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Pensions: What’s new this week 5 July 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: PSA21: response to consultation on employer resources test and information powers;  TPR publishes 2021 Annual Funding Statement analysis;  PASA: Counter fraud guidance; Data transfers: UK adequacy decision adopted; and HMRC newsletter 130.

PSA21: response to consultation on employer resources test and information powers

The government has responded to its consultation on elements of the Pensions Regulator’s (TPR) new powers under the Pension Schemes Act 2021 – specifically, how an employer’s resources are assessed for the purposes of the new Contribution Notice test and details of TPR’s information gathering powers.

For the employer resources test, the government has confirmed that it will use the profit before tax measure as a snapshot of a sponsoring employer’s ability to support its DB pension scheme before and after an act/omission (or series of acts/omissions). In addition to the measure itself, the legislation leaves key elements to TPR’s discretion – for example whether to exclude certain items from an employer’s accounts on the basis that they are exceptional and/or non-recurring, the value of any non-recurring or exceptional items, and the effect of the act or failure to act on the employer’s resources. The regulations set out that when making these decisions, TPR must have regard to financial reporting standards published by the Financial Reporting Council, and would not ordinarily exercise its discretion in relation to exceptional and non-recurring items in respect of items in audited accounts for the relevant test period, as these will already have been examined through the audit process. 

The government remains of the view that the employer resources and employer insolvency tests will only apply to acts (or failures to act) from 1 October 2021 and intends to clarify this in future commencement regulations.

In relation to its information-gathering powers, TPR must issue a written notice where it calls an individual for interview. The regulations set out the information that must be contained in the notice, including an explanation as to why the interview is being conducted. The Regulator will publish policy guidance providing further information on its use of these powers. The regulations also cover other matters including the level of fixed penalties (£400) and escalating penalties (£200 per day of non-compliance for an individual, £500-£10,000 in other cases) for failing (without reasonable excuse) to comply with the Regulator’s information-gathering powers.

The regulations are due to come into force on 1 October 2021.

Read the consultation response.

Read the draft employer resources test regulations and the information gathering powers regulations.

TPR publishes 2021 Annual Funding Statement analysis

TPR has published a review of the expected funding positions of DB pension schemes with valuation dates between September 2020 and September 2021 (Tranche 16). In previous years, TPR has included analysis on trends in potential employer affordability and has shown schemes in categories based on employer covenant strength. The impact of the Covid-19 crisis has meant that for many schemes, historic data are of limited relevance in assessing current/future affordability, so these have been excluded from this year’s report.

Overall, TPR’s modelling suggests that schemes undertaking valuations at 31 December 2020 will have larger deficits than those reported three years previously; by contrast, schemes undertaking valuations at 31 March 2021 will have improved funding levels and deficits compared to those reported three years previously. However, the position for individual schemes will vary depending on their specific inter-valuation experience, funding assumptions and investment strategies.

Read the report.

PASA: Counter fraud guidance

The Pensions Administration Standards Association has published a guide to the different types of fraud currently experienced in the pensions sector, to raise awareness and help trustees mitigate the risk and cost of fraud. The guidance includes a number of case studies and commentary on legal and regulatory issues and on vulnerability and resilience to fraud. 

Read the guidance.

Data transfers: UK adequacy decision adopted

The European Commission has adopted two decisions formally confirming that the United Kingdom ensures an adequate level of protection for personal data transferred from the European Union. The decisions facilitate flows of personal data from the EU, based on the UK providing an equivalent level of protection as under EU law. The adequacy decisions will expire in June 2025 unless extended.

Read the GDPR decision.

HMRC newsletter 130

HMRC’s latest pension schemes newsletter (no. 130) includes information on extensions to some temporary changes to pension processes; updates on the Managing Pension Schemes service; and an alert for administrators about the deletion of user IDs and passwords that have not been used in at least three years.  

Read the newsletter.