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

• EMIR clearing exemption for pension funds to be extended
• FCA defers full IGC review
• Briefing paper on State Pension age review updated
• OECD publishes report on investment governance and ESG factors
• Master trusts: TPR publishes notification form
• Work and Pensions Committee publishes report on gig economy

EMIR clearing exemption for pension funds to be extended

In December 2016, the EU Commission adopted a Delegated Regulation amending EMIR (the regulation on OTC derivatives, CCPs and trade repositories) in relation to a further extension of the transitional period for pension schemes, exempting them from central clearing for their OTC derivative transactions until 16 August 2018 (from August 2017).

On 4 May 2017, the European Commission published a proposal for “simpler and more efficient derivatives rules”. The proposals include a new three-year temporary exemption for pension schemes from central clearing “on the ground that no viable technical solution facilitating the participation of [pension schemes] in central clearing has emerged to date”.

The Commission notes that it is allowing a further three year period so that technical solutions can be developed for pension schemes that will enable them to take part in central clearing while protecting the revenue of future pensioners. With this further exemption, the Commission aims to “allow the various counterparties involved, including pension funds, central counterparties and the clearing members that provide clearing services, to develop a solution that enables pension funds to participate in central clearing without negatively impacting the revenues of future pensioners”.

Central clearing for pensions remains the Commission’s goal, but in the meantime it estimates that this temporary exemption will help pension schemes avoid estimated losses of up to €1.6 billion.

The Commission intends to present further legislative proposals on this “before the summer”.

FCA defers full IGC review

The FCA announced in its 2016/17 Business Plan that it would conduct a review of the effectiveness of Independent Governance Committees (“IGCs”). However, on 4 May 2017, the FCA updated its website to explain that it has decided to defer its full review to allow it “to focus on other priorities”.

In December 2016, the DWP and FCA published a joint report summarising the findings of their review of industry progress in remedying poor value workplace pension schemes that included high level findings on the role of IGCs.

The FCA states that, as this joint report “was broadly supportive of the effectiveness of IGCs in implementing the Independent Project Board’s recommendations”, it has decided to defer the full IGC review for the present, to focus on priorities set out in in its latest 2017/18 Business Plan.

Briefing paper on State Pension age review updated

On 2 May 2017, the House of Commons Library published an updated version of its briefing paper on the State Pension age review. The paper looks at the timetable for increasing the State Pension age and the review set up to look at how it should increase in the longer term.

The Government had planned to consider both John Cridland’s independent review of the State Pension age and GAD’s report before presenting its findings to Parliament by 7 May 2017. However, the briefing paper notes the comments of a DWP spokesperson, that a decision regarding SPA would now only be made after the upcoming General Election.

OECD publishes report on investment governance and ESG factors

On 2 May 2017, the OECD published a report on investment governance and the integration of environmental, social and governance (“ESG”) factors.

The paper “examines how different countries and investors are acting to reconcile ESG analysis – which deals to a large extent with risks that fall outside the bounds of traditional financial models – with prudential, risk-based regulations”. It states that pension funds, insurers and asset managers must be equipped to understand and respond to potential risks and opportunities arising from ESG-related factors in order to safeguard the assets that they invest on behalf of their beneficiaries and clients. At the same time, regulators must be confident that institutional investors meet the required standards of prudence and care when they include ESG considerations in their portfolio decisions.

Master trusts: TPR publishes notification form

Following the grant of Royal Assent to the Pension Schemes Act 2017, TPR has published a form for master trusts to use to notify TPR of a “triggering event”. Triggering events are events which may indicate that a scheme cannot continue to operate.

Much of the detail of the new regime remains to be set out in regulations which are due to be consulted on later this year (provided they survive the General Election), but transitional arrangements under the Act apply from the date of Royal Assent (27 April 2017) until the new authorisation regime comes into force.

Under the transitional arrangements, trustees will need to take certain specified actions, including making reports to TPR, where a “triggering event” occurred/occurs on or after 20 October 2016 (the date the Bill was first published).

For further information, please see our Alert.

Work and Pensions Committee publishes report on gig economy

On 1 December 2016, the Work and Pensions Committee announced the launch of an inquiry into self-employment and the gig economy, to investigate whether the UK welfare system adequately supports such workers, and how it might be adapted to suit their needs.

The WPC published its report on 1 May 2017, setting out its findings and recommendations. Amongst other things, it considers the issue of pensions, noting that “while auto-enrolment for employees has been a great success, current structures are not encouraging sufficient pension saving by the self-employed”. It suggests a potential opt-out system through tax returns as an interesting idea “that merits further consideration”.