- New Year changes of personnel at the Pensions Regulator and the DWP
- PPF departmental review makes a series of recommendations
- Pensions Ombudsman levies multi-million pound fine against dishonest trustees
- PPF revisits its valuation assumptions
- Royal Assent for the Autumn Finance Bill
New Year changes of personnel at the Pensions Regulator and the DWP
The Pensions Regulator has announced the appointment of Nausicaa Delfas as its new Chief Executive, replacing Charles Counsell at the end of March 2023. She joins from her current role as Executive Director, Governance, at the Financial Conduct Authority, and was the former interim Chief Executive and Chief Ombudsman of the Financial Ombudsman Service.
The Regulator has also announced the departure of David Fairs, Executive Director of Regulatory Policy, Analysis and Advice. He was appointed in July 2018 and during his tenure has spearheaded a number of Regulator initiatives, most recently launching the Regulator’s consultation on its new DB funding code (see Pensions Bulletin 2022/47). He is to leave in mid-March 2023 to pursue new challenges. An interim Director will be appointed.
Finally, the Prime Minister’s office has announced that Viscount Younger of Leckie has been appointed as a Parliamentary under Secretary of State at the DWP following the departure from government of Baroness Stedman-Scott. Baroness Stedman-Scott was the Government’s pensions spokesperson in the House of Lords.
PPF departmental review makes a series of recommendations
A review of the Pension Protection Fund has been published. Undertaken for the DWP and led by former Pensions Regulator Chief Executive, Lesley Titcomb, the report was completed in May 2022, but published shortly before Christmas.
The review contains a number of recommendations, but from the viewpoint of seeking to enhance the PPF’s direction over the long-term, rather than rectifying any shortcomings. Indeed, the review finds the PPF to be a well-run public body offering high standards of service and value for money to those who use it and pay for it.
Amongst the recommendations are the following:
- The DWP and PPF should work together to understand the implications of the PPF’s funding position in light of expected future developments in the population of DB schemes and plan well ahead for any legislative changes that might be needed; for example, to address what happens to any PPF funding which is surplus to its requirements
- The DWP and PPF should work together to explore whether it is feasible for the PPF’s skills and capabilities to be used in other ways for public benefit – for example, in managing investments for Government, or acting as a consolidator or provider of aggregated services for schemes which would benefit from this, but which are not attractive to commercial consolidators
- The PPF administration levy should be abolished and, once the existing reserve is expended, the PPF should be permitted to recover all its administrative costs via the PPF levy
- The DWP and PPF should work together to ensure that any necessary changes are made so that the PPF levy can be reduced easily, if the PPF Board so decides, but with the PPF retaining the freedom to reintroduce or raise the levy should circumstances change
- In response to concerns that the original legislative intent of the Fraud Compensation Fund has been significantly exceeded by the November 2020 High Court judgment (see Pensions Bulletin 2020/47), when the DWP decides to undertake a review of the FCF and the compensation it offers, it should seek operational input from the PPF in relation to working with it and through pension schemes in determining the nature and level of compensation required. Such a review should cover the appropriate level of compensation, its interaction with other compensation or redress regimes and how it is funded
The review contains a postscript, noting that in September 2022, when a liquidity squeeze arose for some DB schemes using liability driven investments, due to the speed and magnitude of rises in gilt yields, the PPF successfully managed the collateral calls it faced over this period.
Comment
There are no surprises in this review, with many of the 18 recommendations being for the DWP to action rather than the PPF, reflecting the fact that the long-term direction of the PPF is in the DWP’s hands. Unfortunately, some of these actions require primary legislation which seems unlikely this side of the next General Election.
Pensions Ombudsman levies multi-million pound fine against dishonest trustees
In a further case calling on the resources of the Pensions Ombudsman’s Pensions Dishonesty Unit, the Ombudsman has directed the recovery of nearly £12.6m from various individuals who operated a scam occupational pension scheme that went under the name of the Optimum Retirement Benefits Plan.
The Plan was set up some years after the government no longer required occupational pension schemes to be vetted on establishment by the authorities. It operated during a time when bona fide schemes could not stop transfers taking place from their schemes where they had concerns that the destination scheme was not legitimate.
As in similar previous cases (see, for example, Pensions Bulletin 2022/39), the Optimum scheme was a device intended to capture the retirement savings of unsuspecting individuals, pulling them in on promises of being able to have early access to some of their retirement savings (through a loan back arrangement in this case) and to enjoy high investment returns on their savings pot. What actually happened was only too familiar, with substantial expenses and commissions being deducted and high-risk supposed investments being made which subsequently failed. By the time the Pensions Regulator appointed professional trustees to take control of the situation, nearly three years later, the cupboard was bare and nearly 300 individuals had suffered appalling losses.
In a 221-page determination the Pensions Ombudsman found the trustees had failed in their duties on multiple counts, including in relation to investment matters, basic scheme governance, and record-keeping.
Comment
As in similar previous cases, this Determination provides a fast track to putting the personal assets of the culpable individuals within reach because a Pensions Ombudsman’s Determination is enforceable in the county court just like a county court order. However, it is far from clear at this stage how much of the £12.6m will be recovered.
Once more, bona fide occupational pension schemes will likely have to step in to support these members, through the mechanism of the Fraud Compensation Fund, despite their having to operate in a regulatory system that enabled fraud to take place.
PPF revisits its valuation assumptions
The Pension Protection Fund is proposing some changes to the assumptions it uses for PPF entry and levy valuations. These changes follow on from recent discussions with seven buyout market participants and are designed to ensure that the assumptions set out by the PPF produce results that are in line with pricing in the bulk buyout market, albeit deliberately erring on the side of understating such pricing.
The main changes are:
- Increasing the discount rates for certain types of benefit to reflect the more competitive pricing seen in the bulk buyout market
- Moving to the latest mortality projections model (CMI 2021) to reflect changes in the buyout market, likely because insurers are making some allowance for the adverse impacts of COVID-19 on life expectancy
- Reducing the allowance for benefit installation and payment expenses, principally to reflect a reduction in annuity rates, whilst recalibrating the scheme wind-up expenses to target the same winding-up expenses as before
In addition, the PPF is proposing adopting a yield curve approach for PPF entry valuations, following feedback from a previous consultation where stakeholders suggested a shift to this approach would be appropriate. This, along with the changes above, is intended to better enable a scheme, whose employer becomes insolvent, see whether it can secure benefits above PPF compensation levels, by giving it an opportunity to test the buyout market. The PPF proposes that, for simplicity of calculation, PPF levy valuations should maintain a single discount rate approach.
The PPF says that the combined impact for almost all schemes will be a reduction in the assessed value of scheme liabilities.
Consultation closes on 20 February 2023 and the PPF intends to introduce the changes for valuations with effective dates on or after 1 April 2023.
Comment
The PPF estimates that, as at 31 October 2022, the aggregate section 179 funding position would increase from 136% to 141.3%, and around 20% of schemes currently in deficit would see a surplus instead. This is good news for schemes, and we expect would further strengthen the PPF’s long term plan to move the levy to a simpler environment with less emphasis on the risk-based levy (see Pensions Bulletin 2022/36).
Royal Assent for the Autumn Finance Bill
The Finance Bill that was introduced following the Autumn Statement back in November (see Pensions Bulletin 2022/43) has received Royal Assent, having completed its passage through Parliament.
The Finance Act 2023 restricts itself to the key tax changes announced by the Chancellor on 17 November 2022. These include, in relation to income tax, the extension, to 5 April 2028, of the freeze on the 20% basic rate limit and personal allowance and the reduction in the threshold above which the 45% additional rate tax is payable.
Separately, the Chancellor has announced that the Spring Budget, to be held on 15 March 2023, will be accompanied by a further forecast by the Office for Budget Responsibility. This Budget will be followed by a further Finance Bill, which amongst other things will provide for the closure of the Office of Tax Simplification, whose demise was announced by the Truss Government in its September 2022 mini-Budget.
