- MPs lambast State pension payment failings
- What’s on the Regulator’s agenda
- Pensions Regulator launches consultation on CDC Code of Practice
- Climate change regulations finalised
MPs lambast State pension payment failings
The DWP’s underpayment of state pensions (see Pensions Bulletin 2021/18) has been described as a shameful shambles by Parliament’s Public Accounts Committee in a report published on 21 January. The DWP itself estimates that it has underpaid 134,000 pensioners, mostly women, over £1bn of their state pension entitlement, with some errors dating as far back as 1985. It also seems that the DWP does not expect to trace over 15,000 of the affected pensioners or their next of kin where the pensioner is deceased.
The MPs’ report highlights the DWP’s use of outdated systems and heavy reliance on manual processing, coupled, in the report’s view, with complacency in monitoring errors and a quality assurance framework that is not fit for purpose. The report also highlights:
- The administrative cost of trying to put things right and the risk of mistakes being made during the correction exercise
- Delays and potential for errors in putting new State Pension entitlements into payment due to experienced staff having been moved away from “business-as usual” applications to work on the corrections
In response to concerns expressed by LCP Partner Steve Webb that the exercise should be extended to include divorced women, the report says that the DWP should write to the Committee to explain how it has assessed the risk of systemic underpayments to these women.
Comment
This is, it seems, the ninth such exercise to correct errors in state pension payments since 2018 and the Committee’s report is rightly highly critical of the various failings in the DWP’s processes for addressing underpayments and communicating what people who have been underpaid need to do next and of the likely knock on effect of moving experienced staff to work on the correction exercise. There are still far too many people missing out on the state pension to which they are entitled and the DWP needs to track them all down as a matter of urgency.
What’s on the Regulator’s agenda
The start of 2022 presents an opportunity to look forward to what the new year will bring to workplace pensions – so says Charles Counsell, Chief Executive at the Pensions Regulator in his blog entitled “Protecting savers in 2022: disrupting crime, managing climate risk and embracing diversity”.
The blog reiterates that the Regulator’s focus will continue to evolve from a scheme-based view to one that puts the saver at the heart of all they do, before addressing eight topics including the following:
- Pension scams – trustees should take a “decisive and common-sense approach” to the new regulations for halting suspicious transfers and there should be increased reporting of suspected scams, with every administrator, trustee and provider to take responsibility for protecting savers by joining the nearly 400 schemes that have already signed up to the Regulator-instigated pledge to combat pension scams
- New criminal powers – “it should now be crystal clear to all” that the Regulator doesn’t intend to prosecute behaviour that it considers to be ordinary commercial activity. The Regulator will “investigate and prosecute the most serious examples of intentional or reckless conduct” and will not “overstretch the intent and purpose behind the powers”
- Value for money – the Regulator is “committed to moving quickly on developing a common framework which will enable trustees and independent governance committees to compare costs and charges, investment performance and service standards”
- Climate change – the Regulator wants trustees to continue to build their capability around climate-related risks and ESG and “will be monitoring decision-making to ensure it stands up to scrutiny”. So far, “too few schemes are integrating climate change into their decision making, which means investment performance and savers could suffer”
The other four topics are: progressing the DB code; the intended launch of the single Code in the summer; CDC schemes (see article below) and; tackling barriers to diversity and inclusion across the pensions industry.
Comment
It is always useful to see what the Regulator intends to focus on for the year ahead and this blog delivers on this, although much of its contents are of no surprise.
Pensions Regulator launches consultation on CDC Code of Practice
The promised consultation by the Pensions Regulator on its draft code of practice for the authorisation and supervision of collective defined contribution schemes has now been launched.
The draft Code outlines the Regulator’s criteria, expectations and procedures that it expects to follow when determining whether or not it will grant authorisation to a potential CDC scheme. Its contents inevitably build on the detailed legislation which was settled in December (see Pensions Bulletin 2021/53), with the draft Code containing many tabulated “matters more likely to satisfy TPR” set out under numerous headings under which authorisation has to be assessed. Of particular interest are the following:
- What has to go into a Costs, Assets and Liquidity Plan – which gives key financial information to help the Regulator assess whether the scheme will be financially sustainable before and after a triggering event. Amongst other things the Regulator sets out the “haircuts” that must be applied to scheme assets for the purpose of assessing a scheme’s financial reserves
- How the Regulator will determine whether a scheme has a “sound scheme design” – this includes assessing whether the contents of the scheme actuary’s viability certificate are sufficiently comprehensive, their conclusions are justified, and the information provided about testing or modelling is sufficiently comprehensive
The section on supervision is much smaller than that on authorisation, with it setting out firstly the reporting of significant events (whose purpose is to enable the Regulator to determine whether the scheme continues to meet the authorisation criteria) and secondly, what has to happen after triggering events.
The draft Code is only seeking to cover single employer and connected multi-employer CDC schemes – those that are allowed by the December regulations. It also repeats the requirements from those regulations that a single section of a CDC scheme can only have one accrual rate/amount, one contribution rate/amount and a single normal pension age. Those restrictions will need to be lifted before a wider range of CDC schemes can be put in place.
The Regulator promises to revisit the Code, in due course, to expand on its expectations for the closure or wind up of a scheme. It will also be producing “accompanying guidance”, although it is not clear what this will have to add to the extensive draft Code.
Consultation on the draft Code closes on 22 March 2022 and it is intended that trustees will be able to apply for authorisation to operate a CDC scheme (a process that can take a maximum of six months) from August 2022.
Comment
Just as with the Regulator’s Code supporting the authorisation of DC master trusts, this draft Code sets out high and detailed expectations of trustees wishing to put forward a CDC scheme for authorisation. All this is to be expected.
The proposed Code provides much-needed clarity on what it takes to gain authorisation for the likely few schemes that will apply under the DWP’s settled regulations. However, it will need adjusting should the DWP move on to consider and facilitate through regulations other CDC designs and providers.
Climate change regulations finalised
The regulations requiring the largest UK companies and financial institutions to disclose climate-related financial information in their strategic reports have been laid before Parliament in their final form.
The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31) are identical to the drafts that were presented to Parliament in October 2021 (see Pensions Bulletin 2021/46 for details) and apply in relation to accounting periods starting on or after 6 April 2022.
Similar regulations in respect of Limited Liability Partnerships have also been made. Non-mandatory guidance to support affected companies in their disclosures is expected shortly.
