Pensions: what’s new this week - 11 July 2022
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Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.
This week we cover topics including: TPR/DWP: updated guidance on transfers; TCFD regulations: ‘Paris alignment’ reporting; PLSA cyber risk guidance; PASA dashboard data guidance; Guidance on ESG risks in covenant assessment; PSA21: new commencement instrument.
- TPR/DWP: updated guidance on transfers
- TCFD regulations: ‘Paris alignment’ reporting
- PLSA cyber risk guidance
- PASA dashboard data guidance
- Guidance on ESG risks in covenant assessment
- PSA21: new commencement instrument
The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) have published a joint statement seeking to address concerns with the transfer requirements that came into force in November 2021 (introducing the new red and amber flag system). The concerns relate to transfers being prevented where a transfer triggers a flag because it involves overseas investments or small-scale incentives (in particular, ‘refer-a-friend’ rewards).
The joint statement notes that TPR and the DWP continue to review the transfer requirements (the DWP is due to publish a review of the regulations by May 2023), and encourages scheme trustees and administrators to give feedback. It states that the regulations are not intended to impose additional burdens on schemes or administrators and should have no impact on the process for transfers that, prior to the introduction of the regulations, would have caused no concern. It reminds schemes to take a risk-based approach, and to consider making a discretionary transfer where there is no statutory right to transfer but there is a low risk of a scam. The ability to do this will depend on a scheme’s rules.
TPR has updated its guidance on dealing with transfer requests to reflect this position:
- the guidance now suggests that trustees consider making non-statutory transfers even where risk indicators are present which would prevent a statutory transfer, if they believe that it is in the member’s interest and does not pose a risk;
- a section has been added on dealing with forms of incentive not included in the examples listed in the regulations. TPR expects trustees to assess whether the type of incentive offered is one which indicates that there is a heightened risk that the transfer might lead to a member being scammed, and to keep up to date with current and evolving scam tactics. It also suggests that where the incentive is considered normal industry practice, trustees may consider it low risk and grant a discretionary transfer;
- for overseas transfers the guidance now suggests checking that the member is resident, rather than tax resident, in the relevant jurisdiction; the need for evidence that they have been tax resident for the previous six months has been removed; and
- where a member has failed to provide a substantive response to a request for evidence of employment link or residency link, TPR has removed the reference to a second reminder being sent before treating it as a red flag.
Regulations amending the climate change reporting framework to include ‘Paris alignment’ metrics have now been laid before Parliament and will come into force on 1 October 2022. There have been no changes since the draft version published in June.
As a reminder, all schemes in scope for TCFD reporting from 1 October 2022 (i.e. including £1bn+ schemes in the second wave of the rollout under the existing regulations) will be required to calculate a selected portfolio alignment metric and use this metric to identify and assess the relevant climate-related risks and opportunities. A portfolio alignment metric is one which measures the alignment of the scheme’s assets with the climate change goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels. This will not apply in respect of a scheme year ending before 1 October 2022 even if the report is published after that date.
The Pensions and Lifetime Savings Association (PLSA) has published a guide to improving cyber security. The guide sets out a four-part framework: assessing cyber risk; reducing your scheme’s risk; being prepared to respond to and recover from an incident; and what governance schemes should have in place. It includes practical tips, action points and case studies.
The Pensions Administration Standards Association (PASA) has published guidance on improving data accuracy in preparation for pensions dashboards. It includes recommendations on how to complete checks more efficiently using third parties, and which data sources to use to validate information.
The Society of Pension Professionals has published guidance for DB scheme trustees on evaluating the impact of environmental, social and governance (ESG) risks on the employer covenant (in a similar vein to a guide published last week by Accounting For Sustainability and the Employer Covenant Practitioners Association). The guidance sets out a suggested process for identifying and evaluating ESG risks; what schemes should think about once they have the information (for example funding issues, monitoring and contingency planning); and some illustrative examples.
The provisions of the Pensions Schemes Act 2021 (PSA21) relating to collective DC (CDC) schemes will come fully into force from 1 August 2022. This aligns with the regulations published in March setting out the more detailed framework for CDC schemes, and TPR’s code of practice on authorisation published in June, which will both also apply from 1 August.
The commencement instrument also brings into effect some minor and consequential changes in the PSA21, including in relation to TPR’s investigatory and penalty powers.