This Pensions Bulletin is being issued ahead of today’s Budget. A Budget Bulletin special will be published on Thursday.
Pensions Regulator reports a year of significant progress set against unprecedented change
The Pensions Regulator reports that it has been exceptionally busy in 2014/15 and, despite a year of “unprecedented change”, has continued to deliver strongly against its objectives.
This headline comment from its new Chief Executive, Lesley Titcomb, is set out in its annual report that also reveals that the Regulator has spent about £60m this year, compared to about £54m last year. The year of “unprecedented change” relates, of course, to the unexpected arrival of “freedom and choice”.
In relation to the Regulator’s ongoing work, some notable successes have been in the moral hazard area – with the MG Rover (see Pensions Bulletin 2014/45), Lehman (see Pensions Bulletin 2014/34) and Carrington Wire (see Pensions Bulletin 2015/24) cases being cited.
Other key areas of activity include its ongoing work to assist smaller employers comply with their auto-enrolment duties and the production of new codes and regulatory guidance on DB funding and public service pensions, along with work on the DC governance standards and the implementation of the new freedoms at retirement.
Pensions Ombudsman reports increase in investigations fuelled by pension liberation concerns
The Pensions Ombudsman Service reports a time of “all change” at the top, with the key personnel having all changed, accompanied by a “steady increase in the number of complaints” in 2014/15 with the prospect of more to come with increased public awareness of issues such as pension flexibility, auto-enrolment and should a secondary annuity market develop.
Highlights of this year’s report include a 21% increase in the number of new investigations – 22% more than expected – fuelled by 177 complaints concerning alleged pension liberation. Furthermore, only 970 investigations were completed compared to 1,115 in 2013/14, with the Ombudsman expressing concern on his ability to reduce the backlog given an unchanging headcount.
Performance metrics are mixed, with response times to enquiries, decisions on whether to investigate and completion of investigations coming in within target but other measures relating to the number of investigations remaining open falling short.
Comment
It is not surprising that the new Ombudsman faces a big challenge in relation to pension liberation complaints. Whether these can now be expedited given the detailed analysis and reasoning he and his predecessor have developed in recent months remains to be seen.
Pension liberation – Ombudsman again upholds provider’s decision for refusing to pay out
Following on from what is now quite a well-developed corpus about transfers to suspect pension vehicles (see for example Pensions Bulletin 2015/19), the Pensions Ombudsman has published another determination rejecting a complaint from a member of a personal pension scheme against the provider’s decision to refuse to pay a transfer to a scheme that had raised a number of red flags.
The particulars are quite well-trodden. The provider (Royal London) refused to pay out because the recipient scheme – a specially created one-person “SSAS” for the receipt of a transfer value of about £8,000 – was such that they could not satisfy themselves that the payment would be used for the purposes of providing appropriate pension benefits under a registered pension scheme. Upon review Royal London stuck to their guns about refusing to pay out, pointing out (erroneously as it turned out) that their fiduciary duty to the member overrode a statutory right to a transfer.
The member then complained to the Ombudsman, but he rejected her complaint on the grounds that there was no statutory right to a transfer because she was not an “earner” under the scheme’s rules. However, the Ombudsman did point out that Royal London should have explained the reasoning behind their decision clearly to the member.
Comment
A quite clear line seems to have been established such that if there is no employment relationship between the member and the suspect scheme or if the member has no earnings from the employment then the member probably doesn’t have a legal right to transfer and the request can, and probably should, be declined.
It is worth noting though that the recent Ombudsman determinations in this area have concerned contract-based personal pension schemes. We still await something definitive from the Ombudsman about what trust-based occupational schemes should do when faced with this sort of request.
Pensions Regulator publishes quick guide to its DB funding code for employers
A new guide to help employers understand how the code of practice on funding defined benefits applies to them has been published by the Pensions Regulator. It is accompanied by a short video that discusses its main messages.
The three-page quick guide explains how employers should work with trustees in an open, collaborative and transparent manner, understanding the long-term plans for the business and the pension scheme and managing the associated risks accordingly. It also highlights the need for trustees to manage risk when setting investment and funding strategies which reflect both the employers’ appetite for risk and ability to fund the scheme now and in the future.
FCA and Pensions Regulator start work on evaluating barriers to exercising DC pension freedoms
Following the Chancellor’s announcement on 17 June of a consultation on excessive early exit penalties and making the process for transferring pensions smoother (see Pensions Bulletin 2015/26), the Financial Conduct Authority has written to all DC pension and retirement income providers operating under its remit to request information about five areas relating to when consumers seek to access their pension savings. These include advice requirements, transfer procedures and exit charges.
For its part, the Pensions Regulator has commenced work on a survey of the prevalence of exit fees and charges and the transfer process in occupational DC pension schemes. A representative sample of schemes will be included in this survey.
Both are intended to inform the Government’s forthcoming consultation which follows the many concerns raised in the media about cases where people had been prevented from accessing the flexibilities they had expected.
Comment
As we have previously observed, many of the barriers are of the Government’s own making so it will be interesting to see what the two main pension regulatory agencies come up with in support of the idea that the “problems” are the result of the pension providers’ feet of clay and what the Government’s position will be if the answer is “not much”.
FCA increases its oversight of the DC pension landscape
The Financial Conduct Authority has published an update on the work being undertaken to fulfil its regulatory oversight responsibilities now that the new pension flexibilities have been in force for three months. The FCA states that the recent changes to the pension landscape have led them “to significantly increase the resources we are devoting to developing pensions policy, monitoring market developments, and supervising firms that are active in this market” with a view to ensuring consumers are appropriately protected and that there is effective competition in this market. Also provided is an update of market activities over the last three months, and signposts to the Retirement Income Market Study published earlier this year and its latest “ScamSmart” anti-fraud campaign.
Comment
It is not surprising to see the FCA devote additional resources to its DC oversight role. Speculatively, we wonder whether the time is coming for the Pensions Regulator, or at least aspects of its current role, to be merged into the FCA. It is increasingly hard to see the rationale for having two supervisors supervising the same workplace pension space.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
