Pensions Bulletin 2018/29

Our viewpoint

CMA publishes its provisional decisions on its investment consultancy market investigation

A significant milestone in the Competition and Markets Authority’s investigation into the investment consultancy and fiduciary management markets was reached on Wednesday morning with the publication of the CMA’s provisional decision report.  Following its detailed investigation, the CMA has concluded that there is an adverse effect on competition in both sectors, but it has greater concerns about the fiduciary management market.  Eight “remedies” are proposed, with most of them applying solely to the fiduciary management sector.

The CMA’s decisions are now subject to consultation with the final report being required to be delivered by 13 March 2019.

Please see our News Alert for analysis of this important development.

MPs come out strongly in favour of CDC schemes

In publishing its report into collective DC schemes, the Work and Pensions Committee, chaired by Frank Field MP, states that such schemes could “transform the private pensions landscape” and calls on the Government to take action to make such schemes a practical reality.

The Committee’s report covers the recent history of development of CDC schemes in the UK and also refers to other countries’ experiences of it (the Netherlands and Denmark), whilst setting out the perceived benefits and disadvantages of this type of scheme.

The report does acknowledge some potential problems with CDC schemes, but the Committee believes these can be overcome.

The proposed mechanism for implementation is by further amending the definition of “money purchase benefits”, rather than resurrecting the wider changes to pensions legislation proposed in the Pension Schemes Act 2015.  The MPs say that this simpler route would address concerns of potential CDC sponsors that there could be “legislation creep” putting sponsors on the hook should there be a funding deficit.  It will also be necessary for much policy work on CDC schemes to be undertaken (that was put on hold in October 2015) with the DWP stating that this could take up to two years to deliver.


The Government now has to respond to this report, which given its comments about the proposed CDC scheme for Royal Mail (see Pensions Bulletin 2018/12), cannot be too negative.  But quite where this lies in their priorities, given that they have a White Paper to deliver, remains to be seen.  One thing is for sure – a lot of work will be necessary before the Government can safely tweak the definition of money purchase benefits and let CDC schemes become a reality.

Pensions Regulator fines professional trustee £25,000 for failing to submit DB valuations

In what is believed to be the first case of its kind, the Pensions Regulator has fined Rentokil Initial Pension Trustee Limited, the professional sole trustee of the Initial Hospital Services Limited No.1 Pension Scheme, for failing to complete and submit not one, but two successive valuations of a DB scheme by their respective deadlines of July 2013 and July 2016.

The fine of £25,000 is at the top of band 2 of the Regulator’s monetary penalty policy, published in August 2017 (see Pensions Bulletin 2017/34).  The Regulator’s determinations panel decided that the nature of the offences, whilst very serious, did not move into band 3 territory, where the maximum fine for a professional trustee is £50,000.

Quite why the DB scheme was unable to submit its valuations is not made clear by the largely anonymised determination notice, but the reason given (an imminent merger with another DB scheme, first mooted in 2012, but which in the event did not happen) was not accepted by the Regulator.  The closed scheme, which had approximately 140 members, but only £3m of assets in 2012, had been late with its 2006 and 2009 valuations, had a number of other DB valuation compliance failures, and did not seem to respond appropriately to a number of interventions from the Regulator’s case team.


Clearly this is a very unusual case, and the Regulator’s press release on this scheme, goes on to recount more generally where it is with late valuations.  Since April 2017 the Regulator has issued Warning Notices for late valuations in relation to nine schemes, of which seven so far have come into compliance.

The content of the determination notice also gives an insight into how the Regulator reacted in the past to late valuations.  From what is set out there, it seems that the scheme was in breach in July 2010, but it took a long time for the Regulator to pursue the scheme and then only in fits and starts.  With hindsight it is quite extraordinary that eight years passed before the trustee was fined.  One hopes that this wouldn’t occur now under the Regulator’s “clearer, quicker, tougher” mantra and its statements that it is now “a very different organisation than it was five years ago” (see article below).

Revised Corporate Governance Code published

On Monday the Financial Reporting Council published a revised version of the UK Corporate Governance Code, following a consultation which closed on 28 February 2018 (see Pensions Bulletin 2017/52).  The revised Code is shorter and sharper, with a renewed focus on the application of the Principles.  It applies to accounting periods beginning on or after 1 January 2019.

The main changes include:

  • Workforce and stakeholders - new provisions relating to board engagement with the workforce and consideration of stakeholders’ interests
  • Culture - boards are asked to create a culture which aligns company values with strategy
  • Succession and diversity - emphasis on the need to refresh boards and undertake succession planning, to ensure the right mix of skills and experience, constructive challenge and to promote diversity
  • Remuneration - remuneration committees should take into account workforce remuneration when setting director remuneration and apply discretion when the resulting outcome is not justified

The revised Code has less detail in relation to directors’ pension provision, although there is now an explicit provision that the pension contribution rates for executive directors, or payments in lieu, should be aligned with those available to the workforce.

The FRC’s feedback statement on the consultation also summarises the diverse answers it received to the high-level questions it posed about the future direction of the UK Stewardship Code.  There is no indication of how the FRC will respond to this feedback, other than confirming that it will consult on a revised Stewardship Code later this year (rather than in mid-2018, as stated in the consultation that closed in February).


We welcome the main changes to the Corporate Governance Code, which seek to address many recent areas of concern among long-term investors such as pension funds.  The new requirements on directors’ pension provision should perhaps not come as a surprise, given the consultation’s proposals relating to alignment of pay and incentives across the company.  It will be interesting to see what effect it has, given that pension arrangements for high earners have increasingly diverged from those for the rest of the workforce in response to more stringent tax limits.

Record claims on the PPF – but it’s still standing strong

Record pension scheme deficits of £1.2 billion from schemes falling into a PPF assessment period, largely driven by the collapse of Carillion, have failed to significantly damage the pensions lifeboat’s funding level.

In fact, according to the Annual Report and Accounts for the year ending 31 March 2018 published last Thursday, the PPF has actually seen an increase in its reserves from £6.1 billion to £6.7 billion.  This increase has largely been driven by strong investment returns (once again) and improved assumptions about the future, particularly reflecting lower than expected longevity and data changes.  The amount of PPF levy collected over the year actually fell by £48 million to £537 million.

Alongside the Report and Accounts, the PPF also published its Long-Term Funding Strategy Update.  In it, the PPF confirms what it means by “self-sufficiency” – the target level of funding to have reached by 2030 so it does not have to rely on future levies and taking further investment risk.  The PPF is asking itself how well funded it needs to be to have confidence that, even if the future is worse than expected, it can still pay members compensation.  It has decided that a 10% margin over its best estimate funding requirement at 2030 remains a suitable self-sufficiency target.  Despite the small increase in reserves, the PPF estimates its chances of meeting self-sufficiency in 2030 have fallen slightly to 91%.

It’s been a busy year for the PPF, not just with high profile pension schemes starting PPF assessment periods (eg Carillion, British Steel, Hoover and Toys R Us), but also with internal developments.  Both LDI and Sterling cash fund investment management functions have been insourced and a new function called “Retire now”, which allows members to retire online, has been introduced.


The PPF continues to invest well, improve efficiency and provide a good level of support to the DB scheme members it covers.  The worry is always that it is just one massive company failing away from being in trouble, but it looks like it will take something significantly bigger than Carillion for this to happen.

Pensions Regulator publishes annual report

Last Thursday the Pensions Regulator published its 2017/18 annual report and accounts.  This year’s document is inevitably very factual, although it does take the opportunity to reprise its “clearer, quicker, tougher” mantra and to state that it is now “a very different organisation than it was five years ago”.

As befits an organisation of its size and reach the Regulator has had a busy 12 months with some impressive statistics:

  • More than 460,000 phone calls, emails and letters were answered
  • 132,653 cases were dealt with
  • 36,137 fines were issued for non-compliance
  • The Regulator’s trustee appointment powers were used 534 times; and
  • Regulator staff attended or delivered at 336 meetings and speaking events


The Regulator emphasises that it has “achieved 18 of its 19 challenging key performance indicators” (which it set itself) and that it has “changed as a regulator” and has “learnt lessons”.

There is little informal signposting as to what the Regulator’s priorities for the next 12 months will be.  However, it will have its hands full as the White Paper changes are consulted upon and get closer to implementation.

Pensions Ombudsman continues its “total transformation”

In its latest annual report, the Pensions Ombudsman says that his office has had a “momentous year”, with further changes to its working practices, processes, technologies, workplace and culture – which Anthony Arter sums up as constituting “a continuation of the total transformation” of the services he heads up.

Amongst the developments are the following:

  • The clearing up of almost all the backlog of cases identified in last year’s report
  • The transfer (in March 2018) of those staff and volunteers from the Pensions Advisory Service that undertake dispute resolution work; and
  • A halving in the average time taken to complete investigations (to 5 months), despite an increase in the number of enquiries (6,319 – up 5% from 2016/17) and investigations (1,676 – 265 more than 2016/17) taken on

As last year (see Pensions Bulletin 2017/30), almost 70% of investigations have been concluded without an Ombudsman’s intervention – with 41% resolved informally or withdrawn and 25% accepted (by all parties) after an Adjudicator’s Opinion.  Where not everyone accepts this Opinion it is referred to an Ombudsman and if they agree with the Opinion, a final Determination is issued – 31% were determined in this way in 2017/18.  In just a handful of cases (2% in 2017/18) was it necessary for an Ombudsman to make a preliminary decision and go on to make a final one – typically where the complaint is highly complex with many issues to be addressed.

Complaints about transfers (such as the calculation or payment of transfer values), the incorrect calculation of benefits and the failure to act on instructions continued to be the most common topics of completed investigations.


It has been an excellent year for the Ombudsman, with the prospect of further efficiency savings coming through in 2018/19.  This is all to the good as the number of investigations continues to climb.

NEST (unsurprisingly) continues to grow (again)

Last Thursday NEST Corporation published its annual report and accounts for 2017/18, along with the annual report and accounts for the NEST pension scheme.  Building on last year’s success (see Pensions Bulletin 2017/30) NEST reports that the scheme is being well-run and that as at July 2018 NEST membership has grown to around 6.8 million members and that NEST is working with more than 656,000 employers with more than £3 billion in assets under management.


When most news about pensions seems to be bad, it is pleasing to see that NEST is still ticking along doing what it is meant to do without, apparently, any significant problems.

TPAS continues to deliver high customer satisfaction as its sunset begins

Last Thursday the Pensions Advisory Service also published its annual report and accounts for 2017/18.  There was a slight decline in the number of customers helped by TPAS (173,442 compared to 180,499 in 2016/17), but customer satisfaction remains high at 98% and the abandonment rate on telephone calls and webchats has dropped back down to 7% after spiking at 15% last year.

TPAS notes that it expects its duties to be transferred to the new Single Financial Guidance Body (see Pensions Bulletin 2018/19) at some point between 31 October 2018 and 31 March 2019.

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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