Pensions UK: What's new this week - 17 May 2021
17 May 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: a government consultation on changes to transfer rights; the government's legislative programme for the new Parliamentary session; and a progress update on pensions dashboards.
- Government consults on changes to transfer rights
- Government’s legislative agenda: pensions
- Pensions dashboards: progress update
- FCA: consultation on new fund category for long-term illiquid assets; feedback on property fund proposals
The government has published a consultation on draft regulations to restrict transfer rights, under new powers in the Pension Schemes Act 2021. The draft regulations are the latest attempt to combat pension scams and would impose new conditions for statutory transfers. The intention is that:
- For transfers to certain scheme types considered to be ‘low risk’, trustees would need to confirm that the receiving scheme is of the relevant kind and notify the member of this. The draft regulations state that trustees must confirm this themselves (rather than asking for evidence from members), and that this would apply for transfers to public service schemes, authorised master trusts, authorised collective DC schemes and personal pension schemes and personal pension schemes provided by an insurer.
- If the transfer is not to one of those scheme types, members could exercise their statutory right to transfer on condition that certain evidence is provided and the trustees are satisfied that, on the balance of probabilities, the requirement has been met. The evidence requirement would depend on the type of receiving scheme:
- Occupational pension schemes: satisfactory evidence of an employment link (which would include evidence of the last three months’ of payslips, contributions to the scheme, and deposit of salary into an account), or of a transfer to the same receiving scheme in the 12 months prior to the request.
- QROPS: if there is no employment link; satisfactory evidence of residency in the same financial jurisdiction as the QROPS for a continuous period of at least six months before the transfer request. This would be a formal residence document for the jurisdiction (plus any other supporting evidence), or evidence of a transfer to the same receiving scheme in the 12 months prior to the request.
- For transfer requests that do not meet the above criteria, a red and amber flag process would apply – the red and amber flags reflect some of the known risk indicators of pension scams, as well as where a member has not responded to an information request. The consultation includes a list of standard questions for members.
The intention is that, if there are no red or amber flags, a transfer could proceed. If there are red flags, a transfer would not proceed. If there are amber flags, trustees must require the member to take guidance from the Money and Pensions Service, and a transfer could only proceed after the member provided evidence that they had taken this guidance (either at that time, or where there has been a previous transfer to the same scheme in the previous 12 months, during that period).
- Trustees would be required to give members information about the new conditions for transfers within a specified period after a request for a cash equivalent transfer value, or transfer request, whichever is first.
- The draft regulations state that they would not override anything in the provisions of a transferring scheme, to the extent that there is a conflict.
The consultation closes on 9 June 2021. The government is planning to introduce the regulations in the autumn and the Pensions Regulator is expected to issue guidance for trustees on the new regime.
The government’s legislative programme for the new Parliamentary session (as announced in the Queen’s Speech) did not include a Bill for private sector occupational pensions, but did include:
- A Dormant Assets Bill, to extend the Dormant Assets Scheme. The government has previously announced plans to expand the scheme to include some insurance and pension products. In certain circumstances, benefits from money purchase personal pension schemes may qualify as pension benefits that may be transferred to the Scheme. On transfer, an individual would no longer have a right to payment against the pension institution, but would acquire a right against the Scheme. Read the Bill.
- A Public Service Pensions and Judicial Offices Bill to implement changes to public service pension schemes following the McCloud decision (on unlawful discrimination), and to make other changes to judicial pensions. In related news, the government announced its planned changes to the Local Government Pension Scheme following McCloud. Further details will follow later this year. Read the statement.
The government has also introduced the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill to Parliament. The Bill would amend the Pensions Act 2004, to permit a government loan to the Pension Protection Fund (PPF). This is to increase the funds available to the Fraud Compensation Fund to cover expected compensation payments following a High Court decision that claims arising from scams may be eligible for compensation from the Fraud Compensation Fund. Read about the decision.
The explanatory notes state that the loan is estimated to be c.£200-£250m (covering the estimated unfunded liabilities), which will be repaid over time using funds from the fraud compensation levy. The government plans to consult this autumn on future levy rates and the repayment period. The PPF recently announced that it had increased the levy for 2021/22 to 75p per member (except for master trusts, with a rate of 30p per member), 75p being the maximum rate that can be set by the PPF under the current legislation.
The Pensions Dashboards Programme (PDP) has published a new progress update, which includes commentary on next steps and the expected timing of key milestones in the rollout of the dashboard, and an accompanying blog post. Voluntary onboarding is still expected from 2022, with staged compulsory onboarding expected to commence in spring/summer 2023.
The PDP is planning to publish a call for input at the end of May on proposals for the staged compulsory connection of pension providers to the dashboard ecosystem; a specification document for suppliers providing information on functionality, in preparation for those connecting to the dashboard; and a governance strategy to provide further information to data providers on what they need to do to successfully onboard to the dashboards ecosystem. It has also repeated its call for volunteers for the voluntary onboarding phase – in particular, it has said that is keen to maximise the number of potential volunteers and would welcome participation from schemes that can only identify that a pension exists for an individual (but cannot yet provide full information about that pension).
The government is expected to consult on proposed regulations for pensions dashboards later this year.
FCA: consultation on new fund category for long-term illiquid assets; feedback on property fund proposals
The Financial Conduct Authority (FCA) has launched a consultation on a new category of fund designed to invest efficiently in long-term, illiquid assets (the LTAF). This would be an open-ended fund able to invest in assets such as venture capital, private equity, private debt, real estate and infrastructure. It would also be aimed at DC schemes as part of the government’s policy push on pension scheme investment in illiquid assets. The consultation closes on 25 June 2021.
The FCA has also published a feedback statement on its consultation on changes affecting redemption requests in certain UK authorised funds that invest directly in property (and related changes for feeder funds). It has said that it will not take a final decision on its policy position until Q3 2021 at the earliest, and that it recognises that there is overlap between work on notice periods for property funds and the LTAF. The FCA has said that if it does proceed with mandatory notice periods for property funds, it will allow a suitable implementation period before the rules come into force (it noted feedback that 18 months to two years would be an appropriate period).