Pensions Bulletin 2021/04

• DWP fills in the details on climate risk governance and reporting
• The PPF finalises the 2021/22 levy
• Pension trustee decision-making examined
• MaPS publishes first Annual Report and Accounts
• GMP equalisation working group promises a busy 2021
• Auto-enrolment parameters for 2021/22 settled

DWP fills in the details on climate risk governance and reporting

On 27 January the DWP responded to the consultation it launched in August last year (see our News Alert) on proposals to require large schemes to disclose their approach to managing climate risks and opportunities in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

In order to implement these proposals, it also published a further consultation on two sets of regulations along with statutory guidance. These regulations and guidance will use powers introduced by the Pension Schemes Bill once this receives Royal Assent. This consultation runs until 10 March.

Accompanying this is the final climate non-mandatory guidance from the Pensions Climate Risk Industry Group (PCRIG) which had been issued for consultation last March (see our News Alert).

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The PPF finalises the 2021/22 levy

On 26 January the Pension Protection Fund issued its final levy rules for the 2021/22 levy year, which appear to be in keeping with its December announcement (see Pensions Bulletin 2020/51).

As announced then the PPF is implementing both the small scheme adjustment (which reduces the risk-based levy for schemes with smoothed liabilities of less than £50m by up to a half) and the reduction in the risk-based levy cap from 0.50% to 0.25% of smoothed liabilities. The appropriateness of this reduced risk-based levy cap will be reviewed next year.

The levy scaling factor of 0.48 has also stayed the same, meaning the levy estimate of £520m (down from £620m last year) is also unchanged.

The main conclusions of the consultation have been published, along with the Final Determination that sets out the 2021/22 levy calculation and the usual plethora of PPF levy documentation. Separately, new draft Commercial Consolidator Guidance has been published for consultation.

There have been some technical changes to the Dun & Bradstreet insolvency scores of a limited number of sponsoring employers, and those affected will be contacted. The Contingent Asset Guidance has also been updated to help schemes consider whether they need to adjust the Realisable Recovery certified in respect of a contingent asset for the potential effect of the ‘super-priority’ creditors introduced by the Corporate Insolvency and Governance Act.

The key deadlines for providing information to the PPF are:

• Midnight at the end of 31 March 2021 for the compulsory submission of scheme returns (including any voluntary section 179 valuations), certification/recertification of contingent assets (including a guarantor strength report where a parental guarantee is expected to save more than £100,000 of levy), asset-backed contribution arrangements and special category employer applications. Where previously supporting submissions were required as hard copy documents they can now be sent as soft copies, to be received by the PPF by 5pm on 1 April 2021

• 5pm on 30 April 2021 for submission of Deficit-Reduction Contribution certificates and applications for Exempt Transfers

• 5pm on 30 June 2021 for certification of full block transfers that took place before 1 April 2021

The consultation response confirms that the 2022/23 levy formula will also be considered on a ‘one year’ basis to enable adjustments for the impact of Covid-19, before hopefully returning to the more usual format of settling formulae for a three (or more) year period from 2023/24. The recalibration of the credit rating mapping to levy bands is also going ahead, and investigations are under way to see how D&B scores for companies in a moratorium or restructuring plan can be adjusted (potentially to levy band 10). Both of those changes will be applied to monthly scores from April 2021.

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Pension trustee decision-making examined

The Institute and Faculty of Actuaries has published a report exploring the potential for biases to arise in pension trustee decision-making, what form such biases may take, and how best to guard against them.

The research focussed on three distinct characteristics of trustee decision-making – that they make decisions as a group, that advisors and consultants are extremely influential in the decision-making process, and that they are making decisions for others – contending that “despite extensive training, and displaying higher financial literacy than a lay person, trustees are not immune from decision biases…”.

The report sets out a number of challenges that trustees can encounter during the decision-making process and discusses a number of recommendations to help improve the process. Alongside suggestions for specific training and support to raise awareness of the potential for biases in decision-making, among the many recommendations are suggestions around how best to present information to avoid cognitive overload and unconsciously influenced decisions, delivering information segregated from advice before advice is given, making groups more heterogeneous regarding the background of its constituents, and considering specialised training needs for the role of the Chair.

The research was conducted using both qualitative and quantitative methods, including recruiting smaller samples of trustees to engage in ethnographic and in-depth telephone interviews, a larger sample of trustees to participate in experiments conducted online, and collecting data to study surrogate decisions from a sample of pension scheme members.

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MaPS publishes first Annual Report and Accounts

Somewhat belatedly, the Money and Pensions Service has published its annual report and accounts for the year ended 31 March 2020. Insofar as the pensions side of its operations are concerned MaPS spent £5.7m on “pension guidance” and £28.1m on “pension freedoms”. Its overall spend was £106.6m with some £54.3m on debt advice and £18.5m on money advice.

Turning to the pensions part of MaPS operations:

• Its pension guidance service covers a wide range of pensions-related matters and in 2019/20 MaPS held 213,892 pension guidance sessions. This was 10.9% fewer than its (revised) 2019/20 target of 240,000 and characterised by gradually improving volumes over the year to February but unsurprisingly the number of sessions held fell dramatically as a consequence of Covid-19 in March

• Its pension freedom service relates to the ‘Pension Wise’ guidance it provides to those who have DC pension pots and who need to understand their options in order to make an informed decision when taking their benefits. In 2019/20 MaPS had 205,493 interactions with individuals in this area – slightly above its target of 205,000

The report also notes that while there was a small initial drop in demand for pension guidance due to Covid-19, there has since been an increased number of calls on specific matters, with customers expressing concern about the impact of market volatility on pensions savings, considering whether to push back planned retirement dates and dealing with the impact of bereavement or ill health, as well as a range of other challenges resulting from the pandemic.

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GMP equalisation working group promises a busy 2021

In an industry update to mark the turn of the year, the Chair of the PASA GMP Equalisation Working Group looks to what has been delivered by the Group in 2020 and what is to come in 2021. The latter promises:

• Guidance on the tax implications of GMP equalisation (which we understand will focus on “dual record” approaches), taking into account the information provided by HMRC in 2020 – by the end of February

• Information, including case studies (which we understand will be based on what schemes are doing in practice), on GMP conversion, produced by a newly-established group – by the end of April

• A second good practice guidance document on communications, this one focussing on communicating during the implementation stage of a GMP equalisation project (the first document covered communications during the early planning stage – see Pensions Bulletin 2020/32)

• Examples to supplement the existing methodology guidance (see Pensions Bulletin 2019/37) to help schemes understand and deal with the complexities of anti-franking as they specifically relate to GMP equalisation – for the second quarter of 2021

• Good practice guidance relating to equalising past transfer values – no date is given for this but an update on delivery timescales is promised in the first quarter of 2021

As a reminder, in 2020 this Group also issued guidance designed to help trustees decide when to undertake GMP rectification (see Pensions Bulletin 2020/12) and good practice guidance on the data needed (see Pensions Bulletin 2020/29).

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Auto-enrolment parameters for 2021/22 settled

The Government has published the analysis supporting its review of the earnings trigger and qualifying earnings band to be used for auto-enrolment purposes for 2021/22. The earnings above which individuals must be auto-enrolled will continue to remain frozen (as it has been since 2014/15) and the band of earnings on which minimum contributions are based will continue to be aligned to the Lower and Upper Earnings Limits for national insurance purposes. Therefore for 2021/22:

• The automatic enrolment earnings trigger will be maintained at £10,000

• The lower limit of the qualifying earnings band will remain at £6,240

• The upper limit of the qualifying earnings band will increase to £50,270

A draft Order has been laid before Parliament to implement the above.

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