- RPI reform delivered but delayed
- Calls for stewardship to be placed at the heart of the agenda to ‘build back better’ post-coronavirus
- GMP equalisation – more complexity and cost
- Deadline for CMA returns draws near
- Royal Assent for the Social Security (Up-rating of Benefits) Act
RPI reform delivered but delayed
On 25 November, immediately following the Chancellor of the Exchequer’s statement in Parliament regarding the Spending Review, the result of the joint consultation carried out by HM Treasury and the UK Statistics Authority earlier this year on reform to the Retail Prices Index methodology (see Pensions Bulletin 2020/11) was published.
As proposed then the Retail Prices Index will be calculated using the same method and data sources as are used for the Consumer Prices Index including owner-occupied housing costs (CPIH). However, the Chancellor has insisted that this does not take place until February 2030.
This important development will have implications for DB pension schemes that provide pension increases linked to the RPI, and these go beyond the benefits that will be paid out to also include transfer values and potentially other member options. A DB scheme’s funding position could be impacted as could its investment strategy. And for scheme sponsors, this announcement may have implications for corporate accounting.
We will be looking at all these issues in a special News Alert to be published shortly.
Comment
This move away from an inflation measure widely judged to be flawed has been nearly a decade in the making and will bring much needed certainty. For trustees, the implications are expected to vary considerably from scheme to scheme. For members with an RPI-linked pension promise, that promise has just become significantly less valuable.
Calls for stewardship to be placed at the heart of the agenda to ‘build back better’ post-coronavirus
On 24 November an HM Treasury-led Asset Management Taskforce published through the Investment Association a report containing 20 recommendations to place stewardship “at the heart of sustainable growth”. This followed a request by John Glen MP, the Economic Secretary to the Treasury, for the Taskforce to bring forward some proposals in this area.
The proposals are intended to assist market participants, such as investment managers and asset owners, expand their stewardship activity across different asset classes, including bonds.
Of the twenty recommendations, three specifically mention pension schemes:
- UK pension schemes should be required to explain how their stewardship policies and activities are in scheme members’ best interests – and to this end the Pensions Regulator should issue related guidance on how trustees might evidence this
- A dedicated Council of UK pension schemes should be established to promote and facilitate high standards of stewardship of pension assets. Members of the Council should either be signatories of the UK Stewardship Code or have publicly committed to signing the Code within two years of joining the Council
- Funded public service schemes (including local authority pension schemes and investment pools), other relevant asset owners in Government and UK Government Investments (who advise the Government on the management of certain assets) should embed stewardship in their own investment processes and become signatories to the UK Stewardship Code
The Investment Association is to now take forward a number of the 20 recommendations and review progress with the Taskforce.
Comment
Although these recommendations are not yet backed by legislation or regulatory guidance, they are likely to drive stewardship standards higher as investment managers are assessed against them by their customers. The continuing interest in stewardship from various government departments and regulators confirms the importance of this topic from a policy perspective. Pension schemes can expect more scrutiny of their own stewardship activities, with encouragement for them to take a more active role in overseeing their investment managers’ practices and engaging with members on stewardship topics.
GMP equalisation – more complexity and cost
On 20 November the High Court added further complexity and cost to DB schemes having to undertake equalisation exercises in respect of GMP inequalities arising in respect of service between 17 May 1990 and 5 April 1997. Justice Morgan ruled that such schemes cannot rely on statutory provisions or other discharges or simply the passage of time if they paid out individual transfers, potentially dating back up to 30 years, that failed to take account of any necessary uplift for GMP inequalities.
For further details see our News Alert.
Comment
For trustees this is an unwelcome but not surprising result. If there is a silver lining to it, at least the judge was not prescriptive in how and when trustees should address this further issue.
Deadline for CMA returns draws near
The second deadline for compliance statements to the Competition and Markets Authority, confirming the extent to which relevant requirements have been met in relation to certain investment consultancy and fiduciary management issues, is now six weeks away.
By 7 January 2021 trustees of occupational pension schemes will need to send to the CMA a statement confirming that they are in compliance with the requirement to set strategic objectives for their investment consultant. If they have contracted with a fiduciary manager, they may also need to report their compliance with CMA’s strictures on competitive tendering for such a service.
By the same date fiduciary managers will have had to submit returns in relation to their fee reporting to their clients, investment consultants and fiduciary managers will have had to submit returns in relation to presenting performance information on recommended investment products to prospective clients, and a firm that offers both investment consultancy and fiduciary management will have had to submit details of how it has separated marketing material from professional advice.
Further details are set out in the CMA’s Final Order (see Pensions Bulletin 2019/23).
Comment
The focus for most trustees will be on the strategic objectives aspect (on which the Pensions Regulator has produced some useful guidance). The compliance statement is a simple affair and is one on which they are most likely to be guided by their investment consultant.
Royal Assent for the Social Security (Up-rating of Benefits) Act
The Social Security (Uprating of Benefits) Act, which with average earnings falling has become necessary to enable a review of the State pension to take place in time for any increase next April, completed its House of Lords’ stages on 17 November and on 23 November received Royal Assent.
Two days later, in a statement to Parliament, Thérèse Coffey, the Secretary of State for Work and Pensions, announced that she had concluded this review and State pensions will increase by 2.5% next April, with the full rate of the new State Pension rising to £179.60 per week.
Comment
The triple lock stays in place for at least one more year.
