- Mansion House – the consultations close
- Audit Reform Bill kicked into the long grass?
- FRC announces more signatories to the Stewardship Code
- FCA issues guidance on pension transfers involving those with vulnerabilities
- Public service schemes – publishing annual benefit statements 2023 to 2025
- Public service pensions – 2020 valuations
- Liz Kendall becomes new shadow Work and Pensions Secretary
Mansion House – the consultations close
The deadline to respond to the welter of consultations issued by the DWP in July 2023 (see Pensions Bulletin 2023/28) has now passed and LCP has responded to all of them.
In relation to the DWP’s consultation on ‘new options’ for DB schemes, we have made the case for a new ‘opt-in’ regime which would provide full protection for member benefits via the PPF, alongside changes to the rules for surplus extraction, and in so doing make more likely trustee willingness to take on more investment risk.
On the call for evidence on pension trustee skills, capability and culture, we have warned that investment opportunities in productive assets can only be maximised if trustees have the right regulatory framework and guidance to support them making decisions to invest in these asset types. To that end we have suggested that a wider review of fiduciary duty could enable trustees to look beyond scheme membership to the members’ best interests over their lifetime and to allow trustees to consider the macro impact of their investment decisions in terms of the energy transition and climate change.
On the proposed multiple default consolidator framework within which the DWP intends to address the small DC pots issue, we continue to believe that the pot follows member model has many advantages over the consolidator model, and that a single consolidator is better than having many consolidators. Nevertheless, we look forward to working with the DWP as details of the proposed framework are worked up.
And finally, on the DWP’s proposal that DC trustees should have a duty to provide decumulation services to members, we are supportive of this, suggesting that such a market should be facilitated by allowing commercial authorised master trusts to offer their services to individuals as well as other schemes and trustees. We are also supportive of the idea of Nest offering decumulation options where trustees are otherwise unable to find competitive terms from commercial providers.
Comment
These are just some of the comments and suggestions we have made in our consultation responses.
The Government intends to respond to all four of these consultations at the Autumn Statement, now set to take place on 22 November 2023. This will be a challenge to meet given the likely volume of responses that need to be examined and discussions that will be necessary before the Government can set out its way ahead on these important issues.
Audit Reform Bill kicked into the long grass?
Reports are emerging that the establishment of the Audit, Reporting and Governance Authority (ARGA) will now be a matter for the Government to be formed after the General Election that must be held by January 2025. It seems that the Audit Reform Bill, necessary to establish ARGA and to deliver on much of the promised overhaul of the UK’s audit and corporate governance regimes, will not be announced in the forthcoming King’s Speech on 7 November 2023, presumably as part of a process of the Government whittling down those Bills that it is prioritising in what could be the last Parliamentary session before the General Election.
Comment
If true, this will come as a blow to the Financial Reporting Council that has spent considerable time and effort getting ready for its transformation to ARGA promised by the Government when, in May 2022, the Government responded to its White Paper on a number of reforms to the UK’s audit and corporate governance regime (see Pensions Bulletin 2022/21). Although some of the reforms can (and are) being delivered under existing powers, the wholesale reform that had been intended (and the changes intended in relation to actuaries) needs fresh powers that were to be set out in the Bill.
FRC announces more signatories to the Stewardship Code
The Financial Reporting Council has announced a further extension to the number of signatories to the latest edition (2020) of its Stewardship Code, with there now being 277 organisations signed up, representing £44.6 trillion assets under management. This includes 189 asset managers, 69 asset owners and 19 service providers.
27 organisations have been added to the signatory list, and 164 organisations successfully renewed their signatory status following the Spring 2023 application window. LCP has been a signatory since the list’s inception in September 2021.
A review of the regulatory framework for effective stewardship, including the operation of the Stewardship Code, is scheduled to take place in the last quarter of 2023 and because of this from October 2023 the FRC will only accept renewal applications.
Comment
The current edition of what is a voluntary Code has a focus that ranges beyond asset managers. It also, importantly, contains a requirement for signatories to report annually on their stewardship activity and its outcomes. This and other aspects are helping to raise expectations as to how money is invested on behalf of UK savers and pensioners. We look forward to participating in the review.
FCA issues guidance on pension transfers involving those with vulnerabilities
The Financial Conduct Authority has published guidance for the advisory firms it regulates covering the situation where those that advise on pension transfers come across clients with characteristics of vulnerability that may impact on the individual’s decision making.
The FCA says that an individual is vulnerable if, due to their personal circumstances, they are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. It goes on to say that everyone is at risk of becoming vulnerable, but the risk is increased by having characteristics of vulnerability, such as being in poor health, having cognitive impairment, having had life events such as new caring responsibilities, having low resilience to cope with financial or emotional shocks and having low capability, such as low knowledge of financial matters or low confidence in managing money, or poor literacy or numeracy skills. The FCA estimates that roughly half of UK adults show one or more characteristics of vulnerability.
The guidance links to the FCA’s new Consumer Duty (see Pensions Bulletin 2023/30), which includes new rules for the treatment of those who are in vulnerable circumstances. Firms should assess their approach to vulnerability for pension transfer cases, ensure that they are meeting the requirements, and take four steps, including encouraging disclosure from the individual where clear signs of vulnerability are seen and to tailor communications appropriately.
The guidance concludes with some thoughts around harm for those in vulnerable circumstances, how such harm can be mitigated, and some example situations where a greater likelihood of good outcomes may arise followed by some example situations where the likelihood of poorer outcomes increases.
Comment
Ensuring that advisory firms deal appropriately with vulnerable individuals has been an issue of focus for the FCA for some while, with this latest guidance taking the more generic guidance published by the FCA in February 2021 and distilling aspects with pension transfers in mind. Whilst this latest guidance doesn’t say anything that is particularly new it is good to see the FCA highlighting this issue to the pension transfer market where there have been many instances in which customers have not been treated fairly.
Public service schemes – publishing annual benefit statements 2023 to 2025
The Pensions Regulator has published guidance for public service pension schemes in relation to their duty to issue annual benefit statements, highlighting that over the next two years such schemes also need to issue remedial service statements for those members affected by the McCloud remedy. Annual benefit statements need to be issued to “relevant” (ie active) members of public service pension schemes by 31 August each year.
Because the annual benefit statement and the remedial statements need to be sent at similar times, the Regulator is concerned that the messages they contain should be clear and so don’t confuse or mislead members.
The Regulator also points out the need to provide annual benefit statements within the statutory timeframe and where this isn’t possible, due to production of remedial service statements or other related McCloud remedy matters, it expects those responsible for the scheme’s governance and administration to consider whether a material breach of the law has occurred, and where it has to report it to the Regulator and record it in the submitted breach of the law report. The Regulator considers the failure to provide scheme members with accurate, complete, or timely annual benefit statements as a material breach of the law.
Public service pensions – 2020 valuations
Following the Government issuing a policy statement in May 2023 (see Pensions Bulletin 2023/20), HM Treasury has published its 2023 Directions and related material regarding the actuarial valuation of public service pension schemes. These Directions replace the 2014 Directions and subsequent amendments, most recently made in 2021, to take account of the reformed cost control mechanism made possible by the Public Service Pensions and Judicial Offices Act 2022 and to ensure that the 2020 valuations of the public service pension schemes can be completed using updated assumptions.
The documents include those relating to consultation with the Government Actuary. The Treasury has a statutory duty to consult the Government Actuary before making the Directions and this process was completed during August 2023.
Comment
This brings to a conclusion the necessary technical material in order that the valuations can be completed.
Liz Kendall becomes new shadow Work and Pensions Secretary
As part of the reshuffle of Labour’s top team, Sir Keir Starmer has appointed Liz Kendall as Shadow Work and Pensions Secretary, replacing Jonathan Ashworth. Matt Rodda remains in post as the Shadow Minister for Pensions.
