20 September 2018
Pensions Regulator launches its new approach to supervision
On Monday the Pensions Regulator put more meat on the bone of its “clearer, quicker, tougher” approach to the community it regulates through the publication of a brochure setting out details of its new regulatory model to drive up standards and tackle risk through proactive engagement with a larger proportion of the schemes and employers it regulates.
The Regulator has also had a rebrand, now operating under the strapline of “Making workplace pensions work”. A new website will be launched later this year.
Until recently, although there had been plenty of evidence of the Regulator’s “tougher” approach, little had been said as to how it intended to become more proactive across the pensions landscape in order to address risks before they become cases requiring intervention. Going forward the Regulator intends to do the following:
- Require one-to-one supervision with a small number of higher risk schemes – to be rolled out this autumn, initially covering 25 of the biggest schemes, be they DB, DC master trust or in the public sector, and going on to more than 60 schemes over the next year
- Use thematic reviews to drive higher volume contact with market segments – the Regulator expects that in this way some 20%-40% of schemes will experience supervisory interaction, involving a broad spectrum of regulatory interventions ranging from campaigns to drive up standards of compliance, to requesting information through meetings and monitoring
This second type of intervention will be piloted with approximately 50 DB schemes to assess compliance with messages in the Regulator’s 2018 annual funding statement, specifically concerning whether schemes are being treated fairly when it comes to dividend payments to shareholders. More generally, the nature of such thematic reviews is that the interaction will initially be low and medium intensity, as information is gathered, but if it becomes clear that a particular scheme is not engaging with the Regulator, or not meeting its duties, the intensity will be stepped up, ultimately leading to enforcement action.
In tandem with this new approach there is the promise to review the material produced by the Regulator to ensure that the standards it expects are clear.
This outcome from the TPR Future programme will clearly be a challenge for the Regulator to deliver successfully, but if delivered sensitively and with a full understanding of the difficulties that trustees and employers face, could be very positive.
Many smaller DC schemes are failing to demonstrate good value for money
So says the Pensions Regulator as it published the results of its latest annual DC survey on 14 September.
The survey highlights that the trustees of just one in ten small schemes, and one in three medium schemes, are doing everything which the Regulator believes is essential to assess value for members. This includes trustees having good knowledge and understanding of the costs and charges paid by members, and carrying out an annual assessment of the value the scheme represents.
The survey also found that only 41% of scheme trustees are researching and taking into account what members value.
The Regulator has also published findings from its thematic review into value for members in small and micro DC schemes. It says that of the 68 chair statements reviewed, the majority provided inadequate or incomplete explanations of how the scheme’s costs and charges represent good value for members.
To address the issues highlighted in the survey and thematic review, the Regulator is:
- Reviewing its guidance to be clearer about its expectations of chair statements, including value for member assessments. The Quick Guide to Chair’s Statements has already been updated (see Pensions Bulletin 2018/27)
- Testing a more directive approach to delivering guidance as part of its work to drive up standards of trusteeship. The first topic area will be default investment strategies, including the considerations trustees should make about value for members
- Continuing to take action against schemes which produce substandard chair’s statements
- Using its 21st Century trusteeship communications to 40,000 people who run schemes to drive up standards: the most recent theme was improving value for members
There are lots of interesting statistics in the survey and despite the negative slant of The Regulator’s press release there are some encouraging signs buried in the survey. For example, 54% of members were in a scheme that met all of the Regulator’s applicable key governance requirements – up from 32% in the 2017 survey. This arguably shows that medium and large schemes (including Master Trusts) are responding to the Regulator’s efforts to drive up governance standards.
The main governance problem areas appear to be value for member assessments and processing core scheme financial transactions. The former is a challenging area for all schemes, but trustees of small and medium schemes, where there are issues with processing core transactions, should be asking questions of their administrator.
Finally it is worth noting that the Regulator has highlighted through the thematic review that many small and micro schemes are struggling with understanding the costs and charges paid by their members and also with carrying out an annual value for member assessment. Whilst the thematic review is focussed on small and micro schemes we believe that the Regulator’s focus is firmly on these areas across the spectrum and so all DC scheme trustees would be wise to get on top of these tricky issues.
Pensions Ombudsman updates his redress guidance
The Pensions Ombudsman has published revised guidance about redress for non-financial injustice caused by maladministration, which introduces fixed amounts for these so-called “distress and inconvenience” awards. Awards will now fall into one of the following five categories – nominal (£nil), significant (£500), serious (£1,000), severe (£2,000) and exceptional (above £2,000).
The guidance gives general background to such awards and has a useful table setting out the features of a case that are weighed up when determining which category the award should fall under.
This approach takes immediate effect for all open and new cases.
The Ombudsman has always been able to make such awards, but until now, other than the accepted upper limit of £1,000 (now increased to £2,000) for all but exceptional cases there was no guidance as to where such awards should be pitched. This guidance brings useful clarity to an aspect of the Ombudsman’s role, particularly for those receiving such awards.
Sensible approach taken to signposting problem arising from dispute resolution transfer
The DWP and the Pensions Regulator have issued a joint statement giving a workaround for a technical hitch following the transfer of the dispute resolution function from the Pensions Advisory Service (TPAS) to the Pensions Ombudsman (TPO) in March (see Pensions Bulletin 2018/07).
The issue arose because regulations, such as the disclosure regulations and internal dispute resolution regulations, have references to TPAS "hardcoded” into them, but following the transfer of the dispute resolution function these no longer make sense. However, up to now, if schemes had amended their documentation accordingly to reflect the new reality they would have been technically in breach of the regulations.
The statement essentially says that Brexit has precluded any Parliamentary time to make the necessary changes to the affected legislation, but that the Pensions Regulator will not apply penalties “in respect of non-compliance with existing legislation where signposting has been updated to clearly reflect the current position … that disputes and complaints should be referred to TPO, and general requests for information or guidance to TPAS”.
The Pensions Ombudsman has welcomed this sensible decision, as do we, but it is a sad state of affairs when even the most minor and technical changes to pensions law are incapable of being made – although there is a promise to deliver by April 2020.
Pensions Advisory Service – Annual Review
The Pensions Advisory Service has published its annual review for 2017/18, which draws together the work that TPAS has undertaken in its past financial year and the work it will continue to do until it becomes part of the Single Financial Guidance Body, scheduled for next April. Once more it shows a high level of activity, assisting individuals with their pension problems – but no longer becoming involved in dispute resolution following the transfer of that aspect of its work to the Pensions Ombudsman earlier this year (see article above).
Pension Schemes Newsletter - Relief at Source
HMRC’s latest pension schemes newsletter focusses entirely on those schemes where member contributions are subject to income tax relief at source – ie primarily personal pension schemes. It reminds the administrators of such schemes that they must submit the 2017/18 annual return by 30 September 2018 and that returns for future years must be submitted electronically. It then goes on to cover the notification of residency status reports that will be sent to administrators in January 2019, which will for the first time set out who are Welsh residents (given the prospect of Welsh income tax rates differing from English and Northern Ireland income tax rates from 2019/20 – with consequences for the operation of tax relief on pension contributions). Finally it covers what happens if a new member does not have a valid NIC number and then provides links to forms in draft that have been modified in order to deal appropriately with Welsh taxpayers.
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.