UK pensions law update – October 2022

The corporate plan highlights the strategic priorities and outcomes of TPR in the coming two years, which include, among other things:

• Pension scams: TPR has developed its revised Pension Scams Strategy, taking into account of the experience TPR has in tackling pension scams to date and the impact it has had. This is expected to be published during 2022.

• Collective money purchase schemes (CMP Schemes): TPR would be ready to accept any CMP Schemes applications from 1 August 2022.

• Value for Money: TPR will continue to work with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) closely for further consultation later this year on the Value for Money framework.

• Pensions Dashboards: TPR will launch a programme to educate schemes on the steps they need to take to meet their statutory duties, and the data they need to prepare. This will include guidance on TPR’s website, industry engagement, and one-to-one communications to each scheme at least 12 months ahead of their deadline to connect to dashboards.

• DB funding: TPR plans to launch its second consultation on a new defined benefit (DB) funding code this autumn, and anticipates that the new code will be in force from September 2023.

• Notifiable events regime: TPR will be implementing changes to the notifiable events regime, with the aim of reinforcing it as an early warning system. TPR notes that “timing is yet to be confirmed but they will become operational in due course”.

Comment

TPR’s corporate plan provides helpful indicative timeframes for the introduction of forthcoming regulation impacting schemes and employers.

Draft Pensions Dashboards Regulations 2022: (i) Government issues response to consultation, and (ii) DWP publishes summary of key policies

The draft Pensions Dashboards Regulations 2022 set out requirements for pension schemes and qualifying providers of pensions dashboards once the statutory framework comes into force. TPR will have the power to issue compliance and penalty notices for non-compliance, and it may issue fines of up to £5,000 for individuals and £50,000 for corporates in respect of a failure or contravention. Importantly, TPR may issue more than one penalty notice to a person for multiple failures or contraventions.

In July 2022, the DWP issued both their consultation response and their summary of the key policies which underpin the draft regulations. A revised draft of the regulations is not yet available, so the DWP’s summary provides a helpful guide to its direction of travel. The DWP has decided to make a number of changes to the draft regulations, including to push back the staging deadlines for the very largest schemes with over 20,000 members by two months. In response to concerns expressed about the proportionality of the fines, the DWP has confirmed that it does not intend to make any changes to the draft provisions which it regards as appropriate and proportionate.

The final regulations are due to be published in autumn 2022.

Guidance: (i) TPR publishes new guidance as part of its “deadline” campaign, (ii) PASA publishes dashboards data accuracy guidance, and (iii) PDP publishes several draft standards and guidance notes for consultation

TPR’s “deadline” campaign aims to ensure trustees “act now” in time for the introduction of pension dashboards in 2023. TPR’s latest guidance includes a checklist for schemes preparing for implementation and information on a range of issues including: (1) working with scheme advisers (including software providers), (2) the practical process for connecting people to the “digital architecture”, (3) ensuring members are linked to the correct pension, and (4) preparing for “find and view” requests.

The Pensions Administration Standards Association (“PASA”) has again urged trustees to take action to ensure that their schemes hold accurate and validated data, and in July 2022 PASA published their latest “Dashboard Accuracy Data Guidance”. At a minimum to allow the pensions dashboards enquiries to operate, schemes have been urged to ensure that they hold the following accurate information for all members: name, date of birth, and national insurance number. Schemes should ensure data validation forms part of their Data Management Plans, however, PASA has gone further stressing the importance of more regular and efficient processes to confirm changeable data (e.g. members’ addresses, surnames and forenames, and members’ existence) and to identify member duplication. In addition to a list of example data sources which can be used to validate member information, the guidance provides tangible recommendations for trustees to ensure data accuracy including:

1. regarding members’ addresses, using GAIN information (a ‘gone away’ address database) and Credit Reference Agency Data; and

2. regarding members’ existence, using the Government disclosure of death registration information.

PASA published further guidance in August 2022 including Pensions Values Guidance and an update to their Data Matching Convention Guidance.

On 19 July 2022, the Pensions Dashboard Programme (“PDP”) published the following draft standards and guidance notes for consultation: (1) Data Standards, (2) Technical Standards, (3) Code of Connection, (4) Reporting Standards, (5) Early Connection Guidance, and (6) Approach to Governance Standards. The proposed PDP standards set out technical and operational details behind the law and explain what all pension providers and dashboards need to do to connect to the dashboard ‘ecosystem’. The standards have been designed to complement the regulatory framework of the FCA and once finalised all pension providers and qualifying pensions dashboard services will be required to adhere to these standards. The consultation closed on 30 August 2022.

Pensions Dashboards (Prohibition of Indemnification) Bill

Section 256 of the Pensions Act 2004 currently prohibits trustees and managers paying for certain fines and civil penalties out of scheme assets – with prison sentences of up to two years in the case of default. This Private Members’ Bill would amend Section 256 to expand the prohibition to include civil penalties imposed in relation to breaches of the pensions dashboard legislation. The Pensions Minister has indicated that the Government would support the Bill as an important and logical amendment.

Comment

We agree with TPR’s assessment that trustees should “act now” and that a large amount of preparatory work will be required. We would urge trustees, along with their administrators, to consider (1) what their likely staging date will be, (2) the quality of scheme data, including how much of it has been digitised and how accurate it is, and (3) what work they might need to do to both get ready and to stay compliant.

On 30 March 2022, the DWP published its further consultation on facilitating investment in illiquid assets by DC schemes. This consultation follows the FCA’s finalisation of the rules for the Long Term Asset Fund (LTAF), which are designed to encourage efficient investments in long-term illiquid assets. The DWP's overall goal of encouraging increased investment in illiquid assets by DC schemes remains unchanged, and it now proposes (i) that it would give principles-based advice on performance fees (rather than legislate as to what performance fee structures are, and are not, permissible) and (ii) to compel DC schemes to disclose and explain their approach to illiquid investment. Furthermore, for larger authorised master trusts, the DWP is consulting on proposals to relax employer-related investment restrictions. The consultation closed on 11 May 2022.

Comment

We welcome the DWP’s move away from its previous proposals to codify what performance fees are, and are not, permissible – as it seems more appropriate to let pension scheme trustees decide what is acceptable in the context of their membership. Simmons & Simmons continues to be actively represented on HMT/DWP working group on the LTAF and we shall provide further updates.

The Regulations require trustees of larger occupational pension schemes (with relevant assets of over £1bn or more), authorised master trusts, and authorised schemes providing collective money purchase benefits to calculate and report a portfolio alignment metric for the scheme’s assets, setting out the extent to which their investments are aligned with the goal of the Paris Agreement to limit the global average temperature increase to 1.5 degrees Celsius above pre-industrial levels.

Comment

Trustees of schemes which are within the scope of the Regulations will need to ensure that they are ready ahead of 1 October 2022 when the Regulations come into force.