News Alert 2022/01
At a glance
The Government has laid before Parliament extensive regulations that amongst other things, set out what occupational pension schemes must do to connect with and supply information to pensions dashboards and by when they must do these things. Nearly all mainstream UK pension schemes must now ensure that they are ready for the challenge that these requirements will bring.
This News Alert summarises and comments on these regulations and replaces the News Alert issued when the draft regulations were issued for consultation in January 2022.
Key Actions
Trustees
- Establish a dashboard readiness working party (if not already done so) and charge it with drawing up a plan of action to ensure that all necessary systems and processes are in place by the time the scheme is required to connect with and supply information to the dashboards ecosystem, including dealing with member queries that will inevitably arise once the ecosystem is live
- Assess what data will need to be supplied, from where it will be obtained, the quality of such data, how it will be ‘digitised’, and any calculation processes that will be needed
- For DB schemes, consider whether administration systems currently support the default approach to deferred pensioner revaluation and, if not, whether the simplified approach can be used
- Consider whether to use a third party to interface with the dashboard or connect directly
- Consider the best approach to matching scheme data with a find request
Scheme administrators
- Ensure that all data needed either directly or to support calculations for the dashboard has been suitably cleansed
- Schedule development time for any changes to administration processes necessary to support find requests. Pay particular attention to the timescales for providing value data
- Schedule development time for any changes to calculation routines necessary to provide value data, in particular for deferred members of DB schemes
The Detail
On 17 October 2022 the Department for Work and Pensions laid the finalised pensions dashboard regulations before Parliament. The regulations first appeared in draft form in January 2022 for consultation, with the Government responding to that consultation in July 2022 (see Pensions Bulletin 2022/28 for details of the main changes). However, it is only now that we have seen the regulations in their finalised form.
The regulations cover three areas:
- Requirements of those occupational pension schemes within scope (see below) in relation to cooperating with and connecting to the dashboards ecosystem and the information they must provide to individuals via it
- Provisions for the Pensions Regulator to take enforcement action in relation to pension schemes that do not comply
- Requirements to be met by other providers of pensions dashboards services in order to be “qualifying pensions dashboards services”
The regulations are lengthy and complex and as such, this News Alert highlights just a few key areas.
The Pensions Dashboard Regulations 2022 will apply to all registrable UK-based occupational pension schemes (other than stakeholder schemes) including public service pension schemes in relation to their active and deferred members. However, for schemes with less than 100 such members, they only apply where they are permitted to connect on a voluntary basis. There are also easements for schemes in PPF assessment or those that are winding up.
The regulations have been presented to Parliament in draft form, which means that both Houses will need to approve their contents before they pass into law.
Data – to include potential retirement income
Pensions dashboards not only enable individuals to “find” the existence of pension entitlements; they also allow them to "view" the potential retirement income from each of their pensions through the return of “value data”.
This value data is set out in the regulations and is outlined below:
- For money purchase schemes – the current pot value, and from 1 October 2023, once a pension illustration has been given, the following (using the methodology set out by the Financial Reporting Council which will apply from then – see Pensions Bulletin 2022/37): the annualised income from that current pot value; the projected pot value; and the projected annualised income from such rights
- For non-money purchase schemes – for active members the pension that would be payable if pensionable service had ended on the illustration date, along with what they would receive should they continue in service until their retirement date but assuming no increase in their salary. For deferred members the deferred pension on leaving service revalued in line with scheme rules to the illustration date should be returned. However, the regulations allow, subject to certain conditions, a simplified approach to be used, the precise details of which can be determined by the scheme. The conditions are that it can only be used for the first two years after a scheme has connected, that it would be disproportionate or take too long to provide a value calculated strictly within the scheme rules, and that the trustees are content that this simplified value is an appropriate representation of the actual value.
The required value data for cash balance and collective money purchase benefit types is also set out.
For all scheme types it will be sufficient to return values from statements provided to the member within the last 13 months (even if the values in that statement were calculated more than 13 months ago) or from calculations performed for the member within the last twelve months. In these circumstances the value data must be returned “immediately”. Where such a value is not available, the regulations require schemes providing money purchase benefits only to provide it within 3 working days – all other cases have 10 working days (this includes hybrid benefits but only where a non-money purchase calculation is required).
On matching, the regulations are silent on the actual data that trustees should use to match a find request from an individual. However, they require that trustees have regard to any guidance from the DWP or the Pensions Regulator on matching and keep a record of the criteria that they decide to use for at least six years from the end of the scheme year in which the decision is taken.
Our viewpoint
There are several challenges to providing “value data” both for non-money purchase and other schemes. For non-money purchase the biggest challenge is likely to be in relation to ‘revalued to date’ income illustrations for deferred pensioners. Many such schemes will have last sent a benefit statement when the member left pensionable service – potentially decades ago – which simply set out what the deferred pension was on leaving. The data may simply not be readily available to provide revaluation updates in response to find requests. For other schemes there will be questions about whether a benefit statement value produced up to 12 months ago is still relevant, and where such a value is not available, the 3 working day turnaround is likely to be challenging, at least initially until administrators have developed efficient systems to provide this data.
Staging
Schemes will be required to connect to the dashboard in a staged manner with the largest schemes going first. The DWP proposes three staging cohorts – large schemes (1,000 + members: April 2023 – September 2024), then medium schemes (100 to 999 members: October 2024 – October 2025), followed by small and micro schemes (expected from 2026, but not covered by the regulations). MaPS will give every scheme a window for connecting and once connected, a scheme should be able to respond to ‘find and view’ requests.
However, in a change from MaPs’ Call for Input in May 2021 (see Pensions Bulletin 2021/23) the definition of a member for staging purposes now excludes pensioners and therefore schemes with large pensioner but small active/deferred populations may find they have more time before they are staged.
Exceptionally, schemes will be able to ask the Secretary of State to defer their staging deadline by up to one year. Guidance on the deferral process is promised but the regulations require that any request for deferral must be made within twelve months of the regulations coming into force.
The consultation notes that public service pension schemes represent nearly 20% of all active and deferred memberships in scope for dashboards and so the Government wants these schemes to stage as early as possible despite the challenges associated with implementing the McCloud remedy (see Pensions Bulletin 2021/06). The regulations set the staging date as 30 April 2024 for all public sector schemes.
The Government is also committed to making State Pension data available via dashboards “from day one”.
Our viewpoint
These staging dates are ambitious given the complications faced by public sector schemes and that schemes need to be fully up and running with their dashboard responsibilities before they can stage. There may well be push back in the consultation responses, but the Government will be reluctant to allow any further delay to a project first announced in the 2016 Budget. Right now, schemes will need to assume that they will be required to stage at the date set out in the regulations.
Compliance and enforcement
The Pensions Regulator is given extensive powers to ensure that trustees and third parties comply with the regulations. These include the ability to issue compliance notices to either party for any instance of non-compliance, penalty notices of up to £5,000 to individuals and up to £50,000 in other cases for any instance of non-compliance. The Regulator will also have the ability to issue compliance and penalty notices in respect of individual contraventions of the regulations. Thankfully, all such enforcement action is to be at the Regulator’s discretion.
It appears that the primary mechanism for establishing whether there have been compliance failures is through the digital architecture being built by MaPS. Schemes will also be required to submit certain management information.
Our viewpoint
It is not yet clear what the Regulator’s stance will be on compliance failures. In the past there has been a certain amount of forgiveness as new regulatory responsibilities have had to be shouldered by schemes, with the Regulator operating an ‘education, enable' and only lastly, ‘enforce’ policy. This time round schemes may need to brace themselves for a harder line should they not be able to stage in time or fail to respond accurately and appropriately to find requests.
Qualifying pensions dashboard services
It is anticipated that a number of entities will wish to provide their own pensions dashboard and will seek FCA authorisation in order to do so. They will need to meet certain requirements, including having to operate within the ecosystem being built by MaPS and to adhere to design standards set down by MaPs relating to how data is displayed. The regulations start to spell out what will be required of these providers.
Closure date and other consultations to come
Consultation on the DWP’s regulations closes on 13 March 2022 and ahead of that a number of DWP-hosted webinars have been arranged. The DWP intends to lay the regulations before Parliament in autumn 2022.
Other consultations will follow including the following:
- The Pensions Regulator’s compliance and enforcement policy – to be consulted on once the DWP regulations have been laid before Parliament
- The FCA’s rules outlining requirements for FCA-regulated pension providers in respect of personal and stakeholder pension schemes – to be consulted on shortly
- The FCA’s rules that will govern qualifying pensions dashboard services – to be consulted on in summer 2022
- Various technical standards to be published, mainly by MaPS – with the first suite likely to be consulted on during summer 2022. These will likely cover Connection and Security, Technical, Service and Operational, Reporting, Design and Data, and Pension Identifier standards. The aim is to publish in final as soon as possible after the DWP regulations are approved
- Pensions Regulator guidance for occupational pension schemes, including steps to take to prepare, and matching
- Changes to AS TM1 – with the Financial Reporting Council consulting on this in the first quarter of 2022, with a view to finalising by October 2022 and coming into force on 1 October 2023
So, the DWP regulations are just the start of the regulatory journey with those involved in dashboard implementation projects needing to keep an eye out for the material above.
Our viewpoint
This consultation lays bare the challenge to nearly all UK occupational pension schemes to connect with and supply highly individualised information to their members via pension dashboard services. The Government acknowledges that its proposals are ambitious, but it is now confident that it has the support of pension savers, the pensions industry and politicians. Therefore, it is now putting the need to make a success of this venture firmly in the hands of trustees, their delegates and advisers. We expect the parallel FCA consultation to come in the contract space to lay down the same challenge. It is now time for all affected UK pension schemes to rise to this unique challenge, even if the consultation process results in some easements or there is some adjustment to timings further down the line.
This News Alert does not constitute advice, nor should it be taken as an authoritative statement of the law. If you would like any assistance or further information on the issues raised, please contact the partner who normally advises you at LCP via telephone on +44 (0)20 7439 2266 or by email to enquiries@lcp.uk.com.