Pensions Bulletin 2022/24
Our viewpoint
23 June 2022
- Climate change – DWP to go ahead with portfolio alignment metric
- DWP publishes finalised stewardship guidance
- Pensions scams – new reporting guide published
- FRC sets out its proposed revamp of TAS 100
- Government to go ahead with data protection reforms
- PASA updates its DC scheme governance guidance
Climate change – DWP to go ahead with portfolio alignment metric
The DWP has responded to its October 2021 consultation on climate and investment reporting (see Pensions Bulletin 2021/45) from which one proposal was the addition of a portfolio alignment metric to the climate-related disclosure requirements for larger schemes.
Announced as a “green boost…which will drive forward ambitions to tackle climate risk”, this proposal is to go ahead with some modifications, the Government receiving widespread support, albeit with concerns expressed as to obtaining the necessary data to be able to do the calculations. As before, the metric gives the alignment of the scheme’s assets with the goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels.
The DWP has adjusted the draft regulations introducing this requirement and has also adjusted its statutory guidance relating to this. The draft regulations will shortly be laid before Parliament for approval in both Houses, following which they will be made final. The DWP also intends to update the Pensions Climate Risk Industry Group’s guidance (see Pensions Bulletin 2021/04) to reference the portfolio alignment metric now being legislated for.
Comment
Confirmation of the amended metrics requirements is welcome as most affected schemes are already within the first scheme year in which they apply. Fortunately, the requirements are largely as expected, although the DWP did not clarify its expectations for the “additional climate change metric”, leaving some of its recommended options open to interpretation.
DWP publishes finalised stewardship guidance
In the above response, the DWP also published finalised stewardship guidance. This is applicable to all occupational pension schemes and is a mixture of non-statutory guidance relating to Statements of Investment Principles (SIP) and statutory guidance relating to Implementation Statements (IS). As before, its main purpose is to improve the quality of SIP policies and to develop best practice for IS reporting. It also focuses on voting and engagement issues.
Following consultation, the Government has made a number of drafting changes, for example, to clarify its content. It is also not going ahead in its guidance with a possible vote reporting template, or a template to report engagement activities.
The guidance takes effect for trustees preparing an IS in respect of scheme years ending on or after 1 October 2022.
Under the heading of ‘Other topics’ and so somewhat separate from the stewardship guidance proper, the document sets out how financially material and non-financial factors should be covered in the SIP and IS. For example, trustees are encouraged to report in their SIP which material financial risks and opportunities particularly affect their investments. Trustees are also encouraged to make it possible for members to express views about non-financial factors, and should explain in their IS what actions, if any, they have taken in relation to their investments as the result of receiving such views.
Our News Alert highlights some of the key areas from the now finalised guidance and some practical steps for trustees.
Comment
This is important new guidance with a clear message from the DWP – trustees are expected to be more proactive in their stewardship activities and improve their disclosures.
Pensions scams – new reporting guide published
A guide to reporting pension scams has been published. The guide, produced by the Pensions Regulator, the Financial Conduct Authority and Action Fraud, was introduced in a blog by Nicola Parish, Executive Director of Frontline Regulation at the Pensions Regulator.
The blog asks for the pensions industry’s help on a number of fronts to tackle pension scams, providing links to a wealth of materials. One request is for suspected scams to be reported. Nicola says that “while not every report results in an investigation, all reports help build a clearer picture and help … disrupt fraudsters making it harder for them to operate”.
The reporting guide itself says that a report should be made if:
- A scam is believed to already have happened
- A “red flag” under the recent anti-scam regulations (see Pensions Bulletin 2021/47) has been raised; or
- A scam is suspected to be taking place, or there are suspicions of those involved – this may be because of other risks that have been noticed such as an “amber flag” under the anti-scam regulations above
In addition the guide suggests that any other suspicions that give rise to a concern and are not captured by the above may be reported. There then follows a series of useful links for reporting, depending on the nature of the issue.
The blog also introduces a summary of a review carried out by the Pensions Regulator and the National Fraud Intelligence Bureau into the threat of pension scams, as understood by the pensions industry before the introduction of the above regulations.
The key findings are that the threat to pension savings continues to diversify, both in terms of the overarching methods used to access them and the specific tactics used. When it comes to methods, it seems that pension-related investment scams with “international SIPPs” (the fraud platform of choice) are on the increase, unsuitable advice in DB to DC transfers has reduced but remains at an unacceptably high level, whilst pension liberation continues to decline. Turning to tactics, cold calling has become less relevant with greater remote communication taking place on the internet.
Comment
This blog provides a useful update to pension scams and the regulatory response and the guide may be a useful nudge to increase reporting. Unfortunately, it seems that pension scams will remain a feature of the pensions landscape so long as individuals have many freedoms in how they invest and access their retirement savings.
FRC sets out its proposed revamp of TAS 100
The Financial Reporting Council has launched a consultation on proposed changes to Technical Actuarial Standard 100 – the core technical standard applicable to UK actuarial work carried out by members of the Institute and Faculty of Actuaries. This comes after a call for feedback in February 2021 focussed on TAS 100 and a position paper published in November 2021 (see Pensions Bulletin 2021/50) which summarised the responses to the call for feedback and set out the FRC’s likely next steps. Unsurprisingly, what is now being consulted on reflects these next steps.
Although the FRC says that the principles-based approach to TAS 100 is to be retained, it is proposing a new ‘Application’ section that sets out “regulatory expectations intended to assist practitioners in complying with the TAS principles by providing more specific requirements relating to those principles”. In addition, the FRC will be issuing guidance “to provide further clarity over good practice and more detailed explanation of the standards”.
Such guidance is to be introduced over time, prioritising areas that the FRC feels are most in need. However, the consultation package includes two such guidance documents – one entitled “Proportionality” is on the intended operation of the proportionality and materiality safeguards when applying the principles, and the other, entitled “Technical Actuarial Work and Geographic Scope”, seeks to provide assistance in determining whether a piece of work is within the ambit of TAS 100 through consideration of the meaning of “technical actuarial work” and the geographic scope of this standard.
It would seem that these documents are to be introduced at the same time as TAS 100 is settled. Topics for future guidance include evidencing TAS compliance, risk identification, applying judgment and modelling.
Turning back to TAS 100 itself the FRC has:
- Made amendments to reflect this new structure
- Introduced a new principle relating to risk identification “to ensure practitioners have regard to all material risks and factors in their work and indicate which risks they have identified” – this implicitly draws in non-traditional risks, such as climate change and other emerging risks, which the FRC feels are less well-considered by actuaries in their work than the more established areas of risk
The FRC believes that its proposals should lead to improved consistency in the approach to TAS compliance, result in a standard that is reflective of current practices in actuarial work, and assist actuarial practitioners in ensuring their users understand the impact or potential impact of internal and external factors, such as climate change, on actuarial information. It also believes that the costs imposed by this revision will not be significant.
The FRC welcomes the recent publication of the Government’s response to the White Paper on a number of reforms to the UK’s audit and corporate governance regime (see Pensions Bulletin 2022/21), in which proposed changes to the regulation of actuarial work are also set out, but says that its proposed changes to TAS 100 “will still be necessary for the period before FRC’s successor is created, and will likely remain relevant after”.
Consultation closes on 7 September 2022. No timescale has been set out for its introduction.
Comment
TAS 100 has been in operation for nearly five years and what is now being proposed reflects the results of a much-delayed post-implementation review of this standard. It also seems to reflect the FRC moving from technical standard setter to co-regulator of at least some actuarial work as it transforms to ARGA in the time to come.
There is a lot for actuaries to digest in this consultation, especially as the FRC wishes to move beyond setting mandatory principles to also provide pretty much binding regulatory expectations, plus guidance which the practitioner would seem to have to take into account. The beauty of the 2017 approach was that the TAS principles could be readily internalised in the thinking of actuaries as they approached much of their work.
One of the dangers with the new structure is that it may encourage less thinking and more tick-box complying. There are also aspects of the new package which appear unnecessarily onerous. Whether the FRC has overreached itself is likely to be uppermost in actuaries’ minds as they consider how to respond to an important consultation that will set the tone for how the FRC is to recast its topic-specific standards on which the FRC’s ideas are only now beginning to be fleshed out (see Pensions Bulletin 2022/19).
Government to go ahead with data protection reforms
The Government has responded to a consultation launched last September (see Pensions Bulletin 2021/38) by the Department for Digital, Culture, Media & Sport on proposed reforms to the UK’s data protection regime.
Announcing the publication of the response, Julia Lopez, Minister for Media, Data and Digital Infrastructure said that the Government will “remove some of the most prescriptive but unnecessary rules in UK GDPR, which organisations currently must follow to demonstrate compliance” and will “remove inappropriate barriers to the flow of UK personal data overseas”. The Information Commissioner’s Office is also to be reformed.
The Government’s now settled proposals will be set out in the Data Reform Bill.
Comment
There is no immediate action for pension schemes, but at some point in the future, what they need to do to comply with data protection law may need to change. Unfortunately, the Government is not minded to consolidate data protection law as part of this reform, so the Act to come will build on the current complexity.
PASA updates its DC scheme governance guidance
The Pensions Administration Standards Association has published an updated version of its guidance on DC scheme governance. The guidance, first launched four years ago, has been updated given the ever-changing landscape. Weighing in at nearly 60 sides, it focuses on six key areas — Data, Transitions, Decumulation, Reporting, Controls and Procedures, and the Chair's Statement.
PASA expects to have to make further updates to the guidance as the next 18 months will see more changes in the DC pensions industry.