7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• FCA issues stewardship papers for consultation
• FCA publishes second set of rules following Asset Management Market Study
• FRC consults on proposed revisions to the UK Stewardship Code
• FRC issues draft amendments to FRS 102
• FCA / PRA joint consultation on FSCS management expenses levy limit
• HMRC publishes Pension schemes newsletter 106
• PLSA Corporate Governance Policy and Voting Guidelines 2019
• Government to pause element of public service pensions valuations
• TPR publishes scheme return data for 2018/19

FCA issues stewardship papers for consultation

On 30 January 2019, the FRC and the FCA published a discussion paper on Building an effective regulatory framework for stewardship. The paper aims to examine “what effective stewardship should look like, what the minimum expectations should be for financial services firms that invest for clients and beneficiaries, the standards the UK should aspire to and how these could be achieved”. While it is relevant to FCA-regulated asset management firms and life insurers, it also affects signatories to the FRC’s Stewardship Code (see below), and will be of interest to a wider range of stakeholders including pension schemes and their trustees.

At the same time, the FCA published a consultation paper on regulatory measures to implement the provisions of the amended Shareholder Rights Directive (“SRD II”) for FCA-regulated life insurers and asset managers, as well as for issuers of shares in respect of related party transactions. SRD II aims to promote effective stewardship and long-term investment decision-making. It comes into effect in June 2019 and, assuming a transition period for EU Withdrawal is agreed, will need to be transposed in the UK.

The FCA notes that it has worked closely with BEIS, HMT, the DWP and the FRC to develop these papers, which “encourage effective stewardship in the interest of consumers”.

FCA publishes second set of rules following Asset Management Market Study

On 4 February 2019, the FCA published new rules and guidance to improve the quality of the information available to consumers about the funds they invest in.

The FCA’s asset management market study had found evidence of weak price competition in many areas of the asset management industry, meaning lower returns for pension schemes and other investors. In April 2018, the FCA introduced new rules to ensure fund managers act as agents of investors in their funds. The latest set of rules and guidance aims to help consumers understand more about how their money is being managed, so that they can make better investment decisions.

FRC consults on proposed revisions to the UK Stewardship Code

On 30 January 2019 the FRC published for consultation proposed revisions to the UK Stewardship Code, that aim to set “substantially higher expectations for investor stewardship policy and practice”.

The majority of the 2012 Stewardship Code’s principles and guidance in the have been retained, but new requirements cover:

• purpose, values and culture: investors must report how their purpose, values and culture enable them to meet their obligations to clients and beneficiaries. This aligns the Code with the UK Corporate Governance Code and encourages embedding behaviour conducive to effective stewardship in the investor community
• recognising the importance of ESG factors: the proposed Code now specifically refers to ESG factors. Signatories are expected to take material ESG issues into account when fulfilling their stewardship responsibilities.
• stewardship beyond listed equity: under the proposals, investors will be expected to exercise stewardship across a wider range of assets where they have influence and rights, in the UK and globally.

Under the revised Code, signatories will be required to undertake more rigorous reporting on their stewardship activities and how effectively they have delivered against their stated objectives.

The deadline for responding to the consultation is 29 March 2019. The 2019 version of the Code is due to be published and come into effect in July 2019.

The PLSA welcomed the consultation. Caroline Escott, PLSA Policy Lead, Investment and Stewardship, commented: “As investors, pension schemes are ideally placed to take the long-term approach to investing savers’ money. It’s therefore vital that schemes and their managers work together to be good stewards to protect and enhance the value of people’s savings.”

FRC issues draft amendments to FRS 102

The FRC has issued draft amendments to Financial Reporting Standards (“FRS”) 102.

When an employer participates in a multi-employer DB arrangement and there is insufficient information available for DB accounting to be used, the employer accounts for the scheme as if it were a DC arrangement. The employer is then required to move to DB accounting when the relevant information becomes available. The changes aim to address concerns that there is currently a lack of clarity in the transition process. The draft amendments to FRS 102 therefore propose new and explicit requirements as to how the transition from DC accounting to DB accounting for affected pension schemes should be presented.

The comment period for the draft amendments to 102 closes on 31 March 2019.

FCA / PRA joint consultation on FSCS management expenses levy limit

On 31 January 2019, the PRA and the FCA issued a joint consultation on the management expenses levy limit (“MELL”) for the FSCS for 2019/20.

Under FSMA, the PRA and the FCA must set a limit for the total management expenses that the FSCS can levy on financial services firms without further formal consultation. The proposed MELL of £79.6 million would apply from 1 April 2019 (the start of the FSCS’ financial year) to 31 March 2020. This figure covers:

• the proposed management expenses budget (£74.6 million), excluding complainants’ compensation costs (which are levied separately)
• an unlevied contingency reserve of £5 million. This would only be levied if the FSCS faced a significant unforeseen event or events that necessitated additional funding.

The consultation period closes on 28 February 2019. The final rules are expected to be in place for the start of the FSCS’ financial year on 1 April 2019.

HMRC publishes Pension schemes newsletter 106

HMRC published Pension schemes newsletter 106 on 30 January 2019. It includes, amongst other items:

• confirmation that HMRC is considering the issues arising from the High Court’s ruling in the Lloyds case. It will issue more information and advice on this in forthcoming pension schemes newsletters “in the coming months”.
• a reminder that master trusts must apply to TPR for authorisation before 31 March 2019. A master trust operating without authorisation after this date may be de-registered by HMRC (although this would not happen automatically; HMRC has discretionary powers and so would consider the impacts of de-registration on the employers and scheme members in each particular case)
• a correction to an error in Newsletter 104 in relation to the reporting of death benefits
• changes to HMRC email addresses.

PLSA Corporate Governance Policy and Voting Guidelines 2019

On 29 January 2019, the PLSA published a revised version of its Corporate Governance Policy and Voting Guidelines for the 2019 AGM season.

The guidelines aim to set out voting best practice for pension funds or their asset managers to use and support positive progress on the issues highlighted in the PLSA’s AGM Voting Review, published at the same time. They “provide practical advice on how to approach common issues such as the conditions under which pension funds should support or oppose the typical resolutions at AGMs, including the approval of the report on executive remuneration, the re-election of directors or the appointment of the auditors”.

The 2019 update reflects the new UK Corporate Governance Code from the FRC (see above).

Government to pause element of public service pensions valuations

In a Written Statement to the House of Commons on 30 January 2019, Elizabeth Truss, Chief Secretary to the Treasury, has announced that the Government is pausing an element of the valuations of public service pensions (a mechanism for assessing the value of pensions; the “cost control mechanism”, introduced as part of the reforms to public sector schemes in 2015). The follows the recent rulings in McCloud & Ors, in which the Court of Appeal ruled that transitional protections introduced as part of the 2015 reforms were discriminatory on grounds of age. The Government is appealing the decision.

The written statement confirms that, given the uncertain impact of the Court’s decision, it is not currently possible to assess the value of the current public service pension arrangements with any certainty. The Government has provisionally estimated that the judgment could cost the equivalent of approximately £4 billion per annum and therefore considers it “prudent to pause this part of the valuations until there is certainty about the value of pensions to employees from April 2015 onwards”.

TPR publishes scheme return data for 2018/19

New figures released by TPR in their ninth annual DC trust report reveal that £5 billion was transferred into DC pension schemes last year.

Key findings of the report include:

• There are 13.4 million DC master trust savers (up from 270,000 at the start of 2012), across 74 registered master trusts
• 90% of people currently saving into a private sector pension are doing so into a DC scheme
• since the beginning of 2010 the number of schemes with 12 or more DC members has declined by 56%
• 73% of open schemes use a default investment strategy
• 99% of members of DC schemes with 12 or more members are invested in the scheme’s default strategy.

David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice published a blog post, DC growth indicates automatic enrolment is starting to mature, alongside the report.