• FCA and Pensions Regulator consult on driving value for money in DC pension schemes
• Pension scheme voting rights – the Taskforce reports
• Employer resources test regulations made
• SPP launches primer on ESG

FCA and Pensions Regulator consult on driving value for money in DC pension schemes

The Financial Conduct Authority and Pensions Regulator are proposing a new framework through which value for money during the accumulation phase can be assessed for DC pension schemes – whether contract-based or occupational.

The framework requires ‘backward-looking’ disclosures on investment performance, customer service and scheme oversight (including data and communications) and costs and charges.  The idea is that this will allow trustees and independent governance committees to compare their scheme’s costs and charges, investment performance and service standards with similar offerings from other providers – and so conclude where their scheme stands on a comparative performance basis.  It is hoped that this, in turn, will help drive future improvements in value through lower costs and charges, improved risk-adjusted investment performance and higher standards of services.

• On investment performance the paper suggests that past performance data should be disclosed net of costs, possibly grouped by target retirement date ranges, with possibly some risk-adjustment included. There is also some discussion about benchmarking
• On scheme oversight the paper starts by asking whether certain aspects should count – ie quality of communication, scheme administration and effectiveness of governance. It acknowledges that coming up with a measurement will be difficult and suggests that the pensions industry looks into the issue, potentially with the assistance of a ‘neutral convenor’ (such as the British Standards Institution).  There is also discussion about a possible independent certification against a standard
• On costs and charges the intention is to build on the disclosures required by DC workplace schemes used for auto-enrolment. Various options for benchmarking are discussed

Consultation closes on 10 December 2021 and a feedback statement, setting out next steps is promised for 2022.  The FCA intends to consider the assessment of value for money in DC pensions in decumulation after it has conducted a post-implementation review of investment pathways.  Additionally the FCA intends to publish a Policy Statement in October drawing on feedback received from its own value for money proposals in relation to workplace personal pension schemes on which it issued a consultation paper in June 2020 (see Pensions Bulletin 2020/27).   

Comment

This consultation has been long promised, and this discussion paper can only be the start of a possible journey, at the end of which all DC schemes may possibly be benchmarked against these three attributes of value for money.  At this stage, how long this journey will be, whether the destination will be reached and what it will look like is hard to assess.  Both regulators have had value for money on their agenda since March 2018 (see Pensions Bulletin 2018/12) and only now have they been able to start to sketch out their desires through a joint consultation.

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Pension scheme voting rights – the Taskforce reports

The Taskforce on Pension Scheme Voting Implementation, set up in December 2020 to address problems about the proxy voting by asset managers of equity shares owned by pension schemes (see Pensions Bulletin 2020/49), has had its report published by the Department for Work and Pensions.

Amongst the 24 recommendations (set out in Annex 2 of the report) are the following:

• Trustees should either set a voting policy of their own, or explicitly accept responsibility for those policies exercised on their behalf by their asset managers – to be published in their Statement of Investment Principles and tracked via their Implementation Statement;
• All asset managers should offer pooled fund investors the opportunity to set an “expression of wish” as to how votes are exercised on their behalf, regardless of how they invest – on a voluntary basis, but with the threat of compulsion if the market does not move rapidly; and
• The Financial Conduct Authority should clarify – eg via guidance – that there is no breach of fund rules in acting on an expression of wish; and set expectations of asset managers for better disclosure of voting policies, more granular and comparable reporting of how votes are cast and more comprehensive explanations for those votes

The Taskforce also asks Government, regulators and industry to sign up to four “Key Principles for Voting”, set out in paragraph 130 and Annex 1 of the report, covering expressions of wish, “form over substance” in respect of the nature of relationships, transparency over voting entitlements in products, and co-operation in the voting chain.

Comment

The report’s authors are clear that there is a problem to be addressed, with too few owners setting voting policies and too few asset managers sharing their voting policies with their clients.  With much to be done, there are a number of actions for DWP, the FCA, the Pensions Regulator, asset managers and advisers to contemplate.  The ball now passes to the Government to respond and decide what to take forward.

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Employer resources test regulations made

The regulations that fill in some detail in relation to the new “employer resources test”, have now been made having been approved by both Houses of Parliament.  This follows their finalisation in draft form in June (see Pensions Bulletin 2021/27 for details of the contents of these regulations).

The Pensions Regulator (Employer Resources Test) Regulations 2021 (SI 2021/1047) come into force on 1 October 2021 to tie in with the significant extension to the Regulator’s powers on Contribution Notice and related matters on that date.

Comment

Debated last in the Lords on 6 September it now appears that the Pensions Regulator’s associated updated Code of Practice 12 will contain some significant adjustments from the consultation draft, but it is not yet clear whether we will see the final version by 1 October.

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SPP launches primer on ESG

The Society of Pension Professionals has published a short and readable Environmental Social and Governance Guide which is aimed at trustees of small and medium schemes to help such schemes begin to effectively manage ESG integration.

The guide provides step-by-step guidance to trustees on their approach to ESG integration, focusing on how the scheme’s investments are held, trustees' legal obligations and a suggested high-level framework for trustees to adopt.

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