Pensions Bulletin 2017/40

Our viewpoint

Pension Protection Fund announces 10% levy reduction in 2018/19 levy proposals

The Pension Protection Fund has announced that it intends to collect £550 million in the 2018/19 levy season, £65m lower than its intended collection of £615m in 2017/18.

Alongside this, the PPF has confirmed that it will implement the majority of proposals consulted on in March for the third levy triennium with limited change.

The PPF is also seeking views on a small number of additional proposals including to improve its assessment of scheme underfunding.  Consultation on this closes on 1 November 2017 and the final determination for 2018/19 is expected in December.


We are producing a News Alert on this important development that will be issued shortly under separate cover.

DC transaction costs measurement basis to go ahead

The Financial Conduct Authority is to go ahead with its proposals to require FCA-regulated firms managing money on behalf of DC workplace pension schemes to disclose administration charges and transaction costs to the governance bodies of those schemes using a standard approach.  This follows consultation last October (see Pensions Bulletin 2016/40).

The changes come into force from 3 January 2018, requiring firms to provide information about, and a limited breakdown of, transaction costs using the “slippage cost” methodology, information about administration charges and appropriate contextual information, in response to a request from a governance body of most DC workplace pension schemes.

These rules will enable such governance bodies to meet their existing requirements to review transactions costs and assess whether they represent value for money, as part of the chair’s governance statement.

The FCA Policy Statement announcing this decision and setting out the finalised rules, also mentions the next steps in this area.  These are that the DWP is planning to consult on proposals as to how costs and charges relating to occupational pension schemes should be published and disclosed to scheme members.  Subject to the DWP’s final regulations coming into force, the FCA intends to consult in the second quarter of 2018 on its proposals to achieve similar outcomes for workplace personal pension schemes.

Linked to this future development, regulations have been laid which bring into force:

  • That part of the Pensions Act 2014 placing a duty on the Secretary of State in relation to a money purchase occupational pension scheme to make regulations requiring the disclosure of information about transaction costs and requiring information on transaction costs and administrative charges to be published
  • A duty on the FCA to make rules to similar effect in relation to certain personal pension schemes; and
  • That part of the Pension Schemes Act 2015 containing a requirement for persons to have regard to any guidance prepared from time to time by the Secretary of State when complying with the disclosure requirements

The Pensions Act 2014 (Commencement No. 11) and the Pension Schemes Act 2015 (Commencement No. 2) Regulations 2017 (SI 2017/916) came into force on 18 September 2017.


This an important step forward in joining the dots between the April 2015 duty on DC governance bodies to request from asset managers and report to scheme members on transaction costs, but it will be some time yet before DC members can be fully appraised of how much of their DC savings disappear in costs and charges.

CMA sets out scope of investment consultancy market investigation

The Competition and Markets Authority has published details on the areas that it proposes to examine as part of its investigation into investment consultancy.  This follows the announcement that the Financial Conduct Authority had made a referral to the CMA (see Pensions Bulletin 2017/39).

An issues statement sets out the proposed structure for the investigation, outlining potential issues and possible remedies to put in place if competition problems are found.  The CMA has grouped the issues (and initial possible remedies) into three areas:

  • Whether difficulties in customers’ ability to assess, compare and switch investment consultants mean investment consultants have little incentive to compete for customers. Initial thoughts on possible remedies include requiring investment consultants to provide clear information on fees on a consistent basis, requiring them to report on the fees and performance of asset managers, requiring trustees to review their investment consultants and requiring the inclusion of at least one professional trustee on each scheme’s trustee board
  • Whether conflicts of interest on the part of investment consultants reduce the quality and/or value for money of services provided to customers. Possible remedies include requiring investment consultants to fully disclose their business interests to trustees and imposing limits or even an outright ban on the hospitality investment consultants can receive from asset managers
  • Whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive – which leads to worse outcomes for customers. Proposed remedies include mandatory tendering for investment consultancy and/or fiduciary services and requiring divestiture of investment consultancy services

The CMA has also appointed an investigation group who will also act as the decision maker in this case.

Interested parties are invited to give their views on questions posed in the issues statement by 12 October 2017 and the CMA must report by 13 March 2019.


This is an extensive investigation with a wide range of potential remedies to match.  Although the behaviour and practices of the investment consultants are the principal objects of the enquiry, it looks like the CMA could end up having something to say about pension scheme trustees too.

UK investment consultants back Regulator guidance to consider ESG issues

The Association of Member Nominated Trustees and the UK Sustainable Investment and Finance Association have been engaging with UK investment consultancies to find out how they are responding to the Pensions Regulator’s recent investment guidance which tells trustees they need to “take environmental, social and governance (ESG) factors into account if you believe they’re financially significant”.  Twelve consultancies, including LCP, have signed a public statement acknowledging the significance of this guidance and committing to raising the topic with their clients.

The full text of the statement is:

"(Name of company) is happy to join with the Association of Member Nominated Trustees and the UK Sustainable Investment and Finance Association in recognising that the recent investment guidance from The Pensions Regulator marks a major development in TPR’s approach to how trust based DC and DB pension schemes need to address risks around long term sustainability, including environmental, social and governance issues.

"We agree that this change, reflected in the Regulator’s statement to trustees that “We expect you to assess the financial materiality of these factors and to allow for them accordingly in the development and implementation of your investment strategy” puts trustees and their advisers under an obligation to react.

"We believe that ESG is a fundamental part of success in long-term investing, therefore we are drawing the guidance to the attention of UK pension fund clients through a variety of routes such as putting consideration of ESG on trustee meeting agendas, issuing briefings and/or holding training sessions. We also recognise the significant role that client-facing consultants can play in ensuring that our clients are well informed on the issues."

The twelve consultancies are Allenbridge, Aon Hewitt, Barnett Waddingham, bfinance, Cardano, Hymans Robertson, JLT Employee Benefits, LCP, Mercer, Redington, Quantum Advisory and Willis Towers Watson.


That almost all major consultancies support this statement confirms that ESG issues are now a mainstream consideration for pension scheme investors.  Some people may query why such a statement was considered necessary: why wouldn’t investors take account of factors they believe to be financially material?  However, in our experience, many trustees have not yet formed a view on the materiality of ESG factors and some are still under the misconception that fiduciary duty prevents them from doing so.  We therefore welcome this initiative and will continue to support our clients in implementing the Regulator’s guidance.

MPs to investigate whether 2015 pension freedoms have encouraged “unscrupulous scam artists”

Parliament’s newly re-convened Work and Pensions Committee, which continues under the Chairmanship of Frank Field, has announced a new inquiry into whether and how far the pension freedom and choice reforms, sprung upon everyone by George Osborne in the 2014 Budget, are achieving their objectives and whether policy changes are required.

The main focus of the Committee’s latest inquiry is a clear concern about pension scams, with the initial view being taken that “savers are more vulnerable than ever to unscrupulous scam artists”.  Scams aside, the Committee is worried that people are making their pension choices without the support that is available (such as through Pension Wise), increasing the risk that they will not get the best value from their retirement savings.

Written evidence is requested by 23 October 2017.


There is little doubt that the pension freedoms have thrown up a number of challenges, many of which are now being addressed following analysis and consultation by numerous bodies.  Given this, quite what the MPs will be able to contribute to policymaking in this area remains to be seen.

FCA sets out ageing population findings

The Financial Conduct Authority has published its findings from its Ageing Population Project which it started via a discussion paper in February 2016 (see Pensions Bulletin 2016/07).  It takes the form of an “Occasional Paper” which the FCA is likely to use as an evidence base in any further work it does in this area.

The paper, which explores how older people use financial services and products, has surprisingly little to say about pensions and retirement savings, although it does recognise that “deciding what to do with my pension pot” can be at the most challenging end of its “Familiarity Complexity” map for those experiencing cognitive decline as they age.

Instead, the focus of the paper is on matters such as accessing bank accounts, allowing trusted third parties to assist with the individual’s financial affairs, taking mortgages into retirement and long term care.

The FCA anticipates a further review in three to five years of how the financial services industry is adapting to meet the needs of older consumers.


One can’t help but think that the FCA has missed an opportunity to explore the consequences of public policy facilitating a position under which the retired will increasingly be expected to manage their DC pots through much of their retirement.  Not only must individuals not fall prey to pension scams, they somehow also need to be equipped to ensure that their pot keeps working for them and is not unduly depleted by charges.

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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