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Pensions Bulletin 2018/16

Our viewpoint

Regulator publishes guidance on cyber security principles for pension schemes

The Pensions Regulator has issued a 12 page guidance document setting out what it says are cyber security principles for pension schemes – applicable regardless of the scheme’s size or structure.

Defining cyber risk broadly as the risk of loss, disruption or damage to a scheme or its members as a result of the failure of its information technology systems and processes – including risks to information as well as assets, and both internal and external risks – the Regulator says that trustees need to take steps to build cyber-resilience, working with all relevant parties to achieve this.

The guidance goes on to state that trustees need to have sufficient understanding of cyber risk, which should be on the trustees’ risk register and be regularly reviewed, have sufficient controls in place to minimise the risk of cyber incidents, and have a plan in place to deal with incidents and enable the scheme to swiftly and safely resume operations.

Comment

The Regulator says that building cyber security is one example of operating adequate internal controls – and makes reference to the internal controls law brought in by the Pensions Act 2004.  However, it does seem a bit of a stretch to invoke this.  Nevertheless, with cyber security rising up the agenda for all businesses in recent years it is not surprising that the Regulator has produced some guidance with pension schemes in mind – and almost certainly as part of a wider Government initiative.  But unfortunately the guidance is very generic.  It would have been more useful had it contained some examples of cyber risks specific to pension schemes along with how they could be mitigated.

CMA publishes working paper on trustee engagement

The Competition and Markets Authority has issued a further working paper as part of its investment consultancy and fiduciary management market investigation (see Pensions Bulletin 2018/14) – this time setting out the CMA’s initial analysis of trustee engagement with these services.

It considers the extent to which trustees are able to assess value for money of alternative providers, and (where necessary) to act on the outcome of that assessment.

The CMA’s primary assessment focuses on four indicators – switching, tendering and/or switching, undertaking a formal review of fees and/or quality, and undertaking an external review of fees and/or quality.

The CMA finds that there is evidence that levels of engagement vary significantly across pension schemes.  DC schemes and small schemes are less likely to engage than others, while pension schemes with certain governance structures (such as the use of investment sub-committees) are more likely to have higher levels of engagement.  For fiduciary management, the CMA’s analysis of the switching process indicates that the time and costs involved in switching fiduciary management providers can be considerable.

The CMA says that this evidence raises potential concerns over the extent to which trustees are able to assess value for money of their current provider and, in fiduciary management, switch to an alternative provider.

The CMA also presents its emerging thinking on potential remedies in the event that it finds an adverse effect on competition.  It has grouped these potential remedies into three categories – measures to better inform trustees of switching cost, measures to reduce switching costs and measures to empower and incentivise trustee boards to engage.

Comment

It is not now long to go before the CMA sets out its provisional findings along with potential actions, scheduled for July this year.  What is unclear as of now is whether the CMA will be able to make a finding that there has been an adverse effect on competition in any of the areas that it is looking into, but if it does, the type of actions that it will require are becoming clearer.

Work and Pensions Committee launches inquiry into the DB White Paper

Parliament’s Work and Pensions Committee has launched an inquiry into the DB White Paper published last month (see Pensions Bulletin 2018/12) with the purpose of informing and influencing the planned consultations on the White Paper's various proposals.

In particular, the Committee would like to know:

  • To what extent is improving the Pensions Regulator’s effectiveness a matter of greater powers, better use of resources or cultural change in the organisation
  • What can be done to strengthen the regime for clearing corporate transactions that might weaken a DB pension scheme
  • Will a criminal offence (to punish wilful or grossly reckless behaviour of directors in relation to a DB pension scheme) provide a meaningful deterrent
  • What should "prudent" and "appropriate" scheme funding mean
  • How can consolidation of the fragmented DB landscape be best achieved
  • Given the difficulties facing DB schemes, is a faster legislative timetable warranted

The deadline for written submissions is 18 May 2018.

Comment

Given the nature of the White Paper and the extended timescale for its implementation, what the MPs have to say later this year could be influential in determining exactly how the Government implements its proposals.  The MPs’ report will certainly require a response from Government.

HMRC provides detail on its new digital platform for registered pension schemes

HMRC has issued guidance which sets out detail of its new digital platform for pension scheme registration and administration.  Called “Manage and Register Pension Schemes” the service will:

  • Provide a new digital platform for administrators to manage and register their pension schemes
  • Provide a digital account for all pension schemes and reporting
  • Issue all HMRC notifications regarding registration; and
  • Hold details of existing pension schemes, pension scheme administrators and pension practitioners following migration from the existing Pension Schemes Online service

The roll out of the new service is in two phases with the first now starting from 8 May 2018 and continuing during the 2018/19 tax year.  The second phase also takes place in stages, but in the 2019/20 tax year.  In due course the Pension Schemes Online service will be decommissioned.

HMRC AA tool temporarily offline

As readers will know, HMRC has a tool on its website which, if users input relevant Pension Input Amounts and information on Threshold and Adjusted Income, aims to tell them the amount of their excess pension savings on which to report an annual allowance charge and what unused past annual allowance they have to support future pension savings.

Unfortunately, the tool has now been taken off line following the discovery of errors.

In a note to industry contacts on Tuesday HMRC said that “following the addition of the 2018 to 2019 tax year, the pensions annual allowance calculator isn’t working as it should in some cases.  Because this isn’t in line with the level of service that HMRC is committed to provide and to make sure customers get the right results from the calculator in future, we’ve temporarily removed access to the calculator until we’ve updated it. … We’re working to update the annual allowance calculator and we’ll let you know our progress on this in our Pension schemes newsletters - GOV.UK.

Comment

This is clearly most embarrassing for HMRC and has attracted criticism from pension experts.  We hope they will be able to fix the problem soon.

This might not be the only time the HMRC "AA calculator" tool gets its calculation wrong for some scenarios (HMRC Newsletters 91/93 noted a flaw that was spotted and corrected last year).  If an individual does use the tool, they need to be careful to understand what inputs are needed.  And we would suggest double checking the results if possible; and in any case definitely printing off input to the system and the output it gives.  If later it turns out that it was wrong and it led to the individual declaring and paying too little annual allowance charge to HMRC, then the printout proof may help stop HMRC charging interest or penalties for late payment.

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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