News Alert 2022/01

At a glance

The Pensions Dashboard has taken a significant step to being turned into reality with the publication of extensive draft regulations for consultation.  These will, amongst other things, lay down what occupational pension schemes must do to connect with and supply information to the dashboard and by when they must do these things.  There is much more to come, making 2022 a year of pensions dashboard action for nearly all mainstream UK pension schemes.

Key Actions

Trustees

• Establish a dashboard readiness working party (if not already done so) and charge it with drawing up a plan of action to ensure that all necessary systems and processes are in place by the time the scheme is required to connect with and supply information to the MaPS dashboard, including dealing with member queries that will inevitably arise once the dashboard is live
• Assess what data will need to be supplied, from where it will be obtained, the quality of such data, how it will be ‘digitised’, and any calculation processes that will be needed
• For DB schemes consider whether administration systems currently support the proposed approach to deferred pensioner revaluation and, if not, the impact of any actions that need to be taken
• Start to consider whether to use a third party to interface with the dashboard or connect directly
• Start to consider the best approach to matching scheme data with a find request

Scheme administrators

• Ensure that all data needed either directly or to support calculations for the dashboard has been suitably cleansed
• Schedule development time for any changes to administration processes necessary to support find requests. Pay particular attention to the timescales for providing value data
• Schedule development time for any changes to calculation routines necessary to provide value data, in particular for DB schemes around deferred pensioner revaluation

The Detail

The long-awaited consultation by the DWP on regulations relating to pensions dashboards was launched on 31 January 2022 in the form of a 137-page consultation document and 28-pages of ‘indicative’ draft regulations.

The regulations cover three areas:

• Requirements of those occupational pension schemes within scope (see below) in relation to cooperating with and connecting to the Money and Pensions Service (MaPS) dashboard and the information they must provide to individuals via it
• Provisions for the Pensions Regulator to take enforcement action in relation to pension schemes that do not comply
• Requirements to be met by other providers of pensions dashboards services in order to be “qualifying pensions dashboards services”

The material published is extensive and complex and as such, this News Alert highlights just a few key areas.

The regulations apply to all registrable UK-based occupational pension schemes (other than stakeholder schemes) including public service pension schemes in relation to their active and deferred members.  However, for schemes with less than 100 such members, they only apply where they are permitted to connect on a voluntary basis.

On the same day the consultation was launched, the Pensions Dashboards Programme team of MaPS also published information about the scope of its standards and how it will go about setting them, with some indicative examples of what the standards could contain.  These comprise: a data usage guide; design standards scope; reporting standards scope; technical standards; and a guide to the code of connection.

Data – to include potential retirement income

Whilst some had argued that dashboards should initially focus on enabling individuals to simply “find” the existence of pension entitlements, the Government has decided that dashboards should operate a ‘find and view’ service from the start, with individuals being able to also establish their potential retirement income from each of their pensions through the return of “value data”.

This value data is outlined below:

• For money purchase schemes – the value of the member’s accrued rights, the annualised income from those rights, the projected pot value and the projected annualised income from such rights needs to be returned – using the methodology to be set out by the FRC in a future version of AS TM1 (see below)

• For non-money purchase schemes – for active members the pension that would be payable if pensionable service had ended needs to be returned, along with what they would receive should they continue in service until normal pension age but assuming no increase in their salary. For deferred pensioners the deferred pension on leaving service revalued in line with scheme rules to the current date should be returned.  However, for deferred pensioners, the consultation recognises that some schemes may not have the processes in place for carrying out these calculations and seeks views on the impact of allowing an alternative approach, where deferred pensions are simply revalued in line with inflation, even if only for a limited period

The required value data for other benefit types is also set out.

For all scheme types it will be sufficient to return values from calculations undertaken in the last twelve months.  Where such a value is not available, the regulations propose that non-money purchase schemes will have 10 working days to provide it and all other schemes will have 3 working days.

On matching, the regulations are silent on the actual data that trustees should use to match a find request from an individual.  However, they require that trustees have regard to any guidance from the DWP or Pensions Regulator on matching and keep a record of the criteria that they decide to use for at least six years from the end of the scheme year in which the decision is taken.

Our viewpoint

There are several challenges to providing “value data” both for non-money purchase and other schemes.  For non-money purchase the biggest challenge is likely to be in relation to ‘revalued to date’ income illustrations for deferred pensioners.  Many such schemes will have last sent a benefit statement when the member left pensionable service – potentially decades ago – which simply set out what the deferred pension was on leaving.  The data may simply not be readily available to provide revaluation updates in response to find requests.  For other schemes there will be questions about whether a benefit statement value produced up to 12 months ago is still relevant, and where such a value is not available, the 3 working day turnaround is likely to be challenging, at least initially until administrators have developed efficient systems to provide this data.

Staging

Schemes will be required to connect to the dashboard in a staged manner with the largest schemes going first.  The DWP proposes three staging cohorts – large schemes (1,000 + members: April 2023 – September 2024), then medium schemes (100 to 999 members: October 2024 – October 2025), followed by small and micro schemes (expected from 2026, but not covered by the regulations).  MaPS will give every scheme a window for connecting and once connected, a scheme should be able to respond to ‘find and view’ requests.

However, in a change from MaPs’ Call for Input in May 2021 (see Pensions Bulletin 2021/23) the definition of a member for staging purposes now excludes pensioners and therefore schemes with large pensioner but small active/deferred populations may find they have more time before they are staged.

Exceptionally, schemes will be able to ask the Secretary of State to defer their staging deadline by up to one year.  Guidance on the deferral process is promised but the regulations require that any request for deferral must be made within twelve months of the regulations coming into force.

The consultation notes that public service pension schemes represent nearly 20% of all active and deferred memberships in scope for dashboards and so the Government wants these schemes to stage as early as possible despite the challenges associated with implementing the McCloud remedy (see Pensions Bulletin 2021/06).  The regulations set the staging date as 30 April 2024 for all public sector schemes.

The Government is also committed to making State Pension data available via dashboards “from day one”.

Our viewpoint

These staging dates are ambitious given the complications faced by public sector schemes and that schemes need to be fully up and running with their dashboard responsibilities before they can stage.  There may well be push back in the consultation responses, but the Government will be reluctant to allow any further delay to a project first announced in the 2016 Budget.  Right now, schemes will need to assume that they will be required to stage at the date set out in the regulations.

Compliance and enforcement

The Pensions Regulator is given extensive powers to ensure that trustees and third parties comply with the regulations.  These include the ability to issue compliance notices to either party for any instance of non-compliance, penalty notices of up to £5,000 to individuals and up to £50,000 in other cases for any instance of non-compliance.  The Regulator will also have the ability to issue compliance and penalty notices in respect of individual contraventions of the regulations.  Thankfully, all such enforcement action is to be at the Regulator’s discretion.

It appears that the primary mechanism for establishing whether there have been compliance failures is through the digital architecture being built by MaPS.  Schemes will also be required to submit certain management information.

Our viewpoint

It is not yet clear what the Regulator’s stance will be on compliance failures.  In the past there has been a certain amount of forgiveness as new regulatory responsibilities have had to be shouldered by schemes, with the Regulator operating an ‘education, enable' and only lastly, ‘enforce’ policy.  This time round schemes may need to brace themselves for a harder line should they not be able to stage in time or fail to respond accurately and appropriately to find requests.

Qualifying pensions dashboard services

It is anticipated that a number of entities will wish to provide their own pensions dashboard and will seek FCA authorisation in order to do so.  They will need to meet certain requirements, including having to operate within the ecosystem being built by MaPS and to adhere to design standards set down by MaPs relating to how data is displayed.  The regulations start to spell out what will be required of these providers.

Closure date and other consultations to come

Consultation on the DWP’s regulations closes on 13 March 2022 and ahead of that a number of DWP-hosted webinars have been arranged.  The DWP intends to lay the regulations before Parliament in autumn 2022.

Other consultations will follow including the following:

• The Pensions Regulator’s compliance and enforcement policy – to be consulted on once the DWP regulations have been laid before Parliament
• The FCA’s rules outlining requirements for FCA-regulated pension providers in respect of personal and stakeholder pension schemes – to be consulted on shortly
• The FCA’s rules that will govern qualifying pensions dashboard services – to be consulted on in summer 2022
• Various technical standards to be published, mainly by MaPS – with the first suite likely to be consulted on during summer 2022. These will likely cover Connection and Security, Technical, Service and Operational, Reporting, Design and Data, and Pension Identifier standards.  The aim is to publish in final as soon as possible after the DWP regulations are approved
• Pensions Regulator guidance for occupational pension schemes, including steps to take to prepare, and matching
• Changes to AS TM1 – with the Financial Reporting Council consulting on this in the first quarter of 2022, with a view to finalising by October 2022 and coming into force on 1 October 2023

So, the DWP regulations are just the start of the regulatory journey with those involved in dashboard implementation projects needing to keep an eye out for the material above.

Our viewpoint

This consultation lays bare the challenge to nearly all UK occupational pension schemes to connect with and supply highly individualised information to their members via pension dashboard services.  The Government acknowledges that its proposals are ambitious, but it is now confident that it has the support of pension savers, the pensions industry and politicians.  Therefore, it is now putting the need to make a success of this venture firmly in the hands of trustees, their delegates and advisers.  We expect the parallel FCA consultation to come in the contract space to lay down the same challenge.  It is now time for all affected UK pension schemes to rise to this unique challenge, even if the consultation process results in some easements or there is some adjustment to timings further down the line.