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

• The Occupational Pensions (Revaluation) Order 2020
• Act allows Government to meet commitment to Triple Lock
• Asset Management Taskforce makes stewardship recommendations to boost sustainable growth
• Briefing paper on pension sharing on divorce published
• European Commission consults on two draft Delegated Regulations supplementing the PEPP Regulation
• HMT’s National Infrastructure Strategy
• Impact Investing Institute publishes paper on pension fund impact investing and Good Governance Principles
• Pensions Minister confirms Supreme Court’s judgement in Walker v Innospec will continue to apply after Brexit transition period
• PPI report on DC scheme investment into Secured Finance assets
• Response to RPI methodology consultation published
• TPO chair Caroline Rookes appointed as permanent TPO Chair

The Occupational Pensions (Revaluation) Order 2020

When a person leaves a final salary pension scheme before normal pension age, with a preserved (or “deferred”) pension, that pension is likely to have lost value due to inflation by the time it is put into payment. Revaluation provisions, introduced for those who left schemes after 1 January 1986, are therefore designed to provide a measure of protection against inflation where there is at least one full year between the member leaving a scheme and reaching their normal pension age.

The Occupational Pensions (Revaluation) Order 2020 was laid before Parliament on 24 November 2020, and will come into force on 1 January 2021. It sets out the revaluation required (for that part of a pension in excess of GMP rights) for people who will reach their scheme’s normal pension age in 2020.

Act allows Government to meet commitment to Triple Lock

The Social Security (Up-rating of Benefits) Bill 2019–21 received Royal Assent on 23 November 2020, becoming the Social Security (Up-rating of Benefits) Act 2020.

The Act allows the Secretary of State to increase the basic and new State Pensions and certain other benefits in the tax year 2021/22 despite there having been no growth in earnings in the period May–July 2020. This means the Government is able to meet its commitment to the “Triple Lock”, under which the basic State Pension is increased in line with the highest of wages, prices or 2.5%. The full rate of the new State Pension will be £179.60 per week. The new rates will apply in the tax year 2021/22, and come into effect on 12 April 2021.

Asset Management Taskforce makes stewardship recommendations to boost sustainable growth

On 24 November 2020, the IA published a report, “Investing with purpose: Placing stewardship at the heart of sustainable growth”, produced by the HMT-led Asset Management Taskforce. The report outlines twenty recommendations to help market participants, such as investment managers and asset owners, to expand their stewardship activity across different asset classes, including bonds.

Recommendations include embedding better stewardship in pension assets by seeking Government support for the creation of a Council of UK Pension Schemes to promote and facilitate high standards of pension stewardship. The report also proposes a requirement for UK pension schemes to explain how their stewardship policies and activities are in the best interests of scheme members.

Briefing paper on pension sharing on divorce published

On 27 November 2020, the House of Commons Library published a briefing paper examining the pension sharing on divorce provisions and pointing to some sources of information and guidance.

European Commission consults on two draft Delegated Regulations supplementing the PEPP Regulation

The European Commission has published for feedback two draft Delegated Regulations supplementing Regulation (EU) 2019/1238 on a pan-European Personal Pension Product (“PEPP Regulation”). The feedback period for both draft Delegated Regulations closes on 18 December 2020.

The first draft Delegated Regulation specifies the additional information that competent authorities must gather for the convergence of supervisory reporting. The second sets out criteria and factors for determining when the EIOPA’s exercise of temporary and precautionary product intervention powers is warranted.

HMT’s National Infrastructure Strategy

On 25 November 2020, as part of the Government’s Spending Review 2020, HMT published the National Infrastructure Strategy which sets out the Government’s plans to transform the UK’s infrastructure networks. Amongst other things, it looks at the potential role of pension funds, as long-term investors, in supporting the UK’s “infrastructure investment ambitions”, and notes that the DWP is considering “a number of changes to remove barriers” to this.

Impact Investing Institute publishes paper on pension fund impact investing and Good Governance Principles

The Impact Investing Institute has produced a paper that explains how fiduciary duty and impact investing (investments “made with the intention to generate positive, measurable social and environmental impact alongside a financial return”) are compatible. This paper sits alongside four Good Governance Principles for pension schemes that are intended to give an accessible, practical, insight into the opportunity presented by impact investing and the steps trustees can take to pursue an impact investing strategy.

The Principles were designed and tested through consultation with the pensions industry, in partnership with Pensions for Purpose. They aim to offer a good governance framework which tackles the investment process at each stage in the investment chain. A short explainer video has also been produced.

Pensions Minister confirms Supreme Court’s judgement in Walker v Innospec will continue to apply after Brexit transition period

The Pensions Minister has confirmed that the Supreme Court’s judgment in Walker v Innospec will continue to apply after the end of the Brexit transition period. In Walker v Innospec, the Supreme Court ruled that an exemption in the Equality Act 2010, which permits the restriction of survivors’ benefits for same-sex partners, is incompatible with EU Directive 2000/78/EC (“the Framework Directive”) and must be disapplied.

The Pensions Minister stated that the Government’s position was unchanged, explaining that under the European Union (Withdrawal) Act 2018, the Supreme Court’s disapplication of the exemption remains binding after the end of the Brexit transition period. However, to avoid confusion, as part of a “tidying up” exercise the Government intends to legislate to provide that the exemption be disapplied.

PPI report on DC scheme investment into Secured Finance assets

On 25 November 2020, the PPI published a report, “DC scheme investment into Secured Finance assets”. Building on previous PPI research, this report outlines the cost implications and risks for DC schemes of investing in secured finance assets.

Response to RPI methodology consultation published

On 25 November 2020, HMT and the UK Statistics Authority (“UKSA”) published their response to this year’s consultation on the reform of RPI, alongside the Spending Review 2020. The response confirmed that the RPI is to be aligned with CPI including owner occupiers’ housing costs (“CPIH”), in order to address the statistical shortcomings of RPI.

However, the Chancellor has exercised his power to postpone implementation of this change until the final specific index-linked gilt matures, meaning the earliest the change may be brought in is February 2030. However, the UKSA has not specified a definitive date for implementation of the change (see our Alert).

TPO chair Caroline Rookes appointed as permanent TPO Chair

The DWP has announced the permanent appointment of Caroline Rookes as TPO Chair. Ms Rookes has served as Interim Chair since September 2019 and will formally take up the post from 1 December 2020 for a five-year term.