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

• Master trust regulations made
• Financial Guidance and Claims Act 2018 (Commencement No. 2) Regulations 2018 made
• Changes to PPF Compensation Regulations – DWP response
• Clarifying and strengthening trustees’ investment duties: consultation response
• CMA investment consultancy market investigation: revised dates
• HMRC Pension Schemes Newsletter published
• TPO publishes guidance on non-financial redress
• TPR publishes annual DC survey
• TPR adds further master trust authorisation guidance

Master trust regulations made

The Occupational Pension Schemes (Master Trusts) Regulations 2018 were made on 5 September 2018, with some minor changes being introduced during the final stages of Parliamentary approval.

The regulations implement the new authorisation and supervisory regime for master trust schemes under the Pension Schemes Act 2017. Amongst other things, the regulations set out:

• the conditions that must be met by master trusts seeking authorisation, and the matters TPR must take into account in its assessments of schemes
• the authorisation fees payable by new and existing master trusts
• the scope of exemptions from the regime
• information and notification requirements.

The regulations will come into force (generally) on 1 October 2018.

Financial Guidance and Claims Act 2018 (Commencement No. 2) Regulations 2018 made

On 12 September 2018, the Financial Guidance and Claims Act 2018 (Commencement No 2) Regulations 2018 were made.

The Regulations include the bringing into force of section 20 of the Financial Guidance and Claims Act 2018 (FCA general rules: information about the availability of guidance) with effect from 1 January 2019. This section requires the FCA to make rules requiring specified authorised persons to provide information about the availability of financial guidance.

Changes to PPF Compensation Regulations – DWP response

On 11 September 2018, the DWP published the Government’s response to a consultation on changes to PPF compensation, alongside the Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018.

Amongst other things (see also the item below on investment changes), these regulations aim to ensure that the PPF has the legal basis to:

• pay survivor benefits to vulnerable groups such as widows or widowers and eligible dependent children
• revalue PPF compensation which is not yet in payment
• apply inflationary increases to compensation payments
• include a relevant fixed pension in the application of the of the 90% level of compensation (subject to the cap) for those already receiving their pension, and who were below NPA at the assessment date.

The DWP had consulted on a draft of the regulations in July 2018, seeking to clarify that where a person has rights under an occupational pension scheme to a certain type of fixed pension (“a relevant fixed pension”) derived from service in another scheme, this was to be treated as attributable to pensionable service for the purposes of calculating PPF compensation, including the application of the PPF compensation cap.

The need for clarity arose following the 2017 case of Beaton v PPF. In that case, the High Court found that the cap should apply separately to each tranche of benefit, in conflict with the Government’s long-standing policy intent that such benefits should be aggregated and subject to the compensation cap just once.

However, the CJEU’s  judgment in the case of Hampshire v the Board of the PPF (handed down on 6 September 2018), which concluded that Article 8 of the EU Insolvency Directive requires an individual’s expected old age pension benefits to be protected to a minimum level of 50% in the event of insolvency, means that the DWP must revisit its proposals. For now, to remove the risk that some members with fixed pensions could inadvertently receive less than 50% of their entitlement, the DWP has amended the regulations so that benefits are not aggregated for the purposes of restricting the amount of compensation payable.

The Government and the PPF are now considering the implications of the Hampshire judgment. Once they have done so, the Government intends to look again at, and “fully remedy the negative effects of the Beaton judgment”. This may include measures to restrict the amount of compensation paid to deferred and active members below NPA at the assessment date.

Subject to normal Parliamentary processes, the regulations are scheduled to come into force in early October 2018.

Clarifying and strengthening trustees’ investment duties: consultation response

On 11 September 2018, the DWP published its response to the consultation on clarifying and strengthening trustees’ investment duties, together with a final version of the regulations, now called the Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018.

This consultation follows the government’s response to the Law Commission report ‘Pension funds and social investment’, and to the consultation on Occupational pensions: improving disclosure of costs, charges and investments.

From 1 October 2019, trustees will be required to set out, in their statement of investment principles (“SIP”), how they take account of financially material considerations and stewardship.

The Regulations now make clear that the financially material considerations which trustees must consider when making their investment decisions include, but are not limited to, environmental, social and governance (“ESG”) factors, including climate change.

Following consultation, the requirement to produce a separate statement on members’ views has been removed and replaced with an optional policy on non-financial matters, including not only members’ ethical concerns but also social and environmental impact matters and quality of life considerations.

“Relevant schemes” (broadly schemes offering DC benefits) will be required to publish the SIP on a website and, on and from 1 October 2020, produce and publish an implementation statement setting out how they have implemented their investment policies and explaining and giving reasons for any change made to them.

At the same time, the DWP published guidance for occupational pension schemes, providing information on the disclosure and administration requirements. Trustees and managers of relevant schemes must have regard to this guidance on meeting the requirements in The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 and The Occupational Pension Schemes (Scheme Administration) Regulations 1996. Previous guidance has been withdrawn. TPR is due to produce high level guidance on the key changes by the end of November 2018.

For more information, please see our Alert: Government response: clarifying and strengthening trustees’ investment duties.

CMA investment consultancy market investigation: revised dates

The CMA has updated its page on the Investment consultants market investigation, publishing the responses received in relation to its provisional decision report, and revising its proposed timetable.

It states that, following consideration of the responses received, it has concluded that while the statutory deadline was 13 March 2019, the CMA will now aim to publish its Final Report before the end of 2018. The deadline, therefore, for the receipt of any responses and submissions for consideration by the Inquiry Group ahead of reaching its final decision will be the end of October 2018.

HMRC Pension Schemes Newsletter published

HMRC has published its “Relief at source pension schemes newsletter – September 2018”.

Among other things, it includes information on annual returns of information, and HMRC’s forthcoming notification of residency status reports for 2019 to 2020.

TPO publishes guidance on non-financial redress

On 13 September 2018, TPO published revised guidance on redress for non-financial injustice caused by maladministration.

The guidance introduces fixed amounts for non-financial injustice awards (commonly referred to as “distress and inconvenience” awards), with the aim of enhancing transparency, creating consistency and managing expectations for all parties to complaints.

Going forward, non-financial injustice will now (generally) be placed into one of five categories, with commensurate levels of award. The guidance lists factors to help categorise each case. Additionally, the upper limit for an award for “severe” cases of non-financial injustice has increased to £2,000. Less serious cases retain a lower limit of £500, a figure that was reviewed in 2015.

The new approach replaces the previous guidance, and takes immediate effect for all open and new cases.

TPR publishes annual DC survey

TPR published its annual DC survey on 14 September 2018.

The research claims that many smaller pension schemes are failing to demonstrate they provide good value for members. TPR states that the trustees of just one in ten small schemes, and one in three medium schemes, are doing everything which TPR believes is essential to assess value for members. This includes trustees having good knowledge and understanding of the costs and charges paid by members, and carrying out an annual assessment of the value the scheme represents.

The survey also found that only 41% of scheme trustees are researching and taking into account what members value, and that the worst performing area across all schemes was investment governance with, on average, less than a quarter of trustees meeting TPR’s expectations.

TPR has also published findings from its thematic review into value for members in small and micro pension schemes. Of the 68 chair’s statements reviewed, TPR found that the majority provided inadequate or incomplete explanations of how the scheme’s costs and charges represent good value for members.

TPR will review its guidance as part of its ongoing campaign to improve clarity and be more “directive”. It will also continue to use its 21st Century trusteeship communications which go to those who run schemes, to drive up standards.

TPR adds further master trust authorisation guidance

The Pensions Regulator has published further guidance for those applying for authorisation of a scheme as a master trust. On 13 September 2018 TPR added guidance on the “fit and proper persons” test. As well as standard forms for completion, the new documents published by TPR include a “Fit and proper assessment: guide” and “Identifying persons for the fit and proper assessment guidance”.

TPR has also published a blog post by Kim Brown, TPR’s Head of Master Trust Authorisation and Supervision, on the master trust authorisation process.