New DC Code
The Regulator has issued its code of practice on governance and administration of DC occupational pension plans, which, subject to parliamentary approval, will come into force in the Autumn. The Regulator has issued an accompanying checklist which summarises the key tasks for trustees. Trustees with any element of DC provision in their pension plan should review their existing practices against the 31 quality features set out in the code and identify where action needs to be taken. There is a lot to consider!
The Pensions Bill 2013 is progressing through Parliament. This important piece of legislation will introduce the single tier state pension from April 2016, deals with the abolition of contracting out on a salary related basis and provides for periodic reviews of state pension ages in the future. The Bill also contains simplifications to the automatic enrolment regime, and a regulation-making power to prohibit incentives designed to induce members to transfer out of salary related occupational pension plans.
Late Payment of Contributions
Updated codes of practice on reporting late payment of contributions to occupational and personal pension plans are expected to come into force in Autumn 2013. The Regulator expects trustees and product providers to have risk based processes in place to identify late and incorrect contribution payments to DC pension plans. The codes also cover the efforts that should be made to resolve contribution problems with employers, and the circumstances under which a report should be made to the Regulator.
Defined Benefit Funding
The Pensions Regulator’s draft new objective “to minimise any adverse impact on the sustainable growth of an employer” is likely to come into force early next year. Later this year the Regulator will consult on changes to its code of practice on funding defined benefits, to address how the new objective will operate. Its 2013 annual funding statement sets out acceptable approaches for valuations with effective dates between 22 September 2012 and 21 September 2013 and emphasizes its flexible approach.
The announcement that amendments to the European IORP Directive affecting occupational pensions will not, at present, cover the issue of pensions solvency was welcomed with a collective sigh of relief by the UK pensions industry. The new solvency requirements would have led to massive increases in DB funding deficits. Trustees and employers should keep a watching brief on proposed changes affecting governance, transparency and reporting requirements for occupational pension plans which will be published in Autumn 2013.
Changes to the Takeover Code give new rights to trustees of DB pension plans where there are takeover bids involving UK listed companies. A bidder needs to make disclosures about its intentions towards the target’s pension plan. The trustees may append an opinion to the target’s board circular detailing how the pension plan is affected. The changes are intended to improve transparency but in most cases are unlikely to give trustees a stronger negotiation position.
Automatic Transfers and Refunds
Much of the detail relating to automatic transfers is still to be finalised but it is proposed that such transfers will initially take place between pure DC plans where the pot size is less than £10,000. The DWP is investigating whether the transfer process will involve an IT-based potmatching system or whether it will rely on a paper based approach (similar to the P45 process). Meanwhile, the UK Government has confirmed its intention to abolish short service refunds from occupational DC pension plans from 2014.
GMP Equality Regulations
The UK Government is delaying laying regulations relating to the equalisation of GMP related benefits for pension plans that were historically contracted out on that basis. The interim response to consultation confirmed that the UK Government is not changing its position in terms of the requirement to equalise. It is however considering suggestions made during consultation including the provision of statutory guidance on GMP conversion which would incorporate advice on equalisation.
The UK Government has laid draft regulations to ban consultancy charges in automatic enrolment pension plans (both occupational and personal arrangements). The regulations are to prevent situations where the cost of pensions advice provided to employers is funded out of members’ money purchase pension pots. We are also expecting wider consultation on pensions charges this Autumn.
In its Business Plan 2013–14, the Regulator states its intention to review the code of practice on trustee knowledge and understanding, to identify any gaps in its trustee toolkit and to publish new material to close those gaps. Three DB modules in the trustee toolkit were revised and re-launched on 21 June. The Regulator is to strengthen its message that completion of the toolkit is a key indicator of a trustee possessing adequate knowledge standards