Pensions Bulletin 2016/29

Our viewpoint

Pensions Regulator issues post referendum guidance for DB and DC trustees

Following the UK’s vote to leave the EU on 23 June and the market volatility that immediately followed, the Pensions Regulator has issued a guidance statement.  Its key message is for trustees to remain vigilant and review their circumstances, but continue to take a considered approach to action with a focus on the longer term.  It also expects trustees to have an open and collaborative discussion with their sponsor about the possible effects to their business.

In relation to DB schemes, the Regulator asks trustees to ensure that they understand the risks in the scheme’s investment strategy and employer covenant and urges them to review their contingency plans.  It goes on to say that trustees should not be overly focused on short-term market movements, but it is important to understand how this impacts on scheme funding plans and decision-making.  For those schemes currently working on their actuarial valuation, it says that its annual funding statement (see Pensions Bulletin 2016/20) remains relevant and should be taken into account along with the additional messages in this statement.

For DC schemes, the Regulator says that trustees should not take decisions based solely upon short-term performance, but should continue to review regularly the longer-term performance of individual funds.  As the future implications of any withdrawal from the EU become clearer, it may be appropriate to make changes to the investments included in the scheme’s default arrangement, and/or other investments offered to members.  Trustees should work with their providers and advisers to monitor developments and take steps to manage any emerging risks to the scheme.  The Regulator also points to the importance of good member communications.  If approached by members who may be nervous about the impact of the leave vote on their pension savings, trustees and their delegates should be prepared to explain clearly, and in plain English the approach that the trustees plan to take.


This is a balanced statement from the Regulator as one would expect.  The clear message is not to panic, but also not to be paralysed through uncertainty into doing nothing.  Trustees have always needed to respond to events as they unfold, but in a calm and measured way.  This statement helps to reinforce one of the essential aspects of effective trusteeship.

Pensions Regulator urges DC trustees to drive up standards of governance and administration

The Pensions Regulator is urging DC trustees to focus on driving up standards of governance and administration in their schemes, in order to increase the likelihood that members receive a good outcome from their retirement savings.

This follows the publication of research that shows that larger DC schemes consistently outperform smaller schemes on all aspects of governance and administration.

The Regulator is considering what more can be done and will be publishing a discussion paper as part of its “21st century trustee” initiative.  There could be more robust enforcement action and the Regulator is particularly interested in exploring whether it should encourage the consolidation of “sub-standard schemes of all benefit types and sizes”.


These findings come ahead of the coming into force next week of the revised DC Code of Practice, the Order for which has just been laid before Parliament.  The Regulator is expected to publish its final versions of the accompanying guidance on the same day.

FCA launches its Retirement Outcomes Review

The Financial Conduct Authority has now published the terms of reference for its promised Retirement Outcomes Review (see Pensions Bulletin 2016/14).  This follow-up to its Retirement Income Market Study, which was completed in March 2015 (see Pensions Bulletin 2015/15), seeks to assess how firms and consumers have responded to the Government’s freedom and choice reforms.

The review will explore, in relation to annuities, income drawdown, hybrid products and uncrystallised pension fund lump sums, the following:

  • To what extent consumers can compare these products, shop around, switch providers and make informed decisions
  • Whether “non-advised consumer journeys” have become more complex and if so whether that causes consumers not to engage, or leads them to being drawn towards certain products, choices and decisions
  • What business models and products are emerging and what risks might they pose to competition in this market; and
  • The impact of FCA regulation on retirement outcomes

Consultation closes on 31 August 2016.

The FCA has also published the results of its behavioural testing of the annuity comparison remedy proposed as part of its Retirement Income Market Study.  The FCA has concluded that this is effective at encouraging consumers to shop around and, where appropriate, switch provider, before purchasing an annuity.  It therefore intends to consult on rule changes later in 2016.

The FCA update that accompanies these developments also explains other aspects of the FCA’s ongoing work on pensions and retirement income.  These include the prospect of changes to “wake-up packs” which are currently being tested.  The FCA will consult on any rule changes in early 2017.


This latest review promises to be an important investigation into the workings of the decumulation market that is undergoing rapid change.  Although not directly impacting the occupational pension scheme sector, we await its conclusions with interest.

The FCA-sponsored annuity shopping experiment has yielded important results, showing that targeted information, provided just before the point of purchase, along with links to price comparison websites, acts as a clear incentive to shop around.

It’s all change at the DWP

Following Theresa May becoming Prime Minister last week, Damian Green MP has become the new Secretary of State for Work and Pensions, succeeding Stephen Crabb who was in the post for less than four months.

Ros Altmann has also left the Government, having been a Minister of State for just under 15 months.  She has now been replaced by Richard Harrington MP, who has been appointed as Parliamentary Under Secretary of State with responsibility for the “pensions” policy portfolio.

In a letter to Theresa May, published via her Twitter account, Ros Altmann suggests that she had been held back in her ministerial brief due to short-term political considerations.  She goes on to argue for further reform to pension tax relief, along the lines of the flat rate system, a major review of DB funding and affordability and the need to respond to the WASPI campaign and to ensure that the coming changes to state pension age are widely communicated to both men and women.

The full new line-up has now been published by the DWP, whilst the Prime Minister’s Office has now published a full list of new ministerial and government appointments across the whole of Whitehall following Theresa May becoming Prime Minister.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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