Pensions Bulletin 2019/16

DWP publishes GMP conversion guidance

Just before the Easter break the DWP published guidance on using its existing GMP conversion legislation to tackle the 17 May 1990 to 5 April 1997 GMP inequality issue.

This first edition of the guidance takes the work of the DWP and industry working party one further step on from the November 2016 consultation (see News Alert 2016/04), but there remains much to be done. It also references only one of a number of equalisation methods that the Lloyds Banking Group case made clear are available for consideration (see News Alert 2018/07).

Comment

This is a significant development but it is only the start of what needs to be done before schemes will be able to use this approach with confidence to resolve GMP inequalities. For further details of what the DWP guidance contains and what it means please see our News Alert.

Chair’s Statement fines upheld by Courts

The Pensions Regulator has issued a press release announcing that two of its fines were upheld or partly upheld in Court hearings at the First-Tier Tribunal after the trustees in each case appealed against the penalties issued by the Regulator for non-compliant Chair’s Statements.

Importantly (although in TPR's own words) "The judges on both tribunal cases agreed that penalties for non-compliance were mandatory, the chair's statements were non-compliant with the law and TPR was right to issue the fines".

In the first case against EC2, the trustee of the Autoenrolment.co.uk Master Trust (which was founded by Smart Pension), the judge ruled that the 2015/16 statement was “deficient in five respects” and upheld the Regulator’s £2,000 fine. Additionally, the judge is reported as stating that trustees should “prepare a statement containing a considerable amount of clearly specified and detailed information”.

However, the second case against the Moore Stephens Master Trust was not such a resounding victory for the Regulator since the judge only upheld in one out of three areas the Regulator’s view that the 2016/17 statement was non-compliant. The judge reduced the imposed fine from £2,000 to £500.

The Regulator has also once more reminded its audience that it publishes detailed guidance and a technical appendix to help trustees produce Chair’s Statements.

Comment

Both of these cases were brought by Master Trusts but trustees of any scheme with DC benefits which is required to produce a Chair’s Statement should take note that the Pensions Regulator has had its stance on issuing fines for non-compliant statements supported (more or less) in two separate cases and is warning other schemes to make sure their own statements are compliant.

Reading the Regulator’s press release suggests that some of the failings were clearly demonstrable, for example failing to provide the date of the last review of the default Statement of Investment Principles. But other failings are arguably not so clear-cut, for example failing to adequately describe how trustee knowledge and understanding was met during the scheme year. We have not seen the documentation involved in these two cases, so it may be that there was an obvious failing, but we are aware of situations where the level of detail needed to comply with the Chair’s Statement requirements has been unclear. This does not help anybody.

PPF publishes new trustee guide to contingency planning for employer insolvency

The Pension Protection Fund has published a new guide designed to help trustees who think their employer is in trouble such that there is a risk their scheme could enter the PPF’s assessment period.

The guide gives information about steps the PPF recommends trustees put in place to mitigate some of the risks resulting from employer distress, particularly those areas which affect members and risk delaying completion of the PPF’s assessment period.

To accompany the launch of the guide the PPF is hosting an event for trustees and scheme advisers in central London on 14 May 2019.

Comment

The guide majors on the need for trustees to engage in contingency planning “when times are good”, spelling out some key risks that should be mitigated. Since next to no private sector DB schemes are immune from corporate failure, this is a guide that ought to find its way on to every trustee’s reading list.

CMA recommends audit/consulting split in the accounting market

The Competition and Markets Authority is recommending a shake-up of the UK audit market in a report published on 18 April. This follows on from an update paper that it published in December which outlined serious competition concerns and proposed changes to legislation to improve the audit sector for the benefit of savers and investors alike (see Pensions Bulletin 2018/51).

In this latest report, the CMA argues that the Big 4’s UK audit work should be operationally split from their consulting businesses, mandatory joint audits should be introduced under which “challenger firms” would work alongside the Big 4 and the FRC’s successor should hold audit committees more vigorously to account. The effects of all these changes should be reviewed periodically, in the first instance five years from full implementation.

The CMA’s recommendations follow discussions with audit firms, investors and major UK companies on its December paper and also takes account of the recommendations of a report from the Business Select Committee (see Pensions Bulletin 2019/13) and the inquiry into regulation led by Sir John Kingman (see Pensions Bulletin 2018/51).

The Government has committed to respond to these recommendations within 90 days.

Comment

As yet it is unclear how far-reaching the changes will be, and which parts of the existing business will be kept bound together with the audit teams. However, it seems likely that big changes will occur, and this will likely have a profound effect on both the way that company audits occur and how the market for consulting services operates.

FCA sets out its pension priorities and signals a big resource increase for pensions guidance

The Financial Conduct Authority has published its 2019/20 business plan which outlines its key priorities for the coming year.

Within the section dealing with pensions and retirement income, the FCA states that its first key priority is to be “helping consumers make better pensions choices”. The FCA is still concerned about the potential harm to consumers’ retirement income from unsuitable DB to DC pension transfers and the incidence of unsuitable advice in this area. It will continue to implement the remedies in the retirement outcomes review and work with the Pensions Regulator “on both DC-DB pensions and a review of the consumer pension journey”.

Secondly, the FCA will focus on “value for money”, aiming to tackle poor value products “as well as issues such as product complexity and opaque charging structures that can mean consumers have little idea of their costs”.

Some specific priorities under these main headings are then mentioned.

Accompanying the plan is a consultation on regulatory fees and levies for 2019/20, which includes how MAPS (the new Money and Pensions Service) is to be funded – revealing a significant increase in funding for pensions guidance.

The DWP has advised the FCA that MAPS is to receive £117.6m in levies, which will be split £25.9m for money guidance, £55.8m for debt advice and £35.9m for pensions guidance (£4.7m of which is to be allocated to leading the provision of the pensions dashboard).

The pensions guidance budget is to be raised as follows – 24% each from deposit acceptors, insurers and portfolio managers, 16% from investment fund managers and 12% from advisory arrangers. This is the same proportion as used to fund Pension Wise in 2018/19.

Consultation closes on 29 May and the FCA intends to publish a policy statement in July.

Comment

The funding for pensions guidance is significantly higher than the £16.9m spent by Pension Wise in 2018/19. Armed with £35.9m the DWP intends that 205,000 pension freedoms guidance sessions will be funded, along with a number of administrative obligations. It is good to see that this area is getting additional resource, hopefully addressing a concern that when the Single Financial Guidance Body was first mooted pensions guidance could lose out.

Directors’ remuneration requirements extended by EU Directive

Regulations have been laid in draft before Parliament implementing that part of the revised Shareholders Rights Directive dealing with directors’ remuneration.

The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 will implement Article 9a (the right to vote on a company’s remuneration policy) and Article 9b (information to be provided in and right to vote on the remuneration report).

These regulations amend the existing UK legal framework for the approval of and voting on directors’ remuneration, most notably bringing unquoted traded companies within scope for the first time.

The intention is that these Regulations will come into force on 10 June 2019.

Comment

The revised Shareholders Rights Directive is being implemented piecemeal in the UK and this is the latest (and a relatively minor) piece of the jigsaw. We wait to hear how the DWP intends to implement the pensions aspects (see Pensions Bulletin 2017/02), although our understanding is that the updated Statement of Investment Principles requirements (see Pensions Bulletin 2018/36) go some way in this respect.