page-banner

Pensions Bulletin 2022/23

Our viewpoint

Pensions Regulator adds more pieces to the CDC authorisation puzzle

The Pensions Regulator has been busy preparing for the Collective Defined Contribution authorisation regime to be available from 1 August, with Royal Mail expected to be the first scheme applying for authorisation on that date.  On 9 June it:

  • Published a response to the CDC Code of Practice consultation – the response outlines the main themes of the responses to the consultation launched in January (see Pensions Bulletin 2022/03), including that the requirements of the Code are potentially onerous. The Regulator is unapologetic, noting that it believes the level of detail is necessary and useful both to the sponsoring employer and trustees of a new CDC scheme.  Amendments it has made to the Code as a result of feedback include a number of helpful clarifications that
    • a CDC scheme can provide certain lump sums
    • continuity strategies don’t have to plan for all possible outcomes
    • not all communications have to be reviewed each year, and member feedback does not need to be requested every quarter
    • administration systems do not need to be fully developed and working at the point of applying for authorisation; and
    • schemes don’t have to maintain specified reserves for costs following a triggering event, but must have access to sufficient resources

At this stage the Code is still very much focused on CDC designs that look like Royal Mail, so it will need to be updated before the full suite of multi-employer schemes expected to be allowed in the next round of CDC regulations can be authorised

  • Laid an intended to be final version of the CDC Code of Practice before Parliament – at about 100 pages the Code is not short, but with cross-party support it will hopefully be passed uncontested
  • Issued guidance on the level of authorisation fees it anticipates charging – the guidance sets out a common-sense approach to charging schemes with multiple sections that have similar features, and also outlines how additional sections will be charged
  • Issued guidance on identifying the persons for the fit and proper assessment – ie the establisher of the CDC scheme, the trustees, the persons who can appoint and remove trustees and the persons who can amend the trust deed

Comment

It was close (the Code was laid before Parliament on the last day that allowed it to have the necessary 40 days to pass before the summer recess), but everything appears to be on track for the Regulator to be able to accept CDC authorisation applications from 1 August.  So full steam ahead for the first scheme, expected to be Royal Mail, to apply.  Consultation on regulations allowing a much wider range of CDC schemes, including unconnected multi-employer CDC schemes, is expected towards the end of this year.

Back to the top

DWP turns its mind to decumulation for occupational pension schemes

The DWP has launched a Call for Evidence to explore what support occupational pension scheme members need when accessing their pensions, as well as what is currently available from such schemes and what may be offered in the future.  This initiative was trailed as far back as November last year when the Pensions Minister, Guy Opperman, appeared before the Work and Pensions Committee (see Pensions Bulletin 2021/48), although the consultation has taken slightly longer to appear than was expected.  It appears to be about DC schemes, but this is not explicitly stated.

Underlying this consultation is an anticipation that as more people move into retirement with a greater reliance on their DC pots, the landscape of trust-based pension schemes may need to change – in part to prevent non-advised and unengaged members making uninformed choices.

The DWP states that it wants to achieve “similar and hopefully even better outcomes” for occupational pension savers as the FCA has since it introduced measures for personal pensions such as earlier and more frequent “wake up” packs and Investment Pathways (see Pensions Bulletin 2019/04).  In his ministerial foreword, Mr Opperman says that “the evidence is that too few providers are giving too little help to members as they access their savings.  That is why this call for evidence is being launched”.

The consultation document is split into three principal chapters which in turn ask:

  • Scheme members for their views on the information and support they receive to assist them make decumulation decisions
  • Trustees for their views, mainly about how their schemes currently approach retirement communications and decumulation
  • Trustees about what could change in the future

In this last area the DWP suggests that as part of it engaging with interested parties on potentially extending collective defined contribution schemes beyond single and connected employers, there could be a role for CDC schemes in providing a regular income in retirement for those currently in DC schemes.

Since this is a call for evidence, rather than a consultation on policy or draft regulations, the questions are generally asking for evidence of current practice and views about what should be changed in the future.  The consultation document also asks whether Nest should be able to further develop the decumulation options for its members – something which the DWP blocked only a few years ago, although at that time it did reserve the right to revisit this if the decumulation market did not develop to meet the needs of Nest members (see Pensions Bulletin 2017/10).

The announcement notes that the responses to the consultation “will inform what, if any, government action is required” in this area.  The call for evidence runs for only six weeks and ends on 25 July 2022.

LCP has warmly welcomed this consultation but noted that the journey through retirement also needs to be considered, not just what happens at retirement.

Comment

Over recent years, much regulatory work has been done to improve DC governance and reduce costs and charges for members whilst accruing benefits.  It is logical that the next step should be to look at improving outcomes when accessing pensions.

The consultation paper does not give much, if any indication, of what the DWP’s own view about what should be done is, so it would appear that at this stage it is genuinely interested to hear ideas and suggestions.  However, this is yet another DWP exercise that has a tight timescale to respond to.  For such a big topic this is unfortunate, and it seems unnecessarily short.

Back to the top

Pensions Regulator updates its corporate plan to outline priorities for 2022-2024

Continuing the fight against scams, helping pension savings deliver value for money, ensuring pension schemes manage the risks associated with climate change and cyber security, working with government and industry to reduce inequalities in pensions savings and supporting the emergence of new secure scheme models are among the priorities outlined in the Pensions Regulator’s Corporate Plan for the next two years,  published on 13 June.

The Plan updates the Regulator’s three year plan published in May last year (see Pensions Bulletin 2021/22) and outlines its priorities for the next two years to protect savers’ pensions, which continue to complement its long-term corporate strategy document also published last year (see Pensions Bulletin 2021/12).

In this update, the Regulator introduces a set of 19 outcomes that defines its ambitions for savers, each linked to one of its five strategic priorities and associated strategic goals and used to guide the prioritisation and planning of its work.  It notes “the [pensions] landscape continues to evolve and … we and the industry we regulate must adapt to the challenges that face us…” but also makes the point that it does not “have sole ownership of these outcomes” and that it does “recognise the shared responsibility we have with central government, our regulatory family, our partners and industry, in working together to achieve them”.

A lot of ground is covered in the plan, set out under the broad headings of the Regulator’s five strategic priorities, and we set out a few points of interest below:

  • The Regulator “expects to be supervising against the new DB funding code from autumn 2023”
  • The Regulator expects to create an action plan to improve trustee board equality, diversity and inclusion in the “first half of 2022”
  • By 2024, the Regulator intends to set out how it plans to achieve net zero carbon emissions by 2030

The Regulator also sets out plans to undertake five regulatory initiatives during 2022-2023.  These are project-based pieces of work where it engages with a number of schemes or employers in relation to a particular risk, potentially taking action against those that have not taken appropriate steps to address the risks it has identified.

The first of these is expected to commence during 2022 and be focused on the accuracy of contributions.  The others are expected to be around the value for money assessment for smaller DC schemes, another focussed on the ESG/ investment regulations concerning the publication by schemes of compliant statements of investment principles and implementation reports, possibly one on scheme management of risk and resulting covenant strength (before the DB funding code becomes operational) and finally one on trustee board diversity.

Comment

It is interesting that this is an update covering the remaining period of last year’s three-year plan, rather than a fresh three-year plan (as was the norm prior to the COVID-19 pandemic).  It is not clear whether this is the shape of things to come, or just an acknowledgment of the currently ongoing global economic volatility.

What is clear from this Plan is that implementation of the new scheme funding regime continues to be impacted by the DWP delaying publishing the new draft funding and investment regulations for consultation.  In the corporate plan published last year, the Regulator anticipated that the new regime would be in place by December 2022, but this expectation has now been put back until at least September 2023.  This is far from ideal as schemes continue to have to prepare funding valuations in line with the current regime, while recognising that new rules are not far behind.

Back to the top

Pensions Regulator blogs about climate change reporting

The Pensions Regulator has published a long, but useful blog that provides some insights into the Regulator’s supervisory plans for the first and second waves of occupational pension schemes subject to the climate change governance and reporting regulations (see Pensions Bulletin 2021/24).  The blog, which seeks to allay some of the concerns that trustees have raised, is authored by David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Pensions Regulator.

About 100 schemes are expected to comprise the first wave – schemes with assets of at least £5bn and master trusts – with many more in the second wave when the asset threshold drops to £1bn.

Mr Fairs confirms that over the coming months the Regulator will be reviewing first wave reports and using this "to provide high-level observations and feedback to in-scope schemes where we have an existing supervisory relationship".

He goes on to say that the Regulator does "not anticipate it will be necessary to issue any penalty notices to trustees of schemes that publish their TCFD reports in the first wave, other than: where the report has not been published ... [or] where it is clear the trustees have not made a genuine effort to comply with the regulations".

He acknowledges the costs that trustees are incurring but suggests this is partly due to catch-up costs as climate change has not been sufficiently recognised historically.  He goes on to say that "the disclosure requirements should be seen not only as an exercise in compliance but as an exercise in risk (and opportunity) management, which should lead to improved outcomes for scheme members".

Looking to the future he says that the Regulator intends to take a collaborative approach to the second wave of reporting, but “we will refine our approach and expectations of trustees based on our experience of our review of the first wave of TCFD reports and in line with market and regulatory developments”.

He also signposts the forthcoming Sustainability Disclosure Requirements, promised by the Chancellor last October (see Pensions Bulletin 2021/43).  However, as “details of the proposals have yet to emerge” he does not say anything new about them.

Comment

This blog is a useful reminder of the role to be played by the Regulator in policing compliance with this new regime of climate change reporting, initially focussed on the largest of the UK’s occupational pension schemes.  What David Fairs has to say is in accordance with industry expectations, but trustees should be in no doubt that this is an important topic for Government and that the Regulator has been given the necessary tools to penalise those who do not comply.

Back to the top

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.