Pensions Bulletin 2018/23
7 June 2018
Lesley Titcomb to leave the Pensions Regulator
The Pensions Regulator has announced that its current Chief Executive, Lesley Titcomb, will not be seeking a second term when her four year contract expires next February. Appointed in 2015, Lesley Titcomb has been responsible for instigating and driving through a change programme at the Pensions Regulator, known as TPR Future, in which the Regulator promises to be “clearer, quicker and tougher”.
Despite this change programme, the leadership team of the Pensions Regulator and its CEO in particular, have come in for sustained criticism by a number of MPs and others over the past two years, starting with the BHS inquiry. Recently, some of the criticism has become very personal and arguably has crossed a line. But with MPs yet to report on the White Paper and a line of questioning for this being the Regulator’s effectiveness, it seems that there may be yet more criticism to come.
Pensions Regulator publishes its predictions for Tranche 13 valuations
Every year the Pensions Regulator conducts an analysis of the expected results of the latest tranche of DB schemes’ three-yearly actuarial valuations falling due. The analysis of “Tranche 13” (valuation dates between 22 September 2017 and 21 September 2018) has now been published.
The headline conclusion is that schemes undertaking valuations at 31 March 2018 are likely to have marginally improved funding levels from those reported three years ago. However, after allowing for deficit reduction contributions (DRCs), only about 35% of schemes’ current recovery plans remain on track to remove the deficit revealed at the previous valuation; at the other end of the scale, around 7% of schemes would need to more than treble their current DRCs in order to keep to the current recovery plan term – the majority of whom have strong employer backing.
The Pensions Regulator also finds that the majority of sponsoring employers have seen an increase in the nominal value of their profits and balance sheets over the last three years, suggesting that there is increased scope to support DB scheme deficits. At the same time, analysis shows that the ratio of dividends to DRCs has increased. FTSE 350 companies in this tranche are paying on average just under 15 times more on dividends than DRCs, compared to just over 10 times four years prior; the figures for companies outside the FTSE 350 are just under 5 and just over 3 respectively.
The report also reveals the segmentation of Tranche 13 schemes by employer and funding characteristics – 51% have strong or tending to strong employers with scheme funding on track to meet long term targets, 6% have strong or tending to strong employers, but with a weak funding position, 22% have weaker employers, but scheme funding is on track to meet long term targets, 18% have weaker employers and a weak funding position, whilst 3% have employers unlikely to provide adequate support to what is a stressed scheme.
This analysis provides useful context to the Regulator’s annual funding statement published in April (see Pensions Bulletin 2018/15 and our News Alert) and is further evidence of the Regulator’s contention that many sponsors have the wherewithal to put more money into their schemes.
MPs make recommendations for greening finance
Following hot on the heels of the responses to its climate letter (see Pensions Bulletin 2018/22), the House of Commons’ Environmental Audit Committee has published a report on “Greening Finance: embedding sustainability in financial decision making”.
The report raises concerns that many financial institutions, businesses and regulators continue to ignore the risks and opportunities associated with climate change and other sustainability issues, despite being financially material threats to the economy. Among the causes, the Committee identifies structural incentives across the UK investment chain that encourage a focus on short-term returns. The report then considers three areas for action: pension saving and environmental risk; climate risk reporting; and financial regulators and climate risk.
In relation to pension saving, the Committee recommends that:
- The Government clarifies that pension schemes have a duty to protect long-term value and should be considering environmental risks in light of this
- The Financial Conduct Authority issues guidance that clarifies the duty of contract-based schemes in relation to environmental, social and governance factors by the end of 2018 (mirroring the Pensions Regulator’s guidance for trust-based schemes); and
- Proposals are brought forward which require trustees to actively seek members’ views when producing their Statements of Investment Principles (SIPs)
In relation to climate risk reporting, the Government has previously said that it encourages listed companies to adopt the recommendations of the Taskforce on Climate-related Financial Disclosures (see Pensions Bulletin 2017/28). The Committee’s report calls on the Government to back this up by setting out the specific actions it will take to encourage take-up, and highlights the importance of better climate disclosures extending beyond listed companies to include asset owners and investment managers. It recommends that reporting in line with the Taskforce recommendations becomes mandatory, on a comply or explain basis, by 2022 for listed companies and large asset owners.
The Committee is critical of the financial regulators’ response to climate risk, saying that the FCA, Financial Reporting Council and the Pensions Regulator have not yet given the issue the serious attention it requires.
The Government is due to consult shortly on updating the regulations that govern SIPs. It will be interesting to see whether it takes this opportunity to address the Committee’s recommendations in relation to trust-based schemes. Whilst clarification of trustees’ fiduciary duties in relation to long-term risks such as climate change would be welcome, and long overdue, we are more sceptical about the suggestion that trustees should consult members on the SIP, given the likely disproportionate resource and logistical implications for affected schemes.
IFAs and genuine errors – a clarification
HMRC’s 99th pension schemes newsletter covers the usual range of largely administrative topics, but contains within it a clarification in relation to when its genuine errors guidance can be applied to the actions of an independent financial adviser.
As you would expect the circumstances are very narrow – there has to be clear authority for the IFA or agent to act on behalf of the member, a clear instruction from the member as to what form the transaction should take, the error must be clerical in nature resulting in the form of the transaction not being what the member intended, the error is spotted and reported to the scheme immediately and had the error been made by the member the scheme administrator would have applied the genuine error guidance.
So long as the position of the member is restored to the state it was before the error took place and the transaction then takes place as originally intended, the situation then falls within scope of the genuine errors guidance, which in effect means that no unauthorised payment charges apply and the reversal is not treated as a contribution.
Significantly, HMRC states that the guidance cannot be used where the member has changed their mind, the error is more than clerical, or the IFA or agent has given advice they now regret and wish to undo the transaction.
Newsletter 99 also confirms the successful launch of the first phase of “Manage and Register Pension Schemes” and the associated withdrawal of “Pension Schemes Online” (see Pensions Bulletin 2018/19 and Pensions Bulletin 2018/16). HMRC has also published a separate newsletter covering the new service.
This is a useful clarification of the genuine errors guidance, but which is of note more for what it rules out than what it rules in. Nevertheless it will be of assistance in today’s freedom and choice marketplace where IFAs may be acting under the member’s instruction to change drawdown amounts, switch funds etc.
Hector Sants to head up the new guidance body
The DWP has announced the appointment of Sir Hector Sants as the chair of the Single Financial Guidance Body, whose existence has recently been legislated for in the Financial Guidance and Claims Act 2018. He will take up the post from 3 October 2018 for a five-year term.
Sir Hector was the CEO of the Financial Services Authority from 2007-12 and is currently chairman of Step Change, the debt charity, a trustee of Just Finance, a charity which collaborates with the Church of England to promote a fairer financial system, and is a member of the UK’s Financial Capability Board.
Dormant Assets Scheme insurance and pensions industry “champion” appointed
Following the announcement in February of the expansion of the Dormant Assets Scheme (see Pensions Bulletin 2018/08) the Government has proceeded to appoint four “champions” for each of their respective sectors.
The four industry champions are:
- Insurance and Pensions Industry Champion – Kirsty Cooper, group general counsel and company secretary at Aviva
- Banking Industry Champion – Simon Kenyon, managing director of consumer banking at Lloyds Banking Group
- Investment and Wealth Management Champion – William Nott, strategic adviser to M&G
- Securities Champion – Robert Welch, group company secretary at Tesco
The Government states that each champion will work with stakeholders and Reclaim Fund Ltd on the expansion plans and will report to Ministers.
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.