- Regulator and FCA clarify the dos and don’ts of providing pension support to members
- MPs paint a dismal summary of pension scams and call for “quick and decisive” action
- Pensions Regulator publishes policy on settling regulatory and enforcement actions
- Insolvency and company law temporary easements extended yet again
- Small Pension Pots – new working group to look at administration processes
- DC trust statistics – latest annual report
Regulator and FCA clarify the dos and don’ts of providing pension support to members
Following a consultation in 2020, the Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) have joined forces to issue a guide clarifying what employers and trustees are allowed to say to employees/members without straying into the territory of FCA-regulated advice. The guide applies to both DB and DC arrangements. The key seems to be for any member and employee communications to focus on the facts in a balanced way and to avoid communicating in a manner that could be construed as steering people in a particular direction.
An exception is the promotion of occupational pension schemes, which is allowable in some circumstances, as well as certain financial workplace benefits such as insured life assurance, critical illness cover and income protection. If an employer provides a Group Personal Pension or stakeholder pension scheme they can give basic information within certain boundaries without being at risk. Importantly, the process of auto-enrolment is not classed as inappropriate promotion.
There are many useful examples throughout the document, and examples of the types of phrase to be avoided in communications to members include:
- “People like you often do this…”
- “I would do this…”
- Answering the questions “which investment fund should I choose?”, “would I be better off putting my money into something else?” or “is it a good idea to transfer my money from my old scheme to this scheme?”
Signposting employees/members to publicly available generic information is encouraged, with the information provided by the Money and Pensions Service including The Pensions Advisory Service, the Money Advice Service and Pension Wise highlighted.
The guidance also confirms that members of DB schemes can be given information about the different ways in which they can take their benefits, and how they can structure their benefits under the scheme, including illustrative figures.
The earlier consultation (see Pensions Bulletin 2020/24) had sparked fears that showing members comprehensive information regarding their pension and transfer value together might be straying into regulated advice, but the guidance makes it clear that:
- Schemes can provide unsolicited transfer value quotes (CETVs) to members in an appropriately balanced way
- Schemes can provide an estimate of the annuity which a member could buy today if they were to transfer out today, but drawdown illustrations are not allowed as they are regarded as too speculative
- Schemes can appoint IFAs to help members make good choices – the document recognises that schemes: “may be in better position to identify a suitable firm with the relevant permissions and better able to negotiate good terms with that adviser than individual employees or scheme members”
At the same time, the FCA has also issued new guidance to financial advisers delivering advice to members with DB pensions who are considering a transfer out, partly in response to the concern that firms do not always provide the quality of advice that is required. The wording the FCA uses in encouraging advisers to engage is strong – “too much of the DB transfer advice we have seen is either unsuitable or we were unable to assess its suitability due to material information gaps”.
Annex 1 of this second piece of FCA guidance contains a template on which the FCA and TPR have collaborated with the Pensions Administration Standards Association to agree a single set of information that DB schemes should provide automatically with a transfer quotation. This is helpful for advisers and their clients but it may increase the burden on pensions administrators.
Comment
The line between helpfulness and regulated advice has not always been clear, so trustees and employers have sometimes been in a tricky position. This guidance provides welcome assistance in that regard, and we encourage trustees, employers and in-house pensions teams to read it and to review member communications to ensure they are appropriate.
We are encouraged to see the supportive comments that the guidance makes about trustees and employers appointing IFAs to support members in their decisions – a growing proportion of schemes have done this in recent years, and we expect this to continue to be the direction of travel given the complex pensions decisions that members face.
MPs paint a dismal summary of pension scams and call for “quick and decisive” action
The Work and Pensions Committee has published its long-awaited report into the scourge of scams on pension savings (see Pensions Bulletin 2020/31).
The report warns that commonly cited figures of the scale of pension scamming – £30 million between 2017 and August 2020– are likely to substantially underestimate the problem. The Pension Scams Industry Group estimates that £10 billion has been lost by 40,000 people since 2015, and the situation is likely to be getting worse rather than better, with the Covid-19 pandemic offering scammers new opportunities.
The Committee was particularly troubled by the move of pension scammers online, and described the practice of some internet publishing firms of accepting payments both to advertise scams and also from regulators to publish warnings as “immoral”. The Committee calls on the Government to rethink its decision to exclude financial harms from the forthcoming Online Safety Bill and use it to legislate against online investment fraud. It also recommends that online publishers should be required to ensure financial promotions are authorised in the same way as traditional media outlets are required to.
The report also calls for the existing Project Bloom multi-agency task force tackling pension fraud to be strengthened, put on a statutory basis with dedicated funding and staffing and renamed – perhaps to the “Pension Scams Centre”. As part of this, the Committee recommends that Project Bloom, or its successor, should facilitate industry intelligence sharing and legislation should require industry participation in intelligence sharing.
The Committee believes that Action Fraud has been left with a “tattered reputation” because of its failure to manage victim expectations and a lack of action on cases. The FCA does not escape criticism either, after the Committee heard that it was not effective in stopping scams, punishing scammers or retrieving scam proceeds and therefore it must “raise its game”.
The next stage will be for the Government to respond to the Committee’s report and decide which of the many recommendations, if any, it will proceed with.
Meanwhile, the Pensions Regulator has published a call to action for pension schemes, providers and administrators to be on high alert and to report suspected scams to Action Fraud or by calling 101 in Scotland.
Comment
This report should be read by everybody with even a passing interest in helping pension savings succeed. The report makes grim reading about the impact of scams and the limited success that attempts to combat this over the years have had to date. We welcome the recommendation to transform Project Bloom into a statutory organisation and say “about Bloomin’ time!”.
Pensions Regulator publishes policy on settling regulatory and enforcement actions
Sometimes when the Pensions Regulator starts to use its powers (or threatens to do so) it will agree a settlement with the target of the actions. The criteria that the Regulator will use to decide whether to settle or to pursue an action have hitherto not been public. They now are in the shape of its newly published policy.
The policy does not apply to monetary policies, applications, such as for clearance or a regulated apportionment arrangement, putting financial support in place after a Financial Support Direction has been issued, criminal proceedings or auto-enrolment enforcement.
The Regulator states that it will “balance any proposed settlement outcome against what we might achieve by pursuing or continuing enforcement action, including the risk of prolonged periods of legal challenge in the tribunals/courts, and the costs, delay and uncertainty this can bring.”
and
“When deciding whether or not to settle we must have due regard to relevant factors, including legal advice on the chances of success before the Determinations Panel or tribunals/courts, and the views of relevant stakeholders, eg trustees or the Pension Protection Fund (PPF).”
The Regulator makes the point that an acceptable form of settlement will depend on the particular circumstances of the case, and sets out some examples. The policy then lists the relevant factors that will be taken into account in reaching a decision and sets some ground rules for settlement discussions.
Comment
There is little that is unexpected in this policy. Parties to transactions that may be within the scope of the Regulator’s powers, including the new Contribution Notices, may wish to have regard to the policy as part of the Regulator’s armoury in scrutinising corporate activity.
Insolvency and company law temporary easements extended yet again
Regulations have come into force further extending temporary measures contained in the Corporate Insolvency and Governance Act 2020 which are intended to protect businesses from insolvency during the coronavirus pandemic, but which had previously been set to expire at the end of March (see Pensions Bulletin 2020/51).
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021 (SI 2021/375) contain provisions extending the following:
- Restrictions on the use of statutory demands and winding up petitions to 30 June 2021. These had previously been extended for the second time in December 2020 to expire on 31 March 2021
- Modifications to moratorium provisions and temporary moratorium rules to 30 September 2021. These had previously been extended in September 2020 to expire on 30 March 2021
- Small supplier exemption from termination clauses to 30 June 2021. This had previously been extended in September 2020 to expire on 30 March 2021
- Suspension of liability for wrongful trading to 30 June 2021. This had previously been extended in November 2020 to expire on 30 March 2021
Separate regulations made under the Coronavirus Act 2020 extend the moratorium on the eviction of tenants of commercial properties for non-payment of rent from 30 April 2021 to 30 June 2021.
Comment
The continued extension of these temporary measures is not surprising, given the prolonged detrimental economic impact of the pandemic on businesses. Trustees of DB schemes would do well to use these latest extensions as a trigger to review the potential impact of those measures within the Corporate Insolvency and Governance Act 2020 that could have a bearing on employer support.
Small Pension Pots – new working group to look at administration processes
The Pensions and Lifetime Savings Association and the Association of British Insurers have set up the Small Pots Co-ordination Group following one of the recommendations made by the DWP last December to try and deal efficiently with the proliferation of small pension pots (see Pensions Bulletin 2021/01).
The new group primarily consists of representatives from pension providers and industry bodies and will focus on the administration processes and data-matching requirements that will be needed to implement a future long-term consolidation model and low costs transfer process. A progress report is promised in the summer.
Comment
We are pleased the momentum is being kept going and we expect more announcements to be forthcoming in the next few months.
DC trust statistics – latest annual report
The Pensions Regulator has published its latest DC Trust Scheme return data for 2020/21.
Some of the statistics highlighted by TPR are:
- The market has further consolidated over the last year with the number of non-micro DC schemes decreasing 10% from 1,740 to 1,560
- 38 authorised master trusts have 18.8 million DC memberships
- Asset values of DC schemes (excluding micro and hybrid schemes) are £87.5bn – up £16bn from last year
- The average assets per membership at retirement was £5,300 – this is a 3% decrease from last year and a 73% decrease since the beginning of 2015
Comment
We commented last year that the decrease in average assets at retirement was worrying and that we hoped it would increase in the future (see Pensions Bulletin 2020/06). It is likely that the impact of the pandemic has affected this – and in that context, perhaps just a 3% drop is a “good result” – but the long-term trend needs to reverse.
