Pensions Bulletin 2019/08

Executive pensions – Investment Association to “red top” alert high pensions for new hires

The Investment Association has announced that it will highlight companies that are lagging behind on diversity or that pay pension contributions to newly appointed executive directors at rates above the majority of the workforce.

In November the Association published its “Principles of Remuneration” which sets out investor expectations on executive pay, and identified high pension contributions as a key concern (see Pensions Bulletin 2018/48).

Now the Association’s Institutional Voting Information Service, which provides corporate governance research to shareholders to aid their voting decisions during the AGM season, will “red-top” companies that pay newly-appointed directors pension contributions that are not in line with the majority of their employees. A “red-top” is the highest level of warning the service issues and is reserved for companies where shareholders should have the most significant and serious concerns.

The service will also “red-top” companies that have no (or only one) woman on their board and “amber-top” companies whose board is 25% or less female and who are therefore not on course to meet the requirements of the Hampton-Alexander review, which is to have a board that is a third female by 2020.

Comment

It will be interesting to see how companies respond to yet further pressure on these two fronts from the Investment Association.

FCA response to CMA investigation into investment consultancy and fiduciary management services

The Financial Conduct Authority has written to the Competition and Markets Authority explaining how it will respond to the recommendations contained in the CMA’s report into investment consultancy and fiduciary management services that affect it (see our recent News Alert for more details).

Six of the eight remedies identified by the CMA affect the FCA. Although the CMA Order is the means by which these remedies initially come into force, the FCA intends to subsequently consult on introducing the relevant rules into its Handbook.

The remedies include:

• Requiring pension scheme trustees to tender ahead of purchasing fiduciary management services where the mandate would cover 20% or more of a scheme’s assets. As part of this, providers of these services will be prohibited from accepting a mandate unless they have received confirmation that it has been subject to a competitive tender
• Requiring firms which offer both fiduciary management and investment consultancy services to separate the marketing of fiduciary management services from the provision of investment consultancy advice. Providers of fiduciary management services will be required to clearly identify the marketing of these services and include reminders of the obligation on pension schemes trustees to tender for these services

The CMA also recommended two supporting remedies affecting the FCA, which the FCA also supports:

• Extending the FCA’s regulatory perimeter to include all the main activities of investment consultants; and
• Maintaining the FCA’s oversight of the industry-led Cost Transparency Initiative, which is working to promote consistent and transparent asset management fee reporting

Comment

The FCA’s response is not surprising. For pension scheme trustees the real impact of the CMA’s recommendations will be the requirements to conduct competitive tenders when appointing fiduciary managers and – unusually – a requirement for trustees to report their compliance to the CMA.

Standards for professional trustees published

The Professional Trustee Standards Working Group (PTSWG) has published new standards for professional trustees to meet. The standards and an associated accreditation process are designed to improve and provide assurance about the quality of professional trustees and discourage poor practices in the market.

Professional trustees will have to demonstrate they meet the standards, including fitness and propriety, governance skills, ongoing professional development and managing conflicts of interest. There are additional standards for professional trustees who act as the chair of a trustee board, or the sole trustee of a scheme.

To hold accreditation, professional trustees will have to pass an initial application and then, on an ongoing basis, confirm that they remain fit and proper, and complete relevant professional development. The current expectation is for the Pensions Management Institute to manage the accreditation framework.

The standards were first proposed by the PTSWG in December 2017 (see Pensions Bulletin 2017/53) and the group notes that its initial proposals were extensively reviewed following the comments it received. Changes made since the initial proposals include abandoning the “comply or explain” principle in favour of requiring professional trustees to comply with the standards and accreditation system in full.

Comment

The PTSWG’s accreditation framework is supported by the Pensions Regulator. Professional trustees are becoming increasingly common as pensions governance and legislation gets ever more complex so an initiative to raise standards of practitioners is welcome.

PPF provides a further update on the Hampshire case

The Pension Protection Fund has provided a further update on the approach it is taking to adjusting compensation in response to the Hampshire ruling by the European Court of Justice – this time in the light of the launch of court proceedings since its December update (see Pensions Bulletin 2019/01).

Although these proceedings are challenging the approach the PPF is taking (amongst other things), the PPF is intending to continue with this approach for the time being, although it will limit the size of arrears payments to avoid the risk of having to recover overpayments from members should the court decide that the PPF must take a different approach to calculating the increase.

There is also further news about the technical aspects of the PPF’s intended approach along with a link to a new frequently asked questions document.

Comment

There is no news as to who has brought proceedings against the PPF and what alternatives the court is being asked to consider, still less by when this may all be resolved.

DWP launches mid-life MOT web portal

The DWP has launched a mid-life MOT web portal that is intended to provide a package of support in relation to pension planning, working options and staying healthy for those who are “getting older”.

In relation to pensions, the links are to existing resources – ie the State Pension checker, the Pensions Advisory Service, the Money Advice Service and Pension Wise – the last three of which need rebranding given the January launch of the Single Financial Guidance Body.

Comment

This cheap and cheerful site does seem to have been somewhat thrown together with little if any original content, but it has enabled the pensions minister to publicly encourage businesses to facilitate a “mid-life MOT” for staff, pointing out the benefits to businesses of having a healthier and more settled workforce as a result.

Agreement reached on pan-European personal pension schemes

Agreement has now been reached amongst the EU institutions in relation to a new Regulation setting out how a “pan-European Personal Pension Product” (PEPP) will be required to operate (see Pensions Bulletin 2018/36). Subject to a few more steps which should be formalities, the Regulation will shortly pass into EU law.

Comment

Currently, this Regulation, which is expected to have little impact in the UK, is expected to apply across EU member states 12 months after being published in final form.

Treasury statement on EMIR, Brexit and pension schemes

EMIR, the 2012 European Market Infrastructure Regulation, lays down rules on how over-the-counter derivative transactions are to be cleared. Pension schemes are often parties to such transactions.

Because it was never properly thought through how these requirements would apply to pension schemes the EU has kept exempting them. Unfortunately, it eventually became legally impossible to keep rolling the exemption over until EMIR itself had been reformed. National regulators were asked by the EU to provide an informal exemption when the statutory one last expired on 17 August 2018 (see Pensions Bulletin 2018/28).

Now, as part of Brexit planning, HM Treasury has published draft regulations to “onshore” (ie set out the EU requirements in UK legislation) the EMIR requirements. In its guidance the Treasury states that it recognises the importance of the pension scheme exemption and that if the EMIR reforms come in before the UK leaves the EU (see Pensions Bulletin 2019/06) then it too will be onshored. In the meantime the informal exemption will, we understand, continue until the matter is finally resolved.

Comment

Most welcome. It looks unlikely that UK schemes will be required to comply with the clearing requirements for years, if ever.

No deal Brexit – EU contingency plans for social security

Currently social security entitlements (including State pensions) for people who move around the EU (and the EEA and Switzerland) are coordinated by an EU Regulation. This enables entitlements to be aggregated and claims made centrally.

The draft UK/EU withdrawal agreement provides for these arrangements to be continued during any post-Brexit transitional period.

The EU has now announced that its Council has approved the text of a draft regulation on establishing contingency measures in the field of social security coordination. The measures are limited in time and scope and will be adopted unilaterally by the EU. The regulation will enter into force only if the UK leaves the Union with no withdrawal agreement in place.

The press release states that the draft regulation is without prejudice to the existing social security conventions and agreements between the UK and one or more member states. The UK is already legislating to onshore the existing EU social security legislation and also to prepare for no-deal.

Comment

The draft regulation itself was not available at the time of going to press. It remains to be seen if some mini-deal in this field can be done in the event that the withdrawal agreement is not concluded.