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 data continues to reveal decline in consumers seeking advice
• HMRC updates pension statistics
• Home Office opens consultation on re-employing senior fire officers after their retirement
• PLSA publishes report on ESG risks in default funds
• TPR publishes report on Teachers’ Pension Scheme
• TPR publishes scheme funding report

FCA data continues to reveal decline in consumers seeking advice

The FCA’s latest Data Bulletin (Issue 8), published on 23 February 2017, includes a summary of trends in the retirement income market, and focuses on insights from its consumer contact centre. The data covers the period April to September 2016.

According to the Bulletin, during the period:

• full cash withdrawals continued to be the most used product for consumers accessing their pension pots (55% of the total)
• the percentage of pensions with GARs that were not taken up seems to be slowly decreasing
• the use of regulated advisers by customers purchasing annuities was “on a downward trend” (only 33%). 47% of consumers who took their full pension pot as a lump sum used an adviser. The highest levels of adviser use continued to be for customers going into drawdown (65%).

HMRC updates pension statistics

On 24 February 2017, HMRC published updated statistics relating to contributions to personal pensions and the cost of pension tax relief on occupational pension schemes in the public and private sectors, as well as individuals’ personal pensions.

Home Office opens consultation on re-employing senior fire officers after their retirement

On 21 February 2017, the Home Office announced a consultation seeking views on an addition to the Fire and Rescue National Framework to discourage the re-employment of senior officers following retirement.

Current practice can see senior officers retire from their job and draw on pension benefits, before being re-employed almost immediately in the same or a similar post on “potentially more lucrative terms”. Fire Minister Brandon Lewis is to redraw the fire and rescue national framework to ban the practice, unless fire authorities can demonstrate an exceptional public safety need. It is proposed that the new rules will also bar an officer who returns to work in such an exceptional circumstance from drawing their pension alongside their salary.

The consultation asks for the views of fire and rescue authorities, trade unions and other interested parties on the best way to deliver the required reforms, and closes on 4 April 2017.

PLSA publishes report on ESG risks in default funds

On 21 February 2017, the PLSA released its study into the ESG risks facing members of default funds offered by DC pension schemes in the UK.

The research by Sustainalytics assessed the equities allocation for a typical DC default fund, and mapped this against the most prominent ESG risks. Key findings were that:

• “human capital” (described as “the composition, stability, capabilities and engagement levels” of a workforce) is the single biggest source of ESG risk at the companies in which DC default funds invest, accounting for 11% of the ESG risk to which default funds are exposed.
• climate change risks from energy use and greenhouse gas emissions are also substantial, affecting 22 industries found in a typical DC default fund’s portfolio, more than any other ESG issue.

Luke Hildyard, Policy Lead for Stewardship and Corporate Governance at the PLSA, said: “The findings demonstrate the importance of stewardship activities around issues including human capital, business ethics, data security and climate change. Over the coming year we will be developing further resources to help our members engage with asset managers and investee companies around these issues.”

The report recommends that pension schemes take a three-step approach to managing ESG issues, exploring the use of passive ESG products in default funds, incorporating ESG factors into their global equity allocation model and developing a forceful stewardship strategy that includes a platform to engage with investee companies on ESG issues.

TPR publishes report on Teachers’ Pension Scheme

On 22 February 2017, TPR published a regulatory intervention report in relation to the Teachers’ Pension Scheme (“TPS”). TPR states that it intervened to ensure that over 40 authorities and schools had submitted information to the TPS, so that that records were maintained and accurate benefit statements issued to members. Its intervention meant that meant TPR did not need to exercise its legal powers.

Scheme administrator, Capita, approached TPR in May 2016 after 43 employers in the scheme failed to submit the necessary audited End of Year Certificates, confirming that contributions had been correctly credited. TPR discovered a lack of knowledge surrounding the legal obligation to submit a certificate and how to ensure it was correctly completed, and worked with the scheme and the employers to educate them.

Mike Birch, Director of Case Management at TPR, said: “Scheme managers have a legal duty to provide their members with accurate and timely information about their benefits […]. Scheme managers should have robust processes in place to ensure accurate data is provided on time. Where these processes fail to ensure employers provide the information required by law to the scheme we are able to step in.”

TPR publishes scheme funding report

TPR has published a report examining how the first schemes undertaking valuations since the revised DB code of practice and new statutory objective came into force in 2014 had responded to its expectations. The analysis focuses on DB schemes with valuations dates falling between September 2013 and September 2014, referred to as “Tranche 9” schemes.

The report finds that the schemes had “behaved consistently with [TPR’s] expectations” under the current regulatory regime, and as outlined in the supporting analysis that it produced in 2014.