Trustee Quarterly Update - March 2022

Consultation on pensions dashboards regulations

The Government is consulting on regulations to implement the introduction of pensions dashboards.  The consultation runs until 13 March 2022.

Background

Pensions dashboards will be online platforms for individuals to access information about all their pension schemes in one place.  The information will include accrued and projected values of the individual's benefits.  Dashboards will not hold this information themselves, but when a member makes a request, the dashboard will search for matches with the member's details and pull the data directly from the pension schemes for the member to view.  The Money and Pensions Service (MaPS) will be responsible for ensuring delivery of the digital architecture underpinning the pensions dashboards and will develop and host its own pensions dashboard.  Over time it is envisaged that other pension dashboard providers may enter the market.

Timescale

The draft regulations set out the proposed timescale for schemes to connect to the pensions dashboard, with connection to be staged according to scheme size and type.  Pensioners do not count as "relevant members" for determining scheme numbers. The reference date for determining number of members is the scheme year end between 1 April 2020 and 31 March 2021.

Some key dates in the proposed timetable for connecting to the dashboard are:

• 30 June 2023: master trusts with 20,000 or more relevant members;
• 31 July 2023: money purchase schemes used for auto-enrolment with 20,000 or more relevant members;
• 30 November 2023: defined benefit schemes (other than public service schemes) with 20,000 or more relevant members;
• 30 September 2024: the date by which all schemes with 1000 or more relevant members will have reached their staging date;
• 31 October 2025: the date by which all schemes with 100 or more relevant members will have reached their staging date.

Schemes will generally have a one month window to connect to the dashboard in the run up to their staging date, though the window will be three months for schemes in the first cohort.  The draft regulations don't provide for the staging of schemes with less than 100 relevant members, though they may be covered in future.

Responding to "find requests" by members

Once a scheme has connected to the dashboard, it will need to complete a matching process each time an individual makes a "find request" to identify whether data held by the scheme indicates a match, ie that the individual is a member of the scheme.  Where there is a match, the scheme will be required to return "view data" to the pension dashboard service to enable the member to view information about his or her benefits.  Broadly, defined benefit schemes must provide accrued and projected pension values and money purchase schemes must provide accrued and projected pot values and projected annualised values.  All value data should derive from a statement provided within the last 12 months or a calculation performed within the last 12 months.  Value data must be returned immediately where there is an existing statement or calculation which can be used to generate the information.

In a separate but related development, the Pensions Administration Standards Association (PASA) has published Data Matching Convention Guidance setting out the different options for matching data with "find requests".  It suggests that some schemes will match based on the three core data elements of surname, date of birth and National Insurance number, but that this may not be appropriate for schemes that do not have high confidence in their data accuracy.  The guidance suggests such schemes may wish to choose more sophisticated matching approaches.

On 14 February 2022 the Financial Reporting Council (FRC) published a consultation on the actuarial standard TM1 which specifies the assumptions and methods used for calculating statutory illustrations  of money purchase benefits.  The FRC is proposing to align the set of assumptions for the provision of Estimated Retirement Income on pensions dashboards and Statutory Money Purchase Illustrations (SMPIs).  

Compliance

There will be steps in the process that are required before the connection date, in particular registration with a Governance Register.  Schemes will be under a general duty to cooperate with MaPS.  The Pensions Regulator (TPR) will be responsible for enforcement.  The maximum penalty will be £5000 per individual and £50,000 in other cases.  A penalty could be issued for each individual instance of a failure to respond to a member's request to view his/her pension scheme benefits, so multiple failures could potentially result in total penalties significantly in excess of £50,000.

Our thoughts

Although the regulations are currently at consultation stage, compliance will involve a significant amount of work for many schemes who will need to decide how best to achieve data matching and how they will ensure they are able to sign up to the dashboard on time and respond to data find requests.  Most schemes will need to use the services of a third party administrator or other service provider.  Trustees should liaise with their scheme administrators to put a project plan in place for complying with the dashboard requirements.

Court approves payment of lump sum death benefit to beneficiary who was also a trustee

In its judgment in Punter Southall Governance Services Limited v Benge, the court has approved a trustee decision to pay a death benefit with a value of over £400,000 to a beneficiary who was herself a trustee of the pension scheme.  The judgment considers both the meaning of the term "dependant" and the court's approach to the management of trustee conflicts of interest.  For more information, click here. 

Timescale for DB funding developments

In a blog post in December 2021, the Pensions Regulator (TPR) announced that it expects to launch its second consultation on its draft scheme funding code of practice in late Summer 2022.  TPR expects the DWP's consultation on the draft scheme funding and investment regulations to be published in Spring 2022.  

Clara-Pensions completes superfund assessment process

Clara-Pensions has become the first "superfund" (a consolidator vehicle for DB pension schemes) to complete the Pensions Regulator's assessment process.  For trustees of schemes closed to future accrual who are looking towards the "endgame", transfer of the scheme's assets and liabilities to a superfund is one option to consider, though the Regulator has made clear that it does not consider transfer to a superfund to be an appropriate endgame for schemes that are likely to be able to buy out benefits with an insurance company in the next five years.

Regulator issues notice under "moral hazard" powers where agreement deprived employer of proceeds from sale of its subsidiary

The Determinations Panel (DP) of the Pensions Regulator (TPR) has issued a contribution notice in relation to the Meghraj Group Pension Scheme against two individuals, Anant Shah and Rohin Shah for the part they played in entering into an agreement which had the effect of depriving the scheme's employer of the proceeds of sale received by one of its subsidiaries on the sale of a joint venture company.  For more information, click here. 

EFRBS registration deadline to be put back to 1 September 2022

We have reported in previous updates on the requirement for all "employer-funded retirement benefit schemes" (EFRBS), ie pension schemes that are not registered pension schemes under the Finance Act 2004, to register with the Trust Registration Service.  (Initially the requirement applied only to EFRBS that fell within the definition of a "taxable relevant trust".)  Regulations have now been made which will put back the registration deadline from 10 March 2022 to 1 September 2022.

Regulations on stronger nudge to pensions guidance in force from 1 June 2022

The Government has published its consultation response and final form regulations in relation to the "stronger nudge" to pensions guidance, effective from 1 June 2022.  The stronger nudge rules will require scheme trustees to offer to book an appointment with the Pension Wise guidance service for members in certain circumstances (-broadly, where it appears likely that the member will start to receive benefits soon).  Where the stronger nudge requirements apply, the trustees must not generally action a benefit/transfer value request without obtaining confirmation from the member either that guidance has been received or that the member has opted out of receiving guidance.  In a parallel exercise, the FCA has published stronger nudge rules applicable to providers of personal pension schemes.

The stronger nudge requirements in relation to occupational pension schemes broadly apply where a member over 50 (or the member's survivor) applies to start receiving money purchase benefits or to transfer such benefits (unless the transfer is not being made for the purpose of receiving benefits, eg because it is being made for consolidation purposes only).  Before actioning the request, the trustees must offer to book a Pension Wise appointment for the member. If the member accepts, the trustees must take reasonable steps to book such an appointment.  If the offer is not accepted, (or the trustees are unable to book a suitable appointment despite having taken reasonable steps to do so) the trustees must provide the member with details of how to book an appointment.  

The trustees can only proceed with the application to take benefits (or a transfer value if applicable) if they receive confirmation that the member has received guidance, or if the member gives them an opt-out notification.

The consultation response includes the following changes and clarifications to the requirements:

• where the member communicates by post or online, the offer to book may be satisfied by providing a phone number for the member to call if the member wishes the scheme to book an appointment on his or her behalf.  The trustees must also provide details of how members may book an appointment directly;
• trustees will be able to comply with the stronger nudge requirements at the point when a member gets in touch to discuss options for receiving benefits but has not yet applied to receive them.  If the trustees deliver the stronger nudge at this point, they are not required to do so again on receiving the application;
• trustees of a transferring scheme are not required to deliver the "stronger nudge" if the receiving scheme has already done so;
• the opt-out notification must be given in a communication only for that purpose, but the requirement for the opt-out notice to be given in a standalone communication does not apply where the stronger nudge requirements have been triggered by a transfer request;
•  the requirement for a standalone opt-out form can be satisfied by directing members to a separate online form;
• where communication is by post, an opt-out form may be included alongside an offer to book an appointment;
• confirmation of having received guidance or opting out can be either verbal or written.

Regulations ban flat fee charges on pots worth less than £100

New regulations which come into force on 6 April 2022 will ban the use of flat fee charges in relation to member funds with a value of less than £100.  Broadly, the ban applies to money purchase schemes that are used by an employer to meet its auto-enrolment obligations.

HMRC's Pension schemes newsletter 136: increase in NMPA to 57

We have reported in previous updates on the increase to normal minimum pension age (NMPA) from 55 to 57 which is due to take effect from 6 April 2028.  On 17 January 2022, HMRC published its Pension schemes newsletter 136 which covers the NMPA changes.  HMRC makes clear that it will not regard a right to benefits as "unqualified" (one of the requirements for retaining a protected pension age below 57) if the scheme documentation provides that it is subject to trustee or employer consent (even if consent has always been given in practice).  HMRC also says that where the scheme rules refer to the NMPA or its underlying legislation (for example, permitting benefits to be taken from the lowest age consistent with the Finance Act 2004), HMRC regards this as merely providing for payment from the youngest age prescribed from time-to-time, not conferring an unqualified right to a protected pension age.

HMRC notes that transitional issues may arise for some members, for example where a member has reached age 55 but not age 57 by 6 April 2028.  It says that work on the transitional arrangements is underway and is likely to require legislative change to make sure the policy will work as intended.

Ombudsman holds member in receipt of Jobseeker's Allowance had no right to a transfer value

The Pensions Ombudsman has upheld a complaint against the Ministry of Defence (MoD) by a former member of the Armed Forces Pension Scheme who lost the value of his pension fund after transferring to a scam arrangement in 2013 (PO-11134). A key element of the Ombudsman's determination was that as the member was in receipt of Jobseeker's Allowance and not in employment at the time of the transfer, he had no right to a cash equivalent transfer value (CETV), as the right to a CETV only applied to "earners". The MoD had argued that the member had a statutory right to a CETV and that there was therefore no legal basis on which the MoD could have stopped the transfer value.  The Ombudsman ordered the MoD to reinstate the member's benefits in the Scheme or, if this was not possible, to provide him with the equivalent benefits by means of another pension arrangement.

Our thoughts

A noteworthy feature of this case is that the Ombudsman concluded that the member might well have chosen to proceed with the transfer even if the risks had been brought to his attention.  However, he upheld the complaint because the MoD erroneously concluded that it had to make the transfer when it should not have done so.

As we reported in our last Update, major changes to the transfer values regime took effect from 30 November 2021.  For transfers to most schemes, trustees are now required to consider whether "red flags" or "amber flags" are present which may indicate a scam.  If there is a red flag, the trustees must not make the transfer.  If there is an amber flag, the trustees may only make the transfer if the member has taken "scams guidance" from the Money and Pensions Service.

Developments regarding fund managers' disclosure obligations

In our September Update we reported on the FCA's consultation on new climate-related disclosure rules for fund managers.  On 17 December 2021 the FCA published its Policy Statement and rules.

The FCA is going ahead with its requirement for fund managers to publish an annual report on how they take climate-related risks and opportunities into account in managing investments on behalf of their clients.  Following feedback, it has made some changes, including that firms will not be required to disclose information if data gaps or "methodological challenges" cannot be addressed through the use or proxies or assumptions, or if this would result in misleading disclosures.  

The requirements will apply to fund managers who have at least £5 billion in assets under management on a 3-year rolling average.  The requirements will be introduced in two phases.  Which phase a firm falls into will broadly be determined by the value of assets under management.  For firms in the first phase, the rules are in force from 1 January 2022 with a publication deadline of 30 June 2023 for the first disclosures.  For firms in the second phase, the relevant dates will be 1 January 2023 and 30 June 2024 respectively.

The FCA had originally proposed that where a fund manager's clients such as pension scheme trustees need information to satisfy their own financial disclosure obligations, those disclosures should be made to the client on request once a year. The FCA has amended the requirements in relation to "on demand" disclosures to require that firms provide a report to clients "at a single reference point consistent with public disclosures", or at a date agreed between the client and the firm and in a "reasonable" format.  It has made the change in response to firms being concerned at the demands of responding to multiple requests for disclosures "on demand" at different reference points and in different formats.

In a separate development, pensions minister Guy Opperman has written to over 40 fund managers highlighting the recommendation from the report of the Taskforce on Pension Scheme Voting Implementation (published in September 2021) that pooled fund investors should be given the opportunity to set an expression of wish as to how votes are undertaking on the assets within their invested funds.  Mr Opperman warned that if adoption by managers was slow, the issue should be referred to the Law Commission "to propose structures that give the owners the necessary rights".

New international data transfer documents in force from 21 March 2022

New documents that can be used for complying with data protection requirements in relation to international data transfers are due to come into force on 21 March.  The documents are designed for use in relation to transfers of personal data to countries which are not covered by an "adequacy decision" in relation to their data protection regimes.  They are not relevant to transfers of data to countries in the EEA.  The documents comprise an international data transfer agreement, an addendum to the EU's standard contractual clauses for international data transfers, and a document setting out the transitional provisions.  Trustees should understand whether the personal data they hold is transferred abroad (eg due to a scheme administrator having operations overseas or because scheme membership data is being transferred to a scheme employer's overseas parent).  If so, there may be steps the trustees need to take to ensure such transfers remain compliant with data protection law.