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Pensions: what's new this week - 14 August 2023
TPR updates DB superfunds guidance for providers and employers/trustees
The Pensions Regulator (TPR) has published updated guidance on setting up and running a DB superfund. This guidance forms the basis of the interim regime under which superfunds can currently operate. The government recently confirmed (read more) that it intends to bring legislation forward ‘as soon as Parliamentary time allows’.
Aspects of the guidance may be relevant to other alternative arrangements developing in the market. This reflects TPR’s and the DWP’s encouragement of innovation and the development of different consolidation models. TPR is developing separate guidance, aimed at DB schemes and DB sections of hybrid schemes, setting out some of the key issues to consider when looking at different alternative arrangements.
Key changes to the guidance include the following:
- More detail on the process for applying to establish a superfund and the supporting evidence expected, together with a less prescriptive approach to assessing whether the superfund has adequate systems and processes in place.
- A new on-boarding assessment when TPR is informed of an intended transfer into the fund, and new expectations in relation to the period between demonstrating that the amount of capital being provided on a proposed transfer meets TPR’s capital requirements and the transfer of liabilities. Transfer should take place as soon as possible and within a maximum of nine months. The capital requirements should still be highly likely to be met on the date of transfer, with specific mechanisms suggested to be set out in the agreement between the parties to reflect this.
- An increased discount rate to be used in the assumptions for calculating minimum technical provisions, intended to allow superfunds to price appropriately after market movements since the initial guidance, and a specific ‘low-risk trigger’: a funding level at which TPR expects that the superfund trustees will gain full control of the assets in the capital buffer.
- Removal of the restriction on extracting surplus from the superfund, which previously could only be done where scheme benefits had been bought out in full with an insurer. This has been replaced with a statement that TPR plans to develop a specific mechanism for value extraction based on a profit trigger, and will carry out further analysis and engagement with stakeholders in order to do this.
- Updates in relation to modelling, including an expectation that a brief signed statement of Modelling Principles will be prepared, kept updated and lodged with TPR.
TPR has also updated its guidance to employers and trustees considering a superfund transfer to:
- explain how TPR expects schemes to demonstrate that the gateway principles for transfer have been met (these are that the scheme cannot access buy-out and has no realistic prospect of doing so in the foreseeable future, and that the transfer will improve the likelihood of members receiving full benefits);
- set out some detail of the process schemes will have to go through to obtain clearance for transfer;
- set a nine-month time limit between satisfying the gateway requirements and transferring to a superfund; and
- include an expectation that other options, such as DB master trusts and alternative capital-backed arrangements (not just buy-out), have been considered before a transfer to a superfund is made.
Read the superfunds guidance and the conclusions from TPR’s review of the initial guidance.
Read the guidance for prospective ceding trustees and employers.
Read the accompanying blog post.
Dashboards: updated guidance on deferred connection
The DWP has updated its guidance for schemes that are seeking a deferral of their deadline for connecting to pensions dashboards.
The deadline for all schemes to connect is now 31 October 2026, but schemes can request to defer their connection by up to 12 months if: (a) they had embarked on a programme to transfer the data held by the pension scheme to a new administrator and/or had entered into a contract containing an obligation to retender the administration of the scheme and the timetable for this is reasonable and conflicts with the staging deadline for the scheme; and (b) complying with the connection deadline would be disproportionately burdensome or would put the personal data of members at risk.
The updates to the guidance largely reflect the new deadline for connection. The above criteria for deferral must have been met before 9 August 2023.
TPO member factsheet on incorrect information
The Pensions Ombudsman (TPO) has published a factsheet for pension scheme members on what to do if they have a complaint about having received incorrect information about their benefits.
The factsheet explains that receiving incorrect information does not automatically mean that the scheme must honour that incorrect information; in most circumstances, members will only be entitled to be paid the correct pension benefits set out in their scheme rules. It also notes that, in some circumstances, the scheme may be required to make good financial loss caused as a result of the misinformation or (less often) may have to pay higher benefits. The factsheet sets out how to raise a complaint and how to refer a matter to TPO.
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