• Dashboards – Pensions Values Guidance published by PASA
• FCA considers widening access to Long-Term Asset Funds
• Authorisation regime for CDC schemes goes live
• FCA proposes redress updates for unsuitable DB transfer guidance and British Steel members
• Regulator publishes 2022 scheme funding analysis

Dashboards – Pensions Values Guidance published by PASA

As the interest in Pensions Dashboards continues to ramp up ahead of the first staging deadlines just over a year away (see Pensions Bulletin 2022/28), the Pensions Administration Standards Association (PASA) has released guidance on “Value Data” for dashboards.  Broadly, Value Data includes accrued pension, the current pot value for DC pensions and an estimate of the annual income an individual might receive in retirement, along with some contextual data such as date payable.

The guidance is aimed at administrators and takes the form of a checklist of actions and considerations.

The checklist has the following sections:

• Preliminary activities such as reviewing the membership profile of a scheme, confirming staging date and identifying relevant parties for Value Data
• Planning what is needed to provide accrued entitlements, including different benefit structures, whether data is calculated manually or automatically and the quality of the data. A further important consideration to highlight is whether a “simplified” approach (if permitted by the final regulations) would be appropriate to adopt for deferred DB members and how that would be implemented, and how AVC data will be obtained from any external providers
• Planning how “estimated retirement income” (ERI) data will be calculated – many of the requirements for accrued entitlements also apply here
• Other considerations for the provision of Value Data such as how and when warning messages will be allowed and triggered, how missing Value Data will be calculated within the strict timelines required, and how Value Data will be updated and refreshed (or deleted) over time

Comment

This is a useful list of considerations to successfully provide Value Data as the dashboards require.  If anybody still needs convincing about the scope of the Dashboards data requirements, then this guide would be a good starting point.  The guide may be particularly useful for smaller in-house admin teams who haven’t yet considered the Dashboards data requirements in detail.  Most Third Party Administrators (including LCP) already have specialist teams set up considering the Dashboard’s implications for their clients.

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FCA considers widening access to Long-Term Asset Funds

The FCA has launched a new consultation about broadening the retail distribution of Long-Term Asset Funds (LTAFs) to more retail investors whilst including further investor protections.

The LTAF regime was finalised last year and is a category of new FCA-regulated fund that is designed specifically to help investment in assets including venture capital, private equity, private debt, real estate and infrastructure.  However, for DC pension schemes it is currently restricted as part of their default fund (see Pensions Bulletin 2021/45 where it was also trailed that a further consultation about widening the distribution would be carried out in 2022).

Of most interest for pension trustees and managers will be the proposal that LTAFs will be available via self-select options in qualifying schemes, allowing trustees to offer members more choice about the level of exposure they have to these more illiquid assets.

The FCA is also consulting on proposals to remove the 35% restrictions on illiquid assets in unit‑linked products, where the investor is a qualifying default pension scheme.  The FCA believes that this would enable firms to develop unit‑linked products which contain other kinds of illiquid assets, but only under the same terms that currently apply to LTAFs – meaning that they can only be sold to default pension schemes.

The deadline for the consultation is 10 October 2022.

Comment

The proposals are intended to allow more choice for investors that want it, without unknowingly exposing them to inappropriate levels of risk.

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Authorisation regime for CDC schemes goes live

With the start of August having come and gone schemes are now free to apply to the Pensions Regulator for authorisation as Collective Defined Contribution (“CDC”, also known as Collective Money Purchase or “CMP”) schemes (see Pensions Bulletin 2022/11).  This was noted in a press release by the pensions minister, Guy Opperman.

One of the final pieces of the jigsaw enabling this to happen was the making of regulations that turned on the relevant CDC taxation sections of the Finance Act 2021, and adjustments were also made to HMRC’s Pensions Tax Manual (on 2 August) to allow for CDC schemes.

Comment

At long last a new type of pension scheme is able to apply for authorisation.  We are expecting the Royal Mail scheme to apply for authorisation shortly.

But there’s an ever growing swell of enthusiasm for multi-employer CDC schemes with slightly different designs that are waiting for the next set of regulations to emerge for consultation, probably at the end of the year, and when they come into force we’re more likely to see CDC schemes take off in greater numbers.

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FCA proposes redress updates for unsuitable DB transfer guidance and British Steel members

The FCA has proposed a few changes to its redress scheme for non-compliant pension transfer advice.  Whilst finding that the current redress methodology remains broadly appropriate, proposed adjustments include:

• A change to the approach to determining the consumer’s retirement age
• Making calculations more understandable and transparent for customers, and ensuring as much money is paid into the consumer’s DC pension as possible (so it remains invested - payments as cash are less likely to be invested)
• Consolidation of the methodology as rules and guidance in the FCA handbook
• Changes to the frequency of update and derivation of assumptions

The adjustments above generally filter through to the proposed redress scheme for former members of the British Steel Pension Scheme, which follows a consultation earlier this year (see Pensions Bulletin 2022/13).  The scheme will continue to have certain BSPS-specific approaches, for example taking account of how the original BSPS was structured, where BSPS members were given a choice of two DB schemes if they had not transferred benefits to a DC arrangement.

Consultation closes on 20 September 2022, with the FCA aiming to publish the final rules this winter if the proposed changes and BSPS redress scheme are to be implemented.  The BSPS redress scheme is set to come into force in early 2023, with most eligible members receiving compensation later in 2023 or early in 2024.

Comment

The FCA still expects the proposed BSPS scheme to pay out over £70m in addition to the more than £70m already paid, but concerns around the outcomes for members who were advised by firms that are insolvent or no longer exist, plus the clients of firms this scheme could push into insolvency, remain.

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Regulator publishes 2022 scheme funding analysis

The Pensions Regulator has published the 2022 update to its annual funding statistics for UK defined benefit and hybrid pension schemes.  The update is based on schemes with effective valuation dates between 22 September 2019 to 21 September 2020, known as tranche 15 schemes.

Key findings include:

• Assets and liabilities grew at approximately equal rates since the previous valuations three years ago, resulting in a relatively unchanged average funding ratio of 88.8% on a technical provisions basis
• The average recovery plan for schemes in deficit was 5.9 years
• The average single effective discount rate was a nominal 1.9% (a -1.12% real rate)
• The majority of tranche 15 schemes have less than 40% of assets invested in return-seeking asset classes, with around a sixth of those schemes having more than 60% in return-seeking asset classes

Comment

Whilst the findings of the tranche 15 analysis were not a significant improvement on the valuations three years before, many of the valuations were at the badly Covid-affected valuation date of 31 March 2020.  We expect recent market conditions will have significantly improved the funding positions of many of these schemes since.

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