MPs blow the dust off collective defined contribution schemes
Somewhat out of the blue, the Work and Pensions Committee has launched an inquiry into the pros and cons of collective defined contribution (CDC) schemes – a money purchase vehicle in which pension pots are in effect pooled with the intention of the scheme being able to deliver a much more predictable retirement income than pure DC.
Such schemes would need special legislation in order to work in the UK – something which the Coalition Government started to deliver through the Pension Schemes Act 2015, but which the subsequent Conservative Government then brought to a halt by deciding not to develop the necessary regulations (see Pensions Bulletin 2015/45).
The MPs are asking for evidence from any interested parties on resurrecting CDC, asking in particular whether it would be a good idea for seriously underfunded DB schemes to be converted to CDC and whether CDC schemes would have a clearer view towards investing for the long term than pure DC and so, for example, be willing participants in the “patient capital” funds mentioned in last week’s Budget.
The deadline for submissions is 8 January 2017.
Comment
When CDC schemes have been discussed in recent years they have generally been warmly received. Employees and the Government like the better expected outcomes compared to DC schemes, whilst employers like the fixed contributions but are nervous about “legislation creep” turning benefits into guarantees in the future.
Since Steve Webb left office CDCs have lacked an obvious champion with the will and the power to drive forward the necessary changes. If the Government is keen enough to introduce CDC schemes to provide more “patient capital”, allowing severely underfunded DB schemes to convert those benefits into CDC form would make many employers sit up and listen.
GDPR – less than six months to go
The General Data Protection Regulation (GDPR) comes into force in less than six months (25 May 2018) and will radically change data protection laws across the EU (including the UK, regardless of Brexit). The GDPR will affect virtually every individual, business and entity across the EU and this includes trustees and managers of pension schemes. By now trustees should have received legal advice about what they need to do to ensure compliance and have a project plan in place to achieve this.
The key aspects of such a plan for trustees are likely to be:
- Carrying out a “data mapping” exercise to establish who has access to and uses the scheme’s data – this could be more parties than is immediately obvious
- Reviewing contracts held with service providers. Within the pensions arena trustees are likely to find that many of the better service providers will already have prepared updated GDPR-compliant contracts that trustees should be able to review and sign with little additional modification
- Reviewing the basis on which member data is held and, instead of relying on member consent maybe finding alternative justification for processing the data such as the legitimate interest of running the pension scheme
However, these are just a few points of what should be a much bigger project plan.
Within the UK domestic sphere, the Information Commissioner’s Office has produced a general guide to the GDPR, but so far nothing specific for pension schemes and trustees has appeared. We hope something will appear in plenty of time before May.
Comment
The aims of the GDPR are commendable as it attempts to update data protection law for a world where social media, big data and constant global connectivity are the norm. However, the scale of the compliance task should not be underestimated and, with legal advice, trustees need to be taking action now.
The UK Government has stated that it will effectively transpose the GDPR into UK domestic law after Brexit in order to maintain the stability of data transfers between the EU and the UK after Brexit, so trustees should not hope that by waiting the issue will go away.
Financial Guidance and Claims Bill reaches the Commons
The Financial Guidance and Claims Bill, which will establish a single financial guidance body to replace the Money Advice Service, the Pensions Advisory Service and Pension Wise, has now reached the House of Commons.
The Bill started in the House of Lords in June (see Pensions Bulletin 2017/27) and, in a late amendment there, now requires the single financial guidance body to advise the Secretary of State for Work and Pensions if it believes a ban on cold-calling on any products or services (such as certain types of pension) would be beneficial.
Despite what sounds like quite a major upheaval the transitional costs of implementing the new financial guidance provider are expected to be just £4.5million (excluding digital transition and redundancy costs).
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.
