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

• Automatic enrolment: amending legislation published
• Government appointments
• EU-US Privacy Shield adequacy decision adopted
• FCA Annual Report 2015/16 published
• FCA launches Retirement Outcomes Review
• Signposting to pensions guidance: FCA findings
• PLSA launches stewardship toolkit
• TPR publishes Halcrow report
• TPR warns trustees against knee-jerk reactions to market volatility

Automatic enrolment: amending legislation published

The Employers’ Duties (Implementation) (Amendment) Regulations 2016 were laid before Parliament on 11 July 2016, and will amend the Employers’ Duties (Implementation) Regulations 2010 (“the 2010 Regulations”).

Current legislation gradually phases in rises in minimum contribution rates. The minimum contribution rate is currently at or equivalent to 2 per cent of a band of qualifying earnings (of which at least 1 per cent must be paid by the employer). This is due to rise to 5 per cent in October 2017 (with a minimum employer contribution of 2 per cent) and by October 2018 it would rise to 8 per cent (with a minimum employer contribution of 3 per cent).

The effect of the amendments (which were first announced in the Autumn Statement 2015) is that the phasing in of increases in minimum contributions in respect of jobholders who are auto-enrolled to DC qualifying schemes will be delayed for six months to occur in April 2018 and 2019 respectively. The alignment of the scheduled increases with the start of the relevant tax year and the period in which the minimum contribution applies is intended to reduce burdens on employers and their workers and deliver tax relief savings for the Exchequer over the period October 2017 to April 2019.

The regulations also make a clarification to the 2010 Regulations, providing that the transitional period specified in relation DB and hybrid schemes expires on 30 September 2017.

The changes will come into force on 1 October 2016.

Government appointments

Following Theresa May’s appointment as Prime Minister, on 14 July 2016, Damian Green MP was named as the new Secretary of State for Work and Pensions. He succeeds Stephen Crabb, who resigned the previous day.

On 15 July 2016 it was announced that Baroness Altmann CBE had left her position as Minister of State at the DWP. Richard Harrington MP was appointed as Parliamentary Under Secretary of State at the DWP with the Pensions portfolio on 17 July 2016.

EU-US Privacy Shield adequacy decision adopted

On 12 July 2016, the European Commission announced that it had adopted the EU-U.S. Privacy Shield.

The new framework aims to protect the fundamental rights of anyone in the EU whose personal data is transferred to the US, and to bring “legal clarity” for businesses relying on transatlantic data transfers. It reflects the requirements set out by the ECJ in its ruling of 6 October 2015, which declared the old Safe Harbour framework invalid.

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “[the Shield] brings stronger data protection standards that are better enforced, safeguards on government access, and easier redress for individuals in case of complaints. The new framework will restore the trust of consumers when their data is transferred across the Atlantic.”

The adequacy decision enters into force immediately.

FCA Annual Report 2015/16 published

The FCA published its Annual Report on 12 July 2016, setting out how its work over the last year had met objectives and delivered against the key priorities the FCA set out in its Business Plan 2015/16. The report provides an overview of the publication of the FCA’s retirement income market study and the implementation of new pension changes.

FCA launches Retirement Outcomes Review

On 14 July 2016, the FCA launched its Retirement Outcomes Review. This is a follow-up to the Retirement Income Market Study, published in March 2015, in which the FCA identified issues relating to consumer decision-making, following the introduction of the new pension reforms. Now these reforms have come into effect, the FCA wishes to assess their impact on competition by looking at how firms and consumers have responded to them since April 2015.

The Retirement Outcomes Review considers the following topics:

• shopping around and switching;
• non-advised consumer journeys;
• business models and barriers to entry; and
• impact of regulation on retirement outcomes.

It does not look at advised sales or access to advice, which is being covered in relation to the Financial Advice Market Review.

Alongside the Terms of Reference, the FCA has published a market update providing further information on the activities it is undertaking on pensions and retirement income.

The FCA is also considering the effectiveness of variations to firms’ wake-up packs, via randomised control trials. It anticipates that following these trials, it will publish the results and consult on any proposed rule changes in early 2017.

Signposting to pensions guidance: FCA findings

On 14 July 2016, the FCA also published the findings of its review of how firms are complying with the Conduct of Business sourcebook (“COBS”) rules which are designed to protect against the risk of poor outcomes in the new pensions landscape. In particular, the review focussed on whether firms are appropriately signposting the availability of pensions guidance when communicating with customers looking to access their pension savings through non-advised sales channels.

The FCA also examined how firms highlight to customers the risks of “irreversible losses from pension fraud and scams”. The review was based on information provided by life insurers and SIPP providers.

PLSA launches stewardship toolkit

The PLSA launched a toolkit “Understanding the worth of the workforce”, on 16 July 2016, designed to provide pension schemes and investors with guidance on what data and commentary they should request from the companies in which they invest.

The toolkit builds on the PLSA’s report “Where is the workforce in corporate reporting?” published last year. This report highlighted how the extent to which companies invest in training, developing and motivating their workers, and ensuring they feel empowered and fairly treated at work, is critical to their long-term success.  Following the publication of that report, the PLSA set up a series of discussions with members, advisers and asset managers, along with other experts and corporations. These discussions informed the recommendations in the final toolkit.

The toolkit recommends pension schemes ask investee companies to report on the follow metrics as standard:

• gender diversity
• employment type (eg full time, part time, agency)
• staff turnover
• accidents, injuries and workplace illnesses
• investment in training and development
• pay ratios (across highest, median and lowest quartiles)
• employee engagement

The toolkit also highlights ways in which information can be corroborated. The PLSA suggest it can be used both as a template for direct investors, or as a benchmark against which to assess the stewardship activities of existing and prospective consultants and investment managers, for those who outsource this work.

TPR publishes Halcrow report

On 11 July 2016, TPR published a report into its interaction with the Halcrow Pension Scheme and its sponsoring employer.

The agreement reached between the parties, and the use of a Regulated Apportionment Arrangements (“RAA”), gives the Scheme’s members the opportunity of obtaining benefits that are better than PPF compensation, and avoids HGL’s insolvency.

TPR states that the case highlights how it “is able to work quickly to agree complex pension restructuring plans […] if it has the co-operation of the parties involved and receives credible proposals”.

Lesley Titcomb, Chief Executive of TPR, said: “We were satisfied that this was the best available outcome in challenging circumstances […] This type of pension restructuring is rare, and we will only agree where stringent tests are met, so that they are not abused.”

TPR warns trustees against knee-jerk reactions to market volatility

On 14 July 2016, TPR issued a guidance statement to trustees of both DB and DC schemes, following the UK’s vote to leave the EU.

The statement emphasises that trustees should be regularly reviewing the circumstances of their scheme as a matter of course, but they should remain focussed on the longer term and not be overly influenced by short-term market fluctuations.

Andrew Warwick-Thompson, Executive Director for Regulatory Policy, said: “Pension schemes plan and invest for the longer term and our message to trustees is not to over-react to the current volatility […] At this time we expect trustees of DB schemes to review their employer covenant to understand how the vote to leave the EU could affect it. Similarly, they should consider how market volatility has impacted on their scheme’s funding position […] They should include consideration of issues relating to liquidity and cash flow management. Where their assessment results in the conclusion that the scheme is exposed to an inappropriate level of risk, we expect trustees to take a long-term view and review their investment strategy in that context.

In time, as implications become clearer, trustees of schemes with money purchase benefits may also consider it appropriate to make changes to the investments included in the scheme’s default arrangement or the investments offered to members.”