For pension schemes, it seems to be consultation season, with two recent Government consultations and one from the Pensions Regulator (tPR). In this update we will take a look at the various changes proposed by the DWP and tPR.
Occupational pensions: reducing regulatory burdens and minor regulation changes
As the name suggests, the first of these consultations, which closed on 11 December, aims to get rid of certain regulatory requirements with which schemes currently need to comply. The Government has proposed the deletion of most of the current investment disclosure requirements in pension scheme accounts. Instead, as of 1 April 2016, the auditor’s statement would need to confirm whether the accounts have been prepared in accordance with current reporting standards, and to report on risk levels, employer-related investments, and total investment purchases and sales.
In addition to this key area of change, other proposals include a revision of the definition of multi-employer schemes for non-connected employers which makes it clear that schemes do not fall under the additional governance requirements merely because every employer is not a group company (so, for example, two employers who form a joint venture will be connected with each other).
These changes seem generally uncontroversial, and should be helpful for scheme trustees and administrators; the Government will confirm in due course whether the changes will be put into practice following the closure of the consultation.
Occupational and Personal Pension Schemes Miscellaneous Amendments Regulations 2016
A second DWP Consultation has also been produced, requesting feedback on various proposals including:
- In relation to pension sharing on divorce, where there is an attachment order, requiring schemes to write to the former spouse at the point at which the member applies to take their benefits flexibly;
- Making various changes to winding-up and commutation legislation, including to allow the trustees of a scheme which has started winding-up to discharge the scheme’s liabilities by paying an uncrystallised funds pension lump sum, as long as it is an authorised payment and the member consents;
- Amending the entry rules for the PPF to allow schemes to enter whose sponsoring employer cannot legally have an insolvency event; and
- Obliging the trustees of occupational pension schemes (where members have money purchase benefits) to send members a risk warning which explains the various potential benefit options (i.e. transfer value, annuity purchase, lump sum or drawdown), whether those options are available under the scheme, and the various factors in respect of each option which could adversely affect retirement income.
The consultation also includes a call for evidence on the possibility of simplifying the valuation of pensions with a guaranteed annuity rate (GAR) for the purposes of the independent advice safeguard, in light of the difficulties which members have been facing in trying to obtain financial advice where there is a GAR.
This consultation remains open until 15 January 2016 and we will update on the outcome in due course.
Draft code of practice 13: Governance and administration of occupational defined-contribution trust-based schemes
TPR’s code of practice 13 has been in force since November 2013, guiding trustees of DC trust-based schemes to comply with 31 key "quality features". These differed from the new quality standards and associated governance measures introduced in legislation effective from April 2015, and also didn’t take into account new flexible access options. Therefore, tPR’s aim with this consultation is to reflect these changes and to reduce the complexity of guidance for scheme trustees.
The new draft code is significantly shorter than the original one. Reference to the previous quality features have been removed on the basis that the Regulator feels they are "now well established and should be business as usual for trustees". In addition to simplifying the existing code of practice, the draft code includes guidance on the following:
- Trustee boards having a robust process for appointing a chair;
- Clarification on the law relating to master trusts and the independence requirements for non-affiliated trustees;
- Monitoring the performance of advisers and service providers;
- The meaning of "promptly" in the context of processing core financial transactions;
- Investment governance;
- DC flexibility, with trustees advised to be proactive in engaging with members about how they wish to take DC benefits;
- Value for members;
- Communications, with the need highlighted for trustee boards to make members aware of their right to transfer their benefits to another scheme; and
- The Chair’s annual statement, which should "provide a meaningful narrative of how, and the extent to which, the governance standards have been complied with".
In general, trustees and practitioners should find the shorter, simpler code of practice helpful, and the general updates to reflect the current legal position post-April 2015 are also welcome. The Regulator has also, however, set out its intention to provide additional "How to" guidance at the back of the final code, and it is hoped that this will not be too lengthy and negate the benefits of the shorter code.
The consultation closes on 29 January 2016 and we will update on the outcome in due course.