Pensions Bulletin 2024/37

Pensions review call for evidence closes

The call for evidence for the first phase of the Government’s pensions review (see Pensions Bulletin 2024/34) closed on 25 September 2024 and was accompanied by a number of parties publicising their responses.

LCP has responded to this call for evidence, urging the Government to “improve the quality of the carrot before bringing in the stick”. In particular, LCP calls on the Government to focus on driving behavioural change across the industry, such as by requiring trustees to assess UK opportunities against global alternatives, before taking investment decisions, and to deliver initiatives that incentivise investment into specific UK sectors.

Of the many other bodies who also responded, we set out below a snapshot of their views about a far more consolidated DC market with the potential for greater investment in UK asset classes.

• The Pension and Lifetime Savings Association says that it is supportive of consolidation, but believes that this by itself will not result in an increase in inward UK investing. The PLSA goes on to set out 12 recommendations for intervention which will lead to higher investment, and in a wider range of assets.
• The Society of Pension Professionals agrees that scale can deliver improved investment but says that there are risks which must be guarded against and that legislation is needed to better facilitate consolidation. Separately, it has published a paper on the productive finance challenge (see article below).
• The Association of Consulting Actuaries says that inefficiencies are created as a result of the current disaggregated model for pensions in the UK, so a future market which avoids duplication and builds scale should benefit members and the economy. However, it is vital that further reforms are undertaken in a joined-up manner, with a clear end goal that fosters confidence and stability.
• The Association of Professional Pension Trustees acknowledges that consolidation allows for greater investment in illiquid assets like infrastructure, but warns of potential downsides to consolidation such as stagnation in the DC market place and the creation of systemic risk, as if one large scheme fails, it could have a disproportionate effect on the entire market.
• The Investing and Savings Alliance focuses on the Government’s desire to increase investment into UK productive finance through consolidation, warning that investment decisions should be reflective of the demographic of the pension scheme and, as a result, any form of compulsion on schemes to drive a percentage of funds to UK productive finance may be inappropriate.
• The Pensions Management Institute’s response welcomes the benefits of consolidation, but expresses concerns regarding potential adverse consequences of significantly reducing the number of DC schemes.

SPP examines the productive finance challenge

The Society of Pensions Professionals has contributed to the “productive finance” debate that is one of the key elements of the first phase of the Government’s pensions review, by publishing a 16-page paper called “Solving the UK investment puzzle”.

The SPP recognises both the political desire for greater UK investment and the valid concerns being raised by some that this could have potentially negative consequences if not carefully implemented. Therefore, the paper provides a detailed analysis of the challenges in ensuring UK pension schemes (whether DC, DB or LGPS) invest more in their domestic market, whilst also exploring a range of options as to how these challenges might best be overcome.

The SPP hopes that its paper proves to be a useful starting point for government and industry to achieve an outcome that best serves the interests of all involved parties – policymakers, the UK economy and savers – as well as feeding into the Government’s pensions review.

Pensions Ombudsman moves to expedited decision-making

The Pensions Ombudsman has provided an update on the progress his office is making with its operating review model (see Pensions Bulletin 2024/21), focussing this time on plans to speed up decision-making by rolling out the use of Expedited Determinations to bring complaints to a close earlier than is currently the case.

Dominic Harris explains that, under this heading, initially the focus will be on complaints assessed as having a clear outcome, which may not require significant correspondence with the parties if all the information needed to make a decision has already been supplied. In these situations, an initial decision will be issued to all parties setting out the caseworker’s view, which will then lead to a final and binding Determination if all parties agree.

If any party doesn’t agree, they can ask for the matter to be referred to an Ombudsman, who will issue a final and binding Determination if they agree with the caseworker’s view.

Mr Harris says that this approach will reduce duplication in his office’s processes and provide shorter Determinations similar to summary judgments used by the courts. He also says that in many cases, it will reduce the waiting time for such cases by up to 18 months. This in turn will allow his office to focus its adjudication resource on the complex cases that require more in-depth investigation.

Following a successful pilot that took place over the summer, “expedited decision-making” is to be rolled out very shortly.

Pensions Regulator provides update on Contribution Notice case

On 30 September 2024 the Pensions Regulator announced that on 18 August 2023 it had issued a £1.8m Contribution Notice to Mr Anant Shah in respect of his involvement with the Meghraj group of companies which entered a creditor’s voluntary liquidation in October 2014 leaving the Meghraj Group Pension Scheme with a buyout deficit of around £5.85m at that point. This follows the upholding by the Upper Tribunal of this Contribution Notice decision in July 2023 on which the Regulator had previously reported (see Pensions Bulletin 2023/31). At the current time the Pension Protection Fund and scheme trustees are pursuing Mr Anant Shah for payment. However, he appears to be bankrupt. The Regulator’s actions were under its pre-Pensions Act 2021 powers.

The Regulator has also published a regulatory intervention report setting out further details of its investigation into the scheme. The Regulator says that this was the first substantive case heard at the Upper Tribunal regarding the Regulator’s Contribution Notice powers and provided clarity as to how Contribution Notice sums should be calculated. In particular, it points out the following:

• If material detriment is found, what is reasonable as the Contribution Notice amount is constrained only by amount of the section 75 debt. There is no further constraint based on the need to show loss, and the extent of that loss, and no need to consider whether, and the extent to which, the act or failure to act has prejudiced the recoverability of all or any part of the section 75 debt.
• While a target’s financial circumstances are an important factor in determining whether it would be reasonable to issue a Contribution Notice against them, it is not the only factor to be taken into account. The Upper Tribunal may decide not to place significant weight on a target’s financial circumstances if they do not make full and frank disclosure of their current finances and the circumstances that have led to that current position.
• The amount that the Upper Tribunal considers it reasonable for a target to pay can be uplifted to reflect the passage of time since the acts and/or failures to act occurred. In this case, the uplift was calculated by reference to historic scheme investment return data.