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

• European Commission second report on clearing solutions for pension scheme arrangements under EMIR
• FCA consultation on new category of long term asset fund
• FCA to continue supervisory action on DB-DC pension transfer advice until 2022
• House of Lords publishes briefing on possible pensions and benefits announcements in the Queen’s Speech
• TPR speech on protecting savers from scammers

European Commission second report on clearing solutions for pension scheme arrangements under EMIR

On 6 May 2021, the European Commission published its second report on clearing solutions for pension scheme arrangements (“PSAs”) under EMIR. Currently, PSAs benefit from a temporary exemption from the clearing obligation which has been gradually extended over time (see 7 Days).

In its report, the European Commission concludes there has been progress towards central clearing for PSAs but that extending the exemption remains necessary for a number of reasons. In light of this, a Delegated Regulation has been adopted to extend the central clearing exemption again until June 2022.

FCA consultation on new category of long term asset fund

On 7 May 2021, the FCA launched a consultation on proposals for a new category of fund, a long-term asset fund (“LTAF”), with the aim of providing a fund structure specifically designed to accommodate relatively illiquid assets. The LTAF would be aimed at DC providers and schemes which may be interested in investing part of their assets in an LTAF. The Government announced in the 2021 Budget that it is looking to encourage pension funds to direct more of their capital towards the country’s economic recovery, with the establishment of the UK’s first LTAF in 2021.

The recent Pension Charges Survey (see 7 Days) found that “approximately two-thirds of providers reported that they had zero direct investments in illiquids in their default fund(s) [and] about a third had a small proportion, typically between 1.5% to 7.0%”. The consultation also, therefore, proposes amending the “permitted link” rules to enable pensions schemes to consider the proportion of illiquid assets across their investment portfolios, rather than to restrict the proportion of illiquid assets in each underlying fund in which they invest.

Nikhil Rathi, Chief Executive of the FCA, commented: “This new type of fund may also be more attractive to DC pension schemes that have long investment horizons and who, under current fund structures, find it difficult to invest in these types of assets. Nevertheless, it is important that the LTAF commands the confidence of target investor groups and can meet their needs. We therefore propose rules to secure an appropriate level of consumer protection and to address specific risks related to investments in illiquid assets.”

The consultation closes on 25 June 2021.

FCA to continue supervisory action on DB-DC pension transfer advice until 2022

On 7 May 2021, the FCA published its Regulatory Initiatives Grid which sets out the FCA’s priorities over the next year. Amongst other things, it confirms the FCA will continue its supervisory and enforcement work on DB-DC pension transfer advice, “aimed at redressing previous unsuitable advice”, until at least Spring 2022.

In March 2021, the FCA confirmed its finalised DB transfer guidance and published an updated guide for employers and trustees which sets out how they can provide support to employees on financial matters without needing to be regulated by the FCA (see 7 Days).

House of Lords publishes briefing on possible pensions and benefits announcements in the Queen’s Speech

On 5 May 2021, the House of Lords Library published an In Focus briefing which looks at possible announcements in the Queen’s Speech relating to pensions and benefits. It highlights the next steps in pensions legislation following the passing of the Pension Schemes Act 2021 (see 7 Days), as well as other pensions proposals including legislation to enact the changes following the July 2020 consultation on resolving age discrimination issues with public service pensions (see 7 Days).

TPR speech on protecting savers from scammers

On 4 May 2021, Nicola Parish, Executive Director of Frontline Regulation at TPR, gave a speech on the problem of pension scams and what TPR is doing to help protect savers. She called on schemes to:

• gain an understanding of the forthcoming regulations to be made under the Pension Schemes Act 2021 (creating restrictions on members’ statutory rights to a transfer of benefits and “red flags” that enable trustees to refuse to transfer in certain situations). Schemes should, when the time comes, ensure their administrators implement processes to meet the new transfer requirements
• sign up to the scams pledge (which now has over 240 signatories), complete the new Trustee Toolkit module and report any concerns or suspected scams to Action Fraud
• stay alert and keep members and customers alive to the evolving risk of scams.