Pensions UK: What's new this week - 14 June 2021
14 June 2021
Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pensions.
This week we cover topics including: updated draft regulations and guidance on new climate change related duties; a recent Court of Appeal decision on an increases rule; and updated guidance from the Pensions Regulator on its activities during the Covid-19 pandemic.
- Climate change related duties: updated draft regulations, guidance
- Court of Appeal grants employer appeal on increases rule: Britvic v Britvic Pensions
- TPR updates guidance on its activities during Covid-19
- MoneyHelper: launch expected on 30 June; beta website published
- Finance Act 2021
The UK is due to become the first country in the G7 to set governance, risk management and disclosure duties for trustees of pension schemes in relation to the financial risks of climate change in their investment portfolios. The rules will come into force from 1 October 2021 for schemes with £5bn or more in assets (excluding relevant contracts of insurance) as at the first scheme year end date after 1 March 2020, and master trusts; and a year later for schemes with £1bn or more in assets – by then, over 70% of pension assets under management and over 80% of members will be in in-scope schemes. Some changes have been made from the consultation draft to reduce the regulatory burden in some respects and to provide additional support and clarity for trustees.
What has changed following the consultation?
Key changes include the following:
- Drafting around the definition of bulk annuity contracts (which are excluded when calculating scheme size and from the other obligations under the regulations) has been revised to ensure that the value of buy-in contracts is not brought into scope on a technicality.
- Changes have been made to the language on trustee knowledge and understanding, to link the requirement more specifically to what is needed to meet the requirements in these regulations. For example, the reference to expecting trustees to ‘interpret the results of any analysis’ in the consultation draft has been changed to ‘understand the results of any analysis’, with a comment in the response document that ‘trustees could ask other people (e.g. investment adviser, the asset manager or fiduciary manager), to describe those results in a way that is understandable’.
- There is a slight easing of timing requirements around scenario analysis – for example, if scenario analysis is carried out part way through a triennial cycle, the clock is reset so the next requirement is three years later; trustees can also carry out scenario analysis and comply with the requirements relating to metrics in advance of becoming subject to the regulations part way through a scheme year, without having to repeat this.
- Clarifications and additions to the statutory guidance – for example, qualifications on what ‘as far as they are able’ means in relation to various trustee activities; the threshold above which scenario analysis should be carried out for a ‘popular’ DC arrangement (a new financial threshold could bring additional arrangements in scope compared to the threshold in the draft guidance); the extent of ‘governance activities’ and the degree of oversight required of those undertaking those activities; and further detail on calculating emissions for particular types of asset.
Trust-based schemes in the first phase (with £5bn or more in assets as above) will have very little time to prepare for compliance, including familiarising themselves with the new obligations and reviewing and updating processes in order to:
- meet the climate change governance requirements for the remainder of the scheme year that is ongoing as at 1 October 2021 (and subsequent years) – the requirement applies from 1 October 2021; and
- publish a TCFD report within seven months of the end of the scheme year which is underway on 1 October 2021, and include a link to it in the annual report for the scheme year (and subsequent years).
Please contact your usual Allen & Overy adviser for further information and to arrange training.
Read the consultation response (the draft regulations are available via this link).
The Court of Appeal has ruled that an employer has the power to reduce increases for pensions in payment below the default rate in the rules, and to set a different rate for the revaluation of deferred pensions: Britvic plc v Britvic Pensions Ltd.
The rules stated that the rate of increases would be specified capped increases ‘or any other rate decided by the Principal Employer’. The High Court had concluded that the employer had the power to award increases above the default rate (but did not have the power to reduce increases below this).
The Court of Appeal allowed the employer’s appeal:
- The employer had the power to fix a rate of increase higher or lower than the capped increase stated in the rules. The words ‘or any other rate’ were clear, and the natural meaning was not ‘or any higher rate’. There was no obvious mistake (or obvious solution to any alleged mistake).
- The court also allowed appeals on other points: that the employer could decide upon a different rate in relation to pension attributable to different periods of service; that the employer could decide a rate for more than one year (and could make its decision at any time in a year); and that the employer could specify a 0% rate.
- The court also concluded that the employer had the power to fix different rates for deferred members.
TPR has updated its Covid-19 guidance on its activities, including for schemes in relationship supervision:
- TPR will be restarting its regulatory initiatives later this year (after temporarily suspending these). It will be in touch with trustees or managers of selected schemes in due course.
- For schemes in relationship supervision, multiple pieces of Covid-19 guidance now state:
‘The pensions landscape has shifted since March 2020, and we are refocusing our supervisory regime accordingly. As the schemes we currently supervise are all at different points on our supervisory cycle, we will contact them individually to determine the next steps. If you have immediate concerns due to the ongoing situation, please contact your named supervisor to discuss.’
- TPR will continue to provide digital events for the foreseeable future until it is safe to go back into venues.
The Money and Pensions Service (MAPS) is targeting 30 June for the full launch of MoneyHelper to consumers. MoneyHelper will consolidate the MAPS legacy brands (Money Advice Service, The Pensions Advisory Service and Pension Wise), although Pension Wise will continue to operate as a named service.
In advance of the launch, MAPS has released a beta version of its new MoneyHelper website. The beta version of the site is live for testing and feedback purposes; MAPS is not currently promoting it to consumers and the legacy brand websites and services will continue to operate during the transition period.
The Finance Bill 2021 has received Royal Assent; it is now the Finance Act 2021. As a reminder, the Act covers matters including the ‘freezing’ of the standard lifetime allowance at £1,073,100 for tax years 2021/22 to 2025/26; and amending the Finance Act 2004 to reflect the introduction of collective money purchase schemes. Some measures had been given temporary legal effect using Budget resolutions, including the change to the standard lifetime allowance for the tax year 2021/22.