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Pensions: What's new this week - 18 January 2021

Each week the Allen & Overy Pensions team, rounds up the latest legal and regulatory developments in the world of occupational pensions. Contact us if you would like to receive our podcast summary, or our full briefing by email, at the start of each week.

Read the latest edition of 'What's new this week' below to find out more information on the stories that matter to you. 

Pension Schemes Bill update

The House of Lords will consider amendments made to the Pension Schemes Bill by the House of Commons on 19 January. This stage (known as ‘ping pong’) is the final Parliamentary stage before Royal Assent. Watchers of the Bill will be aware that it includes new criminal offences, information-gathering powers, and changes to the moral hazard regime with the creation of two additional grounds for issuing a contribution notice. There have been concerns about the extent to which any of these might have retrospective effect in relation to acts that take place before the new provisions come into force. The Pensions Minister has now made a statement to Parliament that the provisions in Part 3 of the Bill will not be retrospective (Part 3 includes all of the above areas).

  • The Pensions Regulator (TPR) will consult with industry before publishing guidance on the use of the new criminal sanction powers.
  • Some of these powers require implementing regulations – the government’s aim is that they will be available to TPR by autumn 2021.
  • The new criminal sanctions and information-gathering powers will apply to all schemes where the act occurs, or in the case of a series of acts commences, after these powers come into force.

This response in relation to the criminal offences is helpful in providing greater certainty, but the statement leaves a couple of areas still open. First, whether there will be guidance in relation to the new contribution notice provisions (and whether there will be a consultation in relation to any guidance). It also remains possible that events in a series of acts before the effective date of the contribution notice changes (as distinct from the criminal sanctions and information-gathering powers) could be considered in relation to use of those powers. The Court of Appeal has previously ruled that this was possible in relation to the moral hazard regime as part of the Box Clever litigation.

New TPR guidance: transfers from gated funds

TPR has updated its DC scheme management and investment guidance to include new content on transfer requests where all or part of a member’s investments are held in a gated fund. TPR acknowledges that payment of a cash equivalent transfer value is likely to be problematic in such cases, but does not believe it has power to grant an extension to the statutory timeframe for payment of a CETV in these circumstances.

TPR expects trustees to do everything possible to process these promptly – it may fine trustees if they fail to take all reasonable steps to pay a transfer value within the statutory timeframe. Where only part of the investment is in a gated fund, TPR commented that reasonable steps might include exploring with the receiving scheme whether the monies from the gated fund could follow once the fund has reopened and, if so, offering the member a partial transfer in the interim. TPR also expects trustees to report any significant failures to pay transfer values within the statutory period.

TPR funding code consultation: interim response

TPR has published an interim response to its first consultation on the new DB funding code (press release here). This consultation focused on TPR’s proposed principles and approach – a subsequent consultation will be published on the draft code and TPR’s (updated) regulatory approach, and will also include TPR’s full response to the first consultation. You can read more about the proposals in the first consultation here.

TPR noted that responses were generally supportive of the principles and regulatory approach proposed, but concerns were raised about how the principles would be applied through the proposed twin-track regime (Fast Track or Bespoke). TPR commented that it plans to respond to some of these concerns in communications and in its second consultation (which is now planned for the second half of 2021). In relation to the impact of Covid-19, TPR considers that its key principles remain relevant, but that it will take account of the impact of Covid-19 when producing its impact assessment and Fast Track guidelines for consultation.

Charge cap, CTI templates: government response

The government has announced that it will maintain the level of the charge cap for default funds in auto-enrolment schemes at 0.75% at present, and that transaction costs will not be included within the cap. However, it is proposing to introduce a de minimis pot size below which flat fees cannot be charged in default funds, with an initial threshold of £100. The government will also continue to monitor costs disclosure issues – it will not legislate to require the use of costs transparency initiative (CTI) templates at present, but if voluntary uptake is not sufficient it plans to legislate for this in future.

These plans are set out in its response to a call for evidence published last summer (WNTW, 29 June 2020). The government has also published the related findings of the pension charges survey measuring the types and levels of charges in DC trust-based and contract-based workplace pension schemes. Key findings included that all members in schemes used for auto-enrolment were below the cap, with an average charge of 0.48% across all members (the average charge for other workplace schemes was 0.53%).

Expansion of the Dormant Assets Scheme

The government has announced plans to expand the Dormant Assets Scheme, following an earlier consultation (WNTW, 2 March 2020). The voluntary Scheme channels dormant funds towards good causes, subject to the ability for an individual to reclaim their money – participants must first attempt to reunite assets with their owners before transferring these to the Scheme.

The consultation response states that the government plans to expand the Scheme to include some insurance and retirement income policy assets, and will reconsider whether contract-based DC pensions should be included – it had previously proposed to exclude pensions and retirement income products, and had sought feedback on any objections. The government now plans to assess the potential overlap with products used for auto-enrolment, such as group personal pensions, and has said it may be minded to exclude these from the scope of the Scheme. It will also consider the definition of dormancy to be used for any in-scope pension products.

The government has confirmed that the following pensions and insurance products will be excluded at this time: policies and assets held under group trusts, including occupational pensions; with-profit funds; industrial branch policies; general insurance assets; personal trusts; and assets held by mutual insurers and friendly societies. It has also confirmed that participation in the Scheme is and will remain voluntary. The assets to be brought within scope of the scheme include dormant income drawdown policies, annuities with a guaranteed payment period and deferred annuities, subject to conditions (for example that the provider has been unable to contact the owner or their next of kin for at least seven years).

The government intends to legislate for the expansion of the Scheme when Parliamentary time allows.