trustees should look out for the Regulator’s consultation on its scheme funding code of practice, which is expected early in 2020.
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New offence New penalty
Avoidance of employer debt Criminal offence: unlimited fine/up to seven years’ imprisonment
Civil penalty: up to £1m
Conduct risking accrued scheme benefits Criminal offence: unlimited fine/up to seven years’ imprisonment
Civil penalty: up to £1m
Failure to comply with a contribution notice Criminal offence: unlimited fine
Civil penalty: up to £1m
Failure to comply with TPR’s information- gathering powers
Criminal offence of neglecting or refusing to attend an interview: fine of up to £5k
Civil penalty: fixed (up to £50k) and escalating (up to £10k per day)
Failure to comply with the notifiable events framework
Civil penalty: up to £1m
Failure to comply with declaration of intent requirements
Civil penalty: up to £1m
Knowingly or recklessly providing false information to TPR or the trustees
Civil penalty: up to £1m
Failure to comply with new funding requirements Civil penalty: up to £5k (individuals) or £50k (any other case)
Summary of new offences
Claire Collier
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Setting objectives for investment consultants
Following the Competition & Markets Authority’s (“CMAâ€) investigation into investment consultancy and fiduciary management services to pension scheme trustees, the CMA published an Order in June 2019 setting out new requirements for trustees who make use of these services. This article focuses on the requirements under the CMA’s Order to set objectives for investment consultants by 10 December 2019. We also take a look at developing practice amongst trustees and investment consultants as to what an appropriate set of objectives might look like.
What are the requirements under the CMA Order?
The Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (the “CMA Orderâ€) came into force on 10 June 2019 and states that trustees must not continue to obtain investment consultancy services unless they have set strategic objectives for their investment consultant by 10 December 2019. The objectives must be defined by reference to the investment consultancy services being provided. The CMA Order defines these services as the provision of advice to trustees on one or more of:
> investments that may be made by the trustees;
> matters which trustees are required by law to seek advice in relation to their Statement of Investment Principles (“SIPâ€);
> strategic asset allocation; and
> manager selection.
As a minimum, trustees must set several strategic investment objectives for their investment consultant on this basis by the 10 December deadline. We comment further below on how we are seeing this applied in practice.
Who do the requirements apply to?
The requirement to set objectives applies to all trustees of UK based DC and DB occupational pension schemes who receive investment consultancy services.
We are aware of some concerns in the industry about the requirements applying to any third-party providers or advisers who provide advice to trustees which could amount to ‘investment consultancy services’. High-level commentary from the scheme actuary with regard to the link between a scheme’s investment approach and its funding objectives is explicitly excluded from the definition of investment consultancy services in the CMA Order. Any other investment-related advice from a scheme actuary should be tested against the definition of investment consultancy services above and legal advice sought if needed.
We do not consider that legal advice on investment matters would be caught by the definition of investment
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consultancy services. This is because such advice usually focuses on trustees’ investment duties and/or the implementation of an investment once a decision has been made to make the investment.
Is there any additional guidance that trustees should bear in mind?
The DWP published a consultation on draft regulations in July 2019 to integrate the CMA Order into pensions law. These regulations are due to come into force on 6 April 2020, at which point the CMA Order is intended to fall away.
Trustees are not required to take the DWP’s consultation into account when setting the objectives for their investment consultant for the 10 December 2019 deadline. However, trustees should be aware of the key points as these will need to be factored in when the objectives are reviewed in 2020. In addition to the basic CMA Order requirements, DWP suggests that trustees should consider the following points when setting their objectives:
> objectives should have regard to the SIP;
> trustees should review performance of their investment consultant against the objectives at least every 12 months;
> trustees should review objectives every three years and without delay if any material changes to investments have been made;
> objectives can include service-related objectives and should not just be limited to investments; and
> objectives should define outcomes and performance which is measurable.
The Regulations will also require trustees to confirm compliance annually through the scheme return.
DWP’s consultation is supplemented by draft guidance from the Pensions Regulator on setting objectives. The guidance suggests that trustees should set multiple objectives for their investment consultants to reflect the services received, that short and long-term objectives are appropriate and objectives can be quantitative and qualitative.
Perhaps the most useful aspect of the draft guidance is two case studies on DB and DC scheme objectives. The Regulator suggests objectives are grouped into categories which are given a scoring weighting depending on their importance to trustees and an investment consultant’s performance is then scored against these objectives (what the Regulator calls a ‘balanced scorecard’). We are seeing many investment consultants use the Regulator’s case studies as a starting point for their template objectives for trustees.
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What are we seeing in practice?
It is still too early to identify definitive best practice for setting objectives so there is no consistency yet around what ‘good’ looks like. Given timing is relatively tight, what we are seeing many trustees do for the 10 December 2019 deadline is put in place high-level objectives which satisfy the minimum legal requirements under the CMA Order and looking to revisit during 2020 as more evidence of best practice emerges.
Trustees are tending to use investment consultants’ template objectives as a starting point for agreeing objectives for their schemes and these templates in turn tend to borrow heavily from the case studies in the Regulator’s draft guidance. The objectives we are seeing typically include investment and service-based objectives and include language around reviewing the objectives and testing performance in line with the draft DWP regulations.
We are not seeing many trustees (or consultants in their templates) attempting to adopt a more detailed ‘balanced scorecard’ approach in line with the Regulator’s draft guidance as there is insufficient time to agree such detailed objectives by the 10 December deadline (and it is not a legal requirement). In addition, we expect to see more detailed templates developed over the next 12 months by the pensions industry as the draft regulatory guidance is finalised.
Where objectives are being discussed and agreed at trustee meetings where investment consultants are present, trustees should be mindful of potential conflicts – a point flagged by the Regulator in its draft guidance. Trustees should of course seek input from their investment consultants to ensure objectives are realistic and achievable but may wish to agree them without consultants being present. Trustees may also want to seek independent professional advice on how their objectives comply with the CMA Order and developing best practice.
We suggest that trustees timetable a review of the objectives for their investment consultant from mid-2020 onwards once the DWP regulations have come into force.
Gareth Craft
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Still hope for schemes grappling with historic equalisation issues?
The European Court of Justice recently handed down its decision in Safeway v Newton, a case relating to the equalisation of normal pension ages (NPAs) for men and women. The ECJ ruled that schemes cannot retrospectively equalise benefits on the less favourable basis, even where this is allowed by UK law and the scheme rules.
This decision will be of interest to trustees of schemes which purported to equalise NPAs by way of an announcement to members and only made a formal amendment to the scheme rules at a later date.
Background
On 17 May 1990, the ECJ decided in the Barber case that it was unlawful discrimination for pension schemes to provide different NPAs for men and women. Following this decision, Safeway issued an announcement to members of its scheme explaining that the trustees had decided to increase the NPA for women from 60 to 65 (the NPA already applicable to men), with effect from 1 December 1991. The scheme was administered on this basis from December 1991, but no amending deed was signed until 2 May 1996. The amending deed was stated to have retrospective effect from 1 December 1991. The scheme’s power of amendment allowed changes to be made retrospectively (see box).
Power of amendment
“ The Principal Company may at any time and from time to time with the consent of the Trustees by Supplemental Deed executed by the Principal Company and the Trustees alter or add to any of the trusts powers and provisions of the Scheme … and may exercise such powers so as to take effect from a date specified in the Supplemental Deed which may be the date of such Deed or the date of any prior written announcement to Members of the alteration or addition or a date occurring at any reasonable time previous or subsequent to the date of such Deed so as to give the amendment or addition retrospective or future effect as the case may beâ€.
Issues
The employer argued that equalisation occurred on 1 December 1991 (ie the date notified to members in the announcement and the date by reference to which the rule amendment was stated to be retrospectively effective). The representative beneficiary argued that equalisation did not occur until 2 May 1996, the date on which the amending deed was signed. If equalisation did not occur until 2 May 1996, NPA for men and women would be 60 for the period between December 1991 and May 1996, the estimated cost of which would be more than £100m.
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The High Court was asked to consider two issues:
> whether the amendment power could be exercised by an announcement to members; and
> whether, if the amendment power could only be exercised by deed, the power to do so retrospectively was prohibited by the EU principle of equal treatment.
The High Court ruled that the amendment power could not be exercised by an announcement to members and the EU principle of equal treatment did not allow retrospective levelling down of benefits, even where allowed by the scheme rules.
On appeal, the Court of Appeal:
> agreed that the power of amendment could only be exercised by deed and not by written announcement; but
> concluded that the question of whether the power of amendment could be exercised retrospectively raised a question of EU law which needed to be referred to the ECJ.
The second issue arose because, as a matter of UK law, members had only a defeasible right to an NPA of age 60 during the period from December 1991 until May 1996. This was because the announcement that NPA would be increased to age 65 could have been implemented at any time during that period by the retrospective application of the amendment power.
The effect of the High Court decision, however, was to give all members an indefeasible right to an NPA of age 60. This appears to conflict with the principle that the domestic law rights of the disadvantaged class during the relevant period (here, men) need only be brought up to the same level as those of the advantaged class (women). In this case, that would mean giving both men and women only a defeasible right to an NPA of age 60.
It is worth noting that the amendment in this case was made before Section 67 of the Pensions Act 1995 (which generally prevents amendments to accrued benefits) came into force on 6 April 1997. Section 67 would prevent the retrospective effect of the amending deed in this case, regardless of whether EU law allows it.
Decision
The ECJ ruled that the EU principle of equal treatment means that a pension scheme cannot retrospectively equalise NPA to that of the members in the disadvantaged class (in this case, age 65), even where this would be allowed by national law and under the rules governing the scheme.
The ECJ left open the possibility that, in exceptional cases, retrospective levelling down may be permissible, so long as the legitimate expectations of members are respected and the retrospective levelling down is warranted by an “overriding reason in the public interestâ€. The ECJ said that the risk of seriously undermining the financial balance
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of the pension scheme concerned could constitute such an overriding reason in the public interest. Whether the retrospective levelling down was necessary to prevent the financial balance of the scheme in this case from being seriously undermined was a question for the national court.
Comments
The ECJ’s decision confirms that the EU principle of equal treatment prevents schemes from retrospectively levelling down NPAs, even where this is permitted by UK law and the scheme rules. This is consistent with earlier case law (and the Advocate General’s Opinion) and is therefore not surprising.
However, the ECJ has left open the possibility that retrospective levelling down could be justified in exceptional cases, where it can be shown it was necessary to prevent the financial balance of the scheme from being “seriously underminedâ€. This leaves a ray of hope for schemes which purported to equalise NPAs by way of an announcement to members and only made a formal amendment to the scheme rules at a later date. But it may prove an uphill struggle to show that the scheme’s funding position would be “seriously undermined†if retrospective levelling down is not permitted, or that it would be in the “public interest†to allow levelling down even if the scheme’s financial position would otherwise be seriously undermined. In relation to this last point, it is worth noting
that there is no “public interest†exception to the Section 67 restrictions.
It will be interesting to see how the UK courts now view the case. One possibility may be that, in light of this ruling from the ECJ, the amending deed could be interpreted as treating accrued benefits as at May 1996, equalised on the “levelling up†basis permitted by the ECJ, as a protected “underpinâ€, but limiting post-May 1996 accrual until the benefits set out in the rules exceed the underpin. With £100m at stake, the employer may think it cannot afford to leave any stone unturned.
Is any action required?
Trustees of schemes which purported to equalise NPAs by way of an announcement to members and only made a formal amendment to the scheme rules at a later date may wish to consider the implications of this case for their scheme. This will require a careful consideration of all the relevant circumstances and we would recommend discussing the issue with your usual Linklaters contact.
Claire Collier
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On the horizon
Subject Changes Next key date
Pension Schemes Bill The Pension Schemes Bill was published in October, but less than a month later its progress was stalled by the dissolution of Parliament.
The Bill covers the following key areas:
> strengthening the Pensions Regulator’s powers; > changes to the scheme funding regime; > changes to the legislation governing cash equivalent transfer values; > providing a framework for pensions dashboards; and > providing a framework for collective defined contribution (CDC) schemes.
The Pension Schemes Bill may be re-introduced following the general election.
HMRC preferential status
The government published draft legislation which would make HM Revenue and Customs a secondary preferential creditor for taxes paid by employees and customers. The significance of the change is that there would be less available for ordinary unsecured creditors (including pension schemes).
Whether this change is included in the next Finance Bill will depend on the outcome of the general election.
Investment Regulations require trustees to consider the impact on their investments of environmental, social and governance factors, explain the extent to which they take account of members’ views and set out their policies on stewardship.
Further regulations require trustees to set out their policy on arrangements with asset managers and their policies in relation to capital structure, conflicts of interest and other stakeholders.
New reporting and disclosure obligations also apply.
The first set of requirements apply from 1 October 2019. Additional requirements apply from 1 October 2020.
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Investment consultants and fiduciary managers
A Competition and Markets Authority Order requires trustees to carry out a tender process for fiduciary management services and set objectives for their investment consultants.
The government consulted on draft regulations which aimed to integrate the CMA Order into pensions law.
The Regulator has also consulted on draft guidance for trustees on engaging with investment consultants and fiduciary managers.
The requirements apply from 10 December 2019.
The consultation on the draft regulations closed on 2 September 2019 and the government said it was aiming for a coming into force date of 6 April 2020.
The consultation on draft guidance closed on 11 September 2019 and a response is awaited.
GMP equalisation The government said it intends to amend the Equality Act 2010 to remove the requirement for a comparator “as soon as a suitable opportunity presents itselfâ€.
The government also said it was considering changes to the GMP conversion legislation “to clarify certain issuesâ€.
HMRC has confirmed it will publish guidance on GMP equalisation.
HMRC guidance on lifetime allowance and annual allowance issues is expected in December 2019.
Defined benefit (DB) consolidation/ superfunds
The government consulted on a new legislative framework for the regulation of DB “superfund†consolidation schemes.
The consultation closed on 1 February 2019. Next steps will depend on the outcome of the general election.
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Pensions Ombudsman The government responded to its consultation on changes to the Pensions Ombudsman's processes and jurisdiction. This confirmed that an early resolution function within the Ombudsman’s remit would be introduced.
Next steps will depend on the outcome of the general election.
Defined contribution (DC) scheme investment and consolidation
The government consulted on proposals which aim to encourage DC schemes to consider a wider range of investments. The proposals included a requirement for larger DC schemes to explain their policy in relation to investment in illiquid assets in their statement of investment principles and for smaller DC schemes to explain their assessment of whether it would be in members’ interests to be transferred into another scheme with significantly more scale.
The consultation closed on 1 April 2019. Next steps will depend on the outcome of the general election.
General levy The government published a consultation on proposed changes to the rate of the general levy payable by occupational and personal pension schemes from April 2020.
Annual benefit statements
The government published a consultation on its proposed approach to achieving simpler annual benefit statements for workplace pensions.
The consultation closes on 20 December 2019.
Scheme funding Two Regulator consultations on scheme funding are expected: the first consultation will focus on options for a clearer framework for DB funding. The second consultation will be on a draft code of practice.
The first consultation is expected early in 2020, while the second consultation is expected later in 2020.
Future of trusteeship and governance
The Regulator has consulted on the future of trusteeship and governance. The proposals included changes to the trustee knowledge and understanding regime, requirements in relation to diversity and a requirement for every board to include a professional trustee.
The consultation closed on 24 September 2019 and a response is awaited.
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Single code of practice The Regulator has said it is planning to combine the content of its 15 current codes of practice to form a single, shorter code. Its intention is to develop the new code in phases, with its early focus being on the codes most affected by the regulations that implement the EU pensions directive (known as IORP II). These include the codes of practice on internal controls, DC schemes and master trusts.
A consultation is expected this year.
Record-keeping The Regulator has said it is contacting 1,200 schemes to remind them to carry out data reviews every year. The trustees of 400 schemes which are believed to have failed to review their data in the last three years will be asked to conduct a data review within six months. Communications will also be sent to more than 1,000 schemes this year about issues such as dividend payments to shareholders and the length of recovery plans.
Many trustees can expect to receive a communication this year.
PPF levy The Pension Protection Fund has published a consultation and draft levy rules for the levy year 2020/21. The consultation confirmed that no substantive changes are planned.
The consultation closed on 5 November 2019 and a response is awaited.
UK Stewardship Code The Financial Reporting Council has published its revised Stewardship Code, which sets out more rigorous reporting requirements and higher expectations for investor stewardship policy and practice.
The new code takes effect on 1 January 2020, with the first disclosures due in 2021.
Professional trustee standards
The Association of Professional Pension Trustees has published standards for professional trustees of occupational pension schemes. The standards apply to anyone falling within the Regulator's description of a professional trustee. A two-part accreditation framework will assess professional trustees on their initial application and then monitor continued compliance on an annual basis.
The accreditation process will be overseen by the Pensions Management Institute and is expected to commence later this year.
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Future of RPI The Chancellor has responded to the UK Statistics Authority's proposed reform of the Retail Prices Index (RPI) and to the House of Lords Economic Affairs Committee report, “Measuring Inflation".
These responses confirmed that:
> The Chancellor is not minded to promote legislation that would remove altogether the requirement for UKSA to produce and publish RPI.
> The Chancellor is unable to consent to UKSA's proposal that RPI should be aligned with CPI including owner occupiers' housing costs (CPIH) before February 2025.
> The government has no current plans to stop issuing gilts linked to RPI.
The government said it intends to consult in January 2020 on whether RPI should be aligned with CPIH at a date other than 2030 (when the Chancellor's consent to this change will no longer be required), and if so, when between 2025 and 2030.
Next steps will depend on the outcome of the general election.
Pension costs and transparency
The government responded to the Work and Pensions Committee's inquiry into pension costs and transparency.
Amongst other things, it confirmed that:
> the government will review the level and scope of the charge cap, as well as permitted charging structures, in 2020;
> the government is considering a consultation on how to encourage use of the disclosure templates developed by the Cost Transparency Initiative;
> once the most effective option for encouraging members to take up guidance is identified, the government will make regulations for workplace pensions; and
> the government intends to consult in early 2020 on whether, and if so how, investment pathways should be applied to trust-based DC schemes.
Next steps will depend on the outcome of the general election.
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Trustee Agenda
Contacts
Rosalind Knowles Partner Tel: +44 20 7456 3710 [email protected]
Tim Cox Partner Tel: +44 20 7456 3692 [email protected]
John Sheppard Partner Tel: +44 20 7456 5998 [email protected]
Philip Goss Partner Tel: +44 20 7456 5604 [email protected]
Claire Petheram Partner Tel: +44 20 7456 3676 [email protected]
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