Pensions Bulletin 2020/16

Pensions Regulator issues further Covid-19 guidance

The Pensions Regulator is building up quite a collection of material on its Covid-19 microsite, adding three more documents just before the Bank Holiday weekend.

An update on reporting duties and enforcement activity

This guidance is a useful compendium of material already published on the microsite and some new information. As before, it explains where the Regulator has decided that a more flexible approach to reporting is possible, with such easements remaining in place until 30 June 2020.

The guidance sets out two guiding principles:

• Reporting – if a breach will be rectified within a short time frame (not more than three months) and it does not have a negative impact on savers, there is no need to report – but records of any decisions made and actions taken should be kept
• Enforcement – in making decisions about whether to take regulatory action in respect of breaches of administrative and compliance requirements, the Regulator will operate on a case-by-case basis and adopt a flexible approach – ie granting longer periods to comply and taking Covid-19 into account

The Regulator then goes on to set out 12 areas that are not covered by these guiding principles, or where it would be useful to provide more detail on its approach. The following are new:

• Annual benefit statements – enforcement action may be considered if failures are not clearly attributable to the Covid-19 situation
• Chair’s statements – fines will continue to be imposed for breaches as the legislation does not give the Regulator discretion, but the Regulator will not issue penalty notices before 30 June 2020. The Regulator will also not be reviewing any statements it receives before 30 June 2020 – they will be returned unread and not reviewed
• Charge controls – if the charge cap is exceeded because costs increase temporarily due to Covid-19, this should be reported unless it is not a material breach. The Regulator promises to take a proportionate response to enforcement, where the trustees take all reasonable steps to bring charges back within the cap as swiftly as possible
• Employer-related investment – no reporting relaxation
• Investment governance – no regulatory action is anticipated if reviews of the scheme’s statement of investment principles or statement in relation to any default arrangement are delayed due to Covid-19 reasons, but not beyond 30 June 2020
• Late audited accounts – reporting is only needed before 30 June 2020 if the breach is likely to be materially significant
• Late payment of contributions – reporting is definitely required if an employer contribution is late by 150 days after the due date (extended from the current 90 days backstop). It is not clear whether this easement applies to DB schemes as well as DC arrangements (which are mentioned in separate guidance below)
• Master trusts – no reporting relaxation in respect of triggering and significant events, but informal reporting will be accepted in the first instance
• Notifiable events – no reporting relaxation

Automatic enrolment and pension contributions

This guidance, aimed at employers, is in three parts:

• “Automatic enrolment duties” explains the unchanged operation of auto-enrolment law in the context of the Coronavirus Job Retention Scheme. Although it does not contain any easements there is a promise to take a proportionate and risk-based approach towards enforcement against those who fail to meet their duties
• “Maintaining pension contributions” also does not contain any easements, pointing out instead the obligations to continue to pay contributions, the support provided by the Coronavirus Job Retention Scheme and the possibility of the pension provider being able to offer some flexibility in relation to due dates
• The final section, headed “Coronavirus Job Retention Scheme”, makes clear that whatever employer pension contributions are being paid, the claim under the retention scheme can only be 3% of qualifying earnings, and if contributions are more than the statutory minimum the excess cannot be reclaimed through this scheme. It also covers reducing employer contributions to the statutory minimum in the context of a DC scheme. Such a reduction could engage the Consultation by Employers legislation, which contains a 60-day consultation period. The Regulator says that it will not take regulatory action if there is a failure to consult for the full 60 days and (broadly) the reduction relates only to the employer contribution in respect of furloughed staff and will revert back at the end of the furlough period. This easement will apply until 30 June 2020

Late payment reporting – DC schemes

This short piece of guidance, aimed at providers, explains that the Pensions Regulator is relaxing its expectation, set out in two separate Codes of Practice, that contributions in respect of DC arrangements that are late by 90 days or more have to be reported to the Regulator regardless of the circumstances. The 90 day cut-off is extended to 150 days.

This applies in relation to occupational pension schemes (whether entirely DC or the DC section of a hybrid scheme) and to those personal pension schemes where there are direct payment arrangements set up.

The Codes also mention a 10 working days “reasonable period” for such reporting to take place and a 30 days “reasonable period” from reporting to the Regulator by when members need to be informed. These are not adjusted.

Comment

Having dealt with some urgent issues in the early days of the lockdown, the Regulator is quite rightly moving on to many other issues on which it needs to signal its approach to the pensions industry. We expect to hear more Covid-19 announcements from the Regulator shortly.

More details provided on Coronavirus Job Retention Scheme’s pension aspects

On 9 April the Government updated its guidance for employers and employees on this temporary scheme (see Pensions Bulletin 2020/14). Both said more about eligibility for the scheme, whilst the employer guidance clarified certain matters regarding pension contributions.

In particular, it confirms that grants for employer pension contributions in respect of those on subsidised furlough pay can be claimed up to 3% of an employee’s qualifying earnings (the minimum automatic enrolment employer contribution) on that subsidised furlough pay, provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.

It also made clear that it is not possible to claim for additional pension contributions made if an employer chooses to top up their employee’s salary beyond that covered by the scheme, or any pension contributions made that are above the auto-enrolment mandatory employer contribution.

Separately, HMRC has updated its salary sacrifice guidance to make clear that changes to an individual’s circumstances directly arising as a result of Covid-19 may be regarded as a “lifestyle change” in which it may be necessary to change the terms of a salary sacrifice arrangement.

Comment

These updates by and large reflect earlier posts and as such are a tidying up exercise.

Actuaries reveal Covid-19 influenced mortality worsening

The Institute and Faculty of Actuaries’ Continuous Mortality Investigation is moving from quarterly to weekly monitoring of mortality data during the Covid-19 emergency and its first weekly report makes for disturbing reading.

For the first three months of 2020 cumulative standardised mortality rates in England and Wales were tracking closely with that for 2019 – itself an exceptionally good year when compared with every other year since 2010. But all this is beginning to change when the week ending 3 April 2020 is taken into account. The cumulative mortality now being experienced is heading back to the 2010-19 average with every likelihood that 2020 could turn out to be the worst in the last 10 years and quite possibly longer. The number of deaths in just this one week of 16,387 was 6,112 (59%) greater than expected, with 3,475 having Covid-19 mentioned on the death certificate. It is not clear what else is causing this jump in the number of deaths, although there is speculation that much of it is Covid-19 related.

The 16,387 deaths were also the highest since the Office for National Statistics started publishing weekly data in 2005.

The IFoA goes on to note that as at 14 April there could be over 23,000 more deaths than expected in England & Wales and over 25,000 excess deaths across the UK as a whole.

Comment

Unfortunately, these grim statistics are not a surprise, but it is too early to tell how the pandemic will play out and what influence it and other factors should have when actuaries come to set mortality assumptions for valuing pension liabilities and indeed when next year’s mortality tables are constructed.

Pensions dashboard progress report issued

Shortly before Easter, and as promised (see Pensions Bulletin 2020/09), the Money and Pensions Service published its first full report on the progress made so far on the pensions dashboard project and the work that needs to be undertaken before the service launches to the public.

The report sets out proposed ways forward regarding user testing, sourcing an ID verification service, agreeing data standards and how the programme will work with partners to align regulation and legislation.

However, no launch date is proposed or even intimated. Instead the report notes that pensions dashboards will only be ready when the following requirements have been met:

• The security of the ecosystem is fully assured
• The user experience has been extensively and robustly tested
• User behaviours have been understood and any adverse impacts or unintended consequences mitigated
• The service has enough coverage of pension providers / schemes and enough information about those pensions so that it has been proved to meet a user need and be useful to a significant majority of people

Nevertheless, the report is optimistic that MaPs will be able to set out the shape of a more detailed programme timeline before the end of the year.

Two additional working papers setting out thinking so far on the scope of dashboards and the data elements required from pension providers have also been made available. These are quite detailed, containing in particular a “data pyramid” of the different levels of data needed for the dashboard to operate. The top levels of the pyramid contain the basic data items required to 'find and view' an individual's pension, whilst the lower levels contain more detailed information, to help individuals 'understand' their pension, and enable them to make informed choices.

Schemes (whether DB or DC) will need to provide a future “estimated retirement income”, in today’s money terms, including from when it is payable. They will also need to provide accrued entitlement data. For DB schemes it is intended to be the annual retirement income accrued to date (plus any additional cash lump sum similarly accrued – as found in public sector schemes), whilst for DC schemes it is intended to be the current pot value. Any further data to support additional pension information (such as that relating to contributions, investment funds in which a DC pot is invested, guarantees, dependants’ benefits etc) will not form part of the mandatory data requirements that the Government will legislate to compel schemes to supply.

Industry views will be sought formally on these two data working papers later in the year, although any informal feedback before then would be appreciated.

Regular progress reports will be provided every six months.

Comment

This first report from MaPs, some nine months after its dashboard project director was appointed, reveals once more the complexity and challenges in delivering the dashboard. Whilst it is clearly frustrating that so much time has been lost since the Budget 2016 announcement, the report and its two working papers give grounds for confidence that the project has at long last found a proper home from which it can be delivered. For pension providers it is refreshing to have some insight into the data that they are likely to be compelled to provide to this service, enabling them to start to plan in earnest for its delivery.

Labour pensions spokesmen appointed

Following Sir Keir Starmer’s convincing victory in the Labour party leadership ballot announced on 4 April, the new Shadow Cabinet has been appointed. Jonathan Reynolds takes over from Margaret Greenwood as Shadow Work and Pensions Secretary, whilst Jack Dromey remains Shadow Pensions Minister. Baroness Sherlock and Lord McKenzie continue in their Shadow Spokesperson for Work and Pensions roles in the House of Lords.