Pensions Bulletin 2018/15

Our viewpoint

Pensions Regulator focuses on trustees seeking appropriate sponsor support

The Pensions Regulator encourages trustees of DB pension schemes to seek appropriate support from scheme sponsors to improve outcomes for members in its 2018 DB annual funding statement.

This year’s statement expands on some of the themes of the 2017 statement (see Pensions Bulletin 2017/21) rather than suggesting fundamental changes to the Regulator’s position, although there is for the first time explicit discussion around specific issues arising due to the uncertainty over Brexit.  See LCP’s News Alert for more detail on the three key themes of:

  • Affordability and managing deficits
  • Fair treatment of pension schemes (compared to, for example, shareholders); and
  • Risk management and contingency plans

This statement also for the first time includes a discussion on monitoring and allowing for the potential impact of increased levels of transfer activity.


In tough economic times the Regulator is still trying to find the right balance between protecting members’ pensions (eg Carillion, BHS, etc) and preventing companies being crippled by their pension schemes.

FCA sets out next steps to improve competition in the UK’s asset management industry

The Financial Conduct Authority (FCA) has published a number of documents addressing concerns outlined in its June 2017 report on the final findings of its asset management market study (see Pensions Bulletin 2017/27).  These documents, forming part of a package of remedies that, combined, aim to achieve a fair, transparent, open and accountable market and ensure fund managers compete on the value they deliver, include:

  • Final rules and guidance focused on the duties of fund managers as the agents of investors in their funds. Amongst other things this covers requirements for fund managers to make an annual assessment of value and appoint a minimum of two independent directors to their boards, and makes technical changes to improve fairness around the way fund managers profit from investor transactions (so called “risk-free box profits”) and also facilitate the movement of investors into cheaper share classes.  Firms have until 30 September 2019 to implement the rules on assessment of value and appointment of independent directors and until 1 April 2019 to implement those related to how fund managers profit from investors buying and selling their funds
  • A further consultation on remedies related to funds providing better information about what they are offering. This consultation includes proposals on how fund objectives can be expressed more clearly and usefully, clarifying when funds are benchmark-constrained and ensuring consistent and clear disclosure where a fund uses one or more benchmarks.  This consultation closes on 5 July 2018

The FCA has also published an Occasional Paper setting out the results of behavioural research which looked at how different ways of presenting information about charges affected investors’ decision-making and their understanding and awareness of charges.


As anticipated with the publication of the FCA’s report last June, the new rules and guidance will no doubt require many players in the asset management market to make changes to the way they operate in the next 18 months.  More changes are also likely on the back of the new consultation, but the benefit to investors is likely to be substantial.

FCA reprioritises to help cover £30m Brexit cost

The Financial Conduct Authority (FCA) expects Brexit regulatory responsibilities to cost it an extra £30m pounds in 2018/19.  According to its 2018/19 Business Plan, published this week, £14m of the additional funds will be saved by reprioritising other projects with the remaining £16m either charged to firms or coming from reserves.

In terms of pensions, the FCA intends to work with the Pensions Regulator to make clearer for stakeholders their role in the industry.  With drawdown products attracting inflows of around £16.2bn in 2016 (compared to £4.6bn for annuities) the change in landscape since the Government’s pension freedom reforms in 2015 has been quite dramatic.  Some of the FCA’s intended priorities are:

  • Publishing the final report on the Retirement Outcomes Review (see Pensions Bulletin 2017/30), together with a consultation paper covering proposed remedies
  • Collecting data to assess practices in the pension transfer advice market, to try to identify how best to prevent consumers receiving unsuitable advice
  • Researching the levels of undersaving for retirement and identifying consumer groups most at risk
  • Exploring the non-workplace pension market to ensure products and prices are competitive
  • Extending the remit of Independent Governance Committees; and
  • Helping consumers avoid scams

The Prudential Regulation Authority also published its Business Plan for 2018/19, highlighting the challenges of Brexit and its strategic goals for the year, including ensuring that banks and insurers have credible plans in place to enable them to recover from stress events.


With Brexit providing a significant distraction, the FCA’s day job of regulating the financial services sector – especially in these days of complicated pension scams and incentives - must not be forgotten.

MPs call for “simple package of measures to create better informed, more engaged pensions savers”

The Work and Pensions Committee has published its final report from its inquiry into pension freedom and choice, initiated last year (see Pensions Bulletin 2017/40).

The Committee makes several recommendations, some of which clash with recent Government policy decisions:

  • Any provider offering drawdown would be required by FCA rules to offer a default decumulation pathway that is targeted at their core customer group. The same charge cap that applies to automatic enrolment schemes, 0.75%, should apply to default drawdown products.  These protections should be in place by April 2019
  • NEST should be allowed to provide decumulation products from April 2019. The Government stated last year (see Pensions Bulletin 2017/10) that it would allow NEST to develop its decumulation offering but not to roll it out yet, whilst reserving the right to allow it to offer a fuller range of retirement income solutions if appropriate products were not developed by other pension providers.  The Committee notes “concerns that allowing NEST to offer such products would hinder competition in the market would carry greater weight were there evidence of a functioning market currently”
  • The forthcoming pension dashboard (see Pensions Bulletin 2018/02) should be a single publicly hosted vehicle, covering state, DC and DB pensions, rather than the multiple dashboards hosted by providers currently planned by the Government (see Pensions Bulletin 2017/17)
  • The FCA and Pensions Regulator should require all pension providers to issue one-page pensions passports as part of their pre-retirement member communications and also work together to produce a template best practice passport by June 2018


The Government is not beholden to follow the Committee’s recommendations, (although the Committee has recently influenced Government policy about the cold-calling ban - see Pensions Bulletin 2018/07).  It seems less likely that the Government will implement the Committee’s latest recommendations since that would require U-turns over relatively recent policy decisions.  However, we are living in interesting political times, so anything is possible!

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.

Subscribe to receive our Pensions Bulletin and News Alerts