Estimated reading time: 5 minutes
From FCA, to GMP, all the way to WPC – Head of Pensions Research, Tyron Potts maps out an A – Z on everything you may have missed in pensions news this summer.
The Work and Pensions Committee (WPC) has published a report calling for the government to enable the creation of Collective Defined Contribution (CDC) pension schemes. This follows the agreement between Royal Mail and the Communication Workers Union (CWU) which promised a CDC scheme for Royal Mail's 142,000 workers (see Pensions News – what you may have missed this Spring).
TPR: Tranche 11 Funding Statistics
The Pensions Regulator (TPR) has published its latest annual funding statistics for “Tranche 11” schemes (with effective valuation dates between 22 September 2015 and 21 September 2016). The report shows an increase in the average funding ratio, and that just under a fifth of the valuations submitted in the period showed a surplus on a “Technical Provisions” funding basis.
TPR: Corporate Plan 2018/21
TPR has released its corporate plan for 2018-21. The Regulator’s eight priorities over the next three years include improving standards of trusteeship and stewardship, and working alongside the government to implement proposals set out in the white paper on the future of DB schemes.
The plan also commits TPR to tackling those sponsoring employers who are not taking their pension scheme duties seriously and to launch a new anti-scams campaign.
SIPs: DWP consultation
The DWP has opened a consultation - Pension trustees: clarifying and strengthening investment duties. The DWP is seeking views on amending regulations setting out what a pension scheme’s Statement of Investment Principles (SIP) must include from 2019, and the way trustees prepare and revise the SIP. These include:
- SIPs will have to set out how schemes take Environmental, Social and Governance (ESG) considerations (including climate change) into account
- Trustees will have to state their policies on “the stewardship of investments”, including the exercise of voting rights
- Money purchase schemes will have to publish their SIP on a website so that it can be found and read by both scheme members and interested members of the public
- Money purchase schemes’ “default strategy” must take account of ESG risks including climate change.
- At the time of the next SIP update, Trustees must prepare a “statement on member’s (sic) views” setting out how these have been reflected in the investment approach.
Pension Scams: Good Practice
The Pension Scams Industry Group (PSIG) has updated its Code of Good Practice for combatting pension scams. Updates in the latest version include encouraging telephoning scheme members as part of administrators’ “due diligence” during transfer processes. The code also suggests referring insistent customers to The Pensions Advisory Service (TPAS) for impartial guidance, and reflects legislative developments including the pending cold calling ban.
As part of a Freedom of Information (FoI) request, TPR has estimated that around 100,000 Defined Benefit (DB) transfers took place in 2017/18.
Meanwhile, trustees and administrators have been warned to ensure that they carry out appropriate checks on receiving schemes before paying transfers. The Pensions Ombudsman has ordered a scheme to re-instate a member’s benefits and pay £1,000 in compensation after they failed to conduct appropriate due diligence checks and didn’t provide a copy of The Pensions Regulator’s scams warning flyer.
ITV / Box Clever: Judgement
Following a two-week hearing in January, the Upper Tribunal Tax and Chancery has published its judgment in the case of ITV Plc vs TPR. The Tribunal confirmed that The Pensions Regulator (TPR) was right to use its powers to issue a financial support direction (FSD) to ITV on behalf of members of the Box Clever pension scheme.
GMP Equalisation: Lloyds Case
A High Court case involving the Lloyds Banking Group pension scheme has begun. The case will consider whether and how Defined Benefit (DB) schemes should equalise Guaranteed Minimum Pensions (GMPs) for the effects of differences in calculation between women and men.
The Lloyds trustees are expecting a judgment towards the end of 2018.
Find out more in our blog: GMP Equalisation - what you need to know.
FCA: Transferring DB Pensions
The Financial Conduct Authority (FCA) has updated its Conduct of Business Sources (COBS) handbook for Independent Financial Advisers (IFAs), reflecting the additional information that appropriately qualified IFAs must provide to clients seeking to transfer Defined Benefit (DB) pensions:
- From 1 October 2018, the advice must explicitly show the difference between the transfer value offered by the scheme and the “risk-free” cost of replicating the pension benefit elsewhere (for example via an insurance company annuity).
- From 1 April 2019, advisers must illustrate the impact of future life expectancy, including an allowance for “mortality improvements” in line with nationally published statistics.
The FCA is also consulting on whether to ban “contingent charging” – i.e where a fee for advice is only paid when a transfer goes ahead.
Equitable Life: Transfer to Reliance
Equitable Life is proposing to transfer all of its business to Reliance Life, which could be significant news for pension scheme trustees with Equitable investments – for example where members’ Additional Voluntary Contributions (AVCs) are invested in the with-profits fund.
Under the proposal, the With-Profits Fund will be converted to a unit-linked arrangement, effectively ending the guaranteed return, but with an expectation that the “capital distribution” will increase from 35% to around 60%-70%. Further details are set out in Equitable Life’s Q&A document.
Equitable Life will ask with-profits policyholders to vote on the proposal in around mid-2019 and, if accepted, conversion will take place in late 2019 and the transfer to Reliance Life shortly after. Where the trustees of a pension scheme are the with-profits policyholder, Equitable Life is expected to communicate via the trustees and not directly with scheme members.
The Department for Work and Pensions (DWP) has been consulting on draft legislation to enact its ban on cold-calling in relation to pension schemes – expanding on proposals first consulted on in 2016. The regulations will make it a criminal offence to make unsolicited “direct marketing” contact with pension savers, in particular where offering inducements such as free advice.
The regulations are expected to come into force later in the Autumn.
BA: Discretionary increases
British Airways (BA) has won its case in the Court of Appeal – part of its dispute with the trustees of the Airways Pension Scheme (APS) – overturning a previous decision in the High Court. BA argued the trustees acted for an improper purpose when granting a 0.2% discretionary increase to pensioners in 2013/14. The APS trustees are expected to appeal to the Supreme Court.