10 January 2019
A happy and a busy New Year
As we all return to work after the festive break we thought it would be useful to carry a brief reminder of some of the more important pensions developments on which there will need to be progress soon. They include the following:
- We expect the DWP to publish its consultation response on strengthening the powers of the Pensions Regulator shortly (see Pensions Bulletin 2018/26). We hope to see more details of what is being proposed
- Consultation on the regulatory regime for DB consolidator schemes (see Pensions Bulletin 2018/50 closes on 1 February. The DWP and Pensions Regulator will have to move quickly to ensure that the superfunds are subject to appropriate supervision
- Consultation on the DWP’s plans for a pensions dashboard (see Pensions Bulletin 2018/49) ends on 28 January. The DWP has said that it will respond by April and intends that the Single Financial Guidance Body will have a version available for use this year
- The Pensions Regulator will need to start to expose its thinking on a revised DB Funding Code (although we expect that formal consultation will not be until the autumn)
These and the other proposals for DB regulatory reform in last year’s White Paper (see our News Alert) will form part of a Pensions Bill that we hope to see later this year.
We also understand that the House of Lords’ Economic Affairs Committee will publish its report on the use of the RPI (see Pensions Bulletin 2018/28) on 17 January. This keenly awaited report could be an important stepping stone to a world where the RPI is either replaced or modified, with profound implications for the financing of DB pension schemes.
As ever there is a lot going on in pensions. What is unusual is the unprecedentedly uncertain political backdrop. Unless something happens to stop it, the UK will cease to be a member of the European Union at 11pm on 29 March. But with talk of no deal, a second referendum, or a general election, the next few months are going to be quite a ride.
DWP proposes changes to the operation of the Pensions Ombudsman
For many years the mechanisms for resolving pension disputes have involved two bodies – the Pensions Ombudsman, which is a statutory commissioner empowered to make binding determinations, and the Pensions Advisory Service (TPAS), which provided an informal and “early” dispute resolution service.
Following the transfer of TPAS’s dispute resolution function to the Ombudsman earlier in 2018 (see Pensions Bulletin 2018/07), on 21 December the DWP issued a consultation paper covering two proposed measures:
- How the Ombudsman should operate dispute resolution in the future; and
- Widening the jurisdiction of the Ombudsman
Regarding the first of these, the DWP invites views on how the Ombudsman may best conduct dispute resolution, including by means of an “early” dispute resolution process, which could potentially involve legally binding directions, although falling short of a full Ombudsman investigation.
The consultation also asks how these early dispute resolution processes should be concluded, how they should interact with the internal dispute resolution procedures of pension schemes and how the service should be “signposted”.
On jurisdiction the consultation paper asks whether employers, who choose a group personal pension arrangement for their employees, should be able to bring complaints to the Ombudsman. Current legislation does not permit this, but the DWP anticipates that it may be desirable for smaller employers to be able to bring complaints against scheme providers/administrators. This is because of all the small and micro employers who may comply with their auto-enrolment duties by contributing to a group personal pension.
This is a necessary, but somewhat open, consultation largely aimed at addressing the role of the Ombudsman following the transfer to it of the TPAS functions – the position on which has until now been confused.
A short consultation period has been set – ending on 18 January 2019. Many of the proposals require changes to primary legislation. Could this be another topic for this year’s Pensions Bill?
PPF provides further update on the Hampshire case
The Pension Protection Fund has published a further update on the work it is undertaking to implement the “50% minimum” ECJ ruling in the Hampshire case. This follows an earlier explanation of its interim approach (see Pensions Bulletin 2018/45).
The PPF is continuing to work on its methodology for calculating increases for PPF pensioners and will publish this as soon as it can. It will then confirm its approach for FAS pensioners, followed by those members who are not yet retired.
These methodology statements will include how any missing data will be handled, and future inflation and mortality assumptions. This methodology will remain an interim approach until new legislation comes into force, or there are further rulings by the courts.
The PPF’s approach is to prioritise those affected most, first. So, it will address PPF and FAS members impacted by the PPF’s long service cap first, hopes to start making payments “in the New Year” and expects to conclude by the end of April 2019 providing it has the necessary information to allow it to do this.
The PPF will then turn its attention to PPF and FAS members impacted by the PPF’s standard cap. This group is likely to be more complex administratively to handle so will take longer to finalise. The PPF currently expects to conclude this phase in the summer of 2019.
The PPF will then consider how best to handle remaining PPF and FAS members.
This is clearly a complex project for the PPF to undertake as, without further information, which up until now it has only sought for those affected by the long service cap, it cannot be sure who is impacted. There also remains the possibility that the additional compensation it is calculating is modified by the courts.
Cold-calling regulations pass into law
The long-awaited regulations that bring in the pensions cold-calling ban have now completed their passage through Parliament after being laid in draft form (see Pensions Bulletin 2018/45).
The Privacy and Electronic Communications (Amendment) (No. 2) Regulations 2018 (SI 2018/1396) were made on 19 December 2018 and came into force on 9 January 2019.
Whilst this is clearly a significant moment in the continuing battle against the scammers, we should remind ourselves that nothing has been done to enable trustees to stop transfers taking place where they have clear concerns, have warned the member, but that member wants to proceed anyway. Surely it is not beyond the wit of policymakers to deliver a system under which trustees can block transfers to dodgy destinations without trampling over the broader right of the member to transfer?
Single Financial Guidance Body launches
The merged “single financial guidance body” duly booted up on 1 January. As its website states this body brings together the three previously existing providers of government sponsored financial guidance – the Money Advice Service, the Pensions Advisory Service (except those functions that have been taken over by the Pensions Ombudsman – see the story above) and Pension Wise.
This means that pensions guidance, money guidance and debt advice are all now provided by the same organisation which also has a wider consumer protection and strategic role to improve financial outcomes for the public.
It will be very interesting to see how this organisation evolves and how effective it is in the pensions space. We do suggest that an early priority is to choose a name.
Work and Pensions Committee looks at contingent charging
The House of Commons’ Work and Pensions Committee has announced a mini-inquiry into the common practice amongst a number of financial advisers to operate a “contingent charging” model when advising on DB transfers, by which the customer is only charged should they go ahead with the transfer.
The inquiry is being billed to support the further work that the FCA promised to undertake in this area when last October it finalised its latest set of rules for financial advisers operating in this market, but declined to take any action for the time being on contingent charging (see Pensions Bulletin 2018/40).
The deadline to submit evidence to the Committee is 31 January 2019.
The Work and Pensions Committee has clear concerns about contingent charging which it made more than apparent when it published its hard-hitting report on British Steel last February. It seems that its latest inquiry is intended to apply pressure to the FCA to reach a decision – and outlaw the practice.
Big banks – ring-fencing comes into force
We note that the provisions of the Financial Services (Banking Reform) Act 2013, which require systemically important banks to “ring-fence” their retail operations from their investment banking operations, came into force on 1 January.
Much work has gone into implementing the ring fences by the Banks affected and will continue as pension obligations are also to be separated, although the deadline for this is not until 1 January 2026.
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.