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Pensions: What's new this week - 21 December 2020

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. 

DB/hybrid scheme return: TPR asks schemes to download past returns

The Pensions Regulator (TPR) has published new information on next year’s scheme return for DB and hybrid schemes, including an example scheme return form (an updated version of the checklist for schemes has not yet been published). TPR is encouraging schemes to download copies of previous scheme returns, as these may not be available after 31 December 2020 due to TPR system updates.

TPR suggests that schemes should allow more time to prepare for completing the return. Depending on system updates, DB-only schemes may be asked to provide a website link to the published statement of investment principles, and their assessment of the employer covenant (and where it would sit within TPR’s grading system).

TPR will contact schemes in early January to confirm the final scheme return questions; the deadline for completion and submission of the return will be 31 March.

PPF confirms key levy changes for 2021/22

The Pension Protection Fund (PPF) has published a statement confirming the following key points for the next set of levy rules, following a consultation on its proposals:

  • the levy estimate will be £520 million and the levy scaling factor will be 0.48;
  • the small scheme adjustment will be implemented (halving the levy for schemes with less than £20m in liabilities, with a taper for schemes with between £20 million and £50m of liabilities);
  • the risk-based levy cap will be reduced to 0.25% of liabilities;
  • insolvency risk will be measured on the basis in use since April.

The PPF will publish the levy rules for 2021/22 in January, together with a policy statement.

Government consults on increases to general levy

The government is consulting on proposed options for changing the structure and rates of the general levy on pension schemes (for three years from April 2021). Current levy revenue does not meet the expenditure of levy funded bodies, and the government’s aim is to increase levy revenue so that it is balanced with expenditure, and the accumulated ‘deficit’ is recovered by the end of the decade. It has put forward three proposed options, all of which involve increasing levy rates:

  • increase rates and introduce separate levy rates for DB, DC, master trust and personal pension schemes, with levy rates reflecting differing levels of supervisory attention
  • this is the government’s preferred option. For 2021/22 it is proposing a 10% increase in the levy for DB and DC schemes other than master trusts, and 5% for master trusts and personal pension schemes (with higher increases in 2022/23 and 2023/24);
  • increase rates and introduce a separate, lower set of levy rates for master trusts; and
  • retain the existing levy structure (which is split by occupational/personal pension schemes, and then by membership size) and increase rates.

The government has asked for information on how pension schemes may absorb the cost of increased levies, or whether costs would be passed on to members or borne by employers. Annex 1 sets out the proposed levy rates for 2021/22 to 2023/24 for the first two options – although all schemes would see some increase, the largest DB and DC schemes (excluding master trusts) would in particular see a significant real terms cost increase.

The government is aiming to introduce changes to the levy rates for 2021/22 to 2023/24 following the consultation, and has said it will consult again if it subsequently proposes to change the rates for any of these years or subsequent years. The government has also said that it is considering the potential impact of the PPF v Dalriada decision (WNTW, 16 November 2020) on the Fraud Compensation Fund levy, and will make an announcement as soon as is reasonably practicable.

ICO: new data sharing code of practice

The Information Commissioner’s Office (ICO) has published a new code of practice on data sharing, which focuses on the sharing of personal data between controllers (not processing of data by a processor on behalf of a controller). The code is due to be laid before Parliament for 40 days (and will come into force 21 days later, provided Parliament does not object). The ICO has also launched a data sharing information hub with targeted support and resources, including checklists, templates, FAQs and case studies.

TPR: new regulatory report on MNRPF board governance issues

TPR has published a regulatory intervention report and determination notice in relation to the Merchant Navy Ratings Pension Fund (MNRPF) on issues relating to scheme governance.

In 2018, TPR opened an investigation after becoming aware of the findings of an earlier independent governance review commissioned by the trustee board. As TPR was not satisfied with the board’s response, it issued a Warning Notice setting out its case for the appointment of an independent trustee (with exclusive powers), including that:

  • the board had refused to acknowledge the criticisms made in the governance review, or implement the recommendations, and did not acknowledge that any immediate significant action was required;
  • the board did not properly consider conflicts of interest or adhere to the conflict of interest policy;
  • the board breached its duty to act in a prudent manner by not taking into account advice from independent professional advisers; and
  • there was a lack of trust, openness and mutual respect within the board, and ‘general poor behaviour’ resulting in the failure of the board to act in a professional manner towards each other and advisers; and confidentiality concerns.

Ultimately, the Determinations Panel concluded that the significant changes made to board structure and personnel since the Warning Notice were sufficient, and did not appoint an independent trustee with exclusive powers. In its report, TPR has warned schemes to remedy identified issues of poor governance, and that it will consider appointing an independent trustee to pension schemes in circumstances where trustee governance does not meet required standards and trustees are not able or willing to remedy the issues.

Covid-19: government extends CJRS

The government has announced that the Coronavirus Job Retention Scheme will be extended until the end of April 2021 (with the eligibility criteria remaining unchanged). The government had planned to review the employer contribution element in January but completed the review early: it will continue to pay 80% of salary for hours not worked; employers will pay wages, National Insurance contributions and pension contributions for hours worked, and National Insurance contributions and pension contributions for hours not worked.

The next Budget will be on 3 March, and will set out the next phase of Covid-19 economic support.

Pensions dashboards: data standards guide published

The Pensions Dashboards Programme has published the first version of its data standards guide for initial dashboards, plus a blog post. The purpose is to give pension providers early sight of the data elements, so that they can assess the availability and quality of data items, and identify how their benefit types may best map to the standard data elements in the guide.

The Pension Schemes Bill contains a legal framework for pensions dashboards. The Bill is currently at the final Parliamentary stage before Royal Assent (the House of Lords will consider amendments made in the House of Commons but it is now in recess and is due to return on 5 January). Secondary legislation is expected in due course. The Pensions Minister has urged schemes to get dashboard data ready.

Recommendations published on deferred small pots

A working group on deferred small pots (WNTW, 28 September 2020) has published recommendations and proposed actions, including suggested next steps and an outline roadmap. As a reminder, earlier government plans to address this issue (‘pot follows member’) were put on hold in 2015. The recommendations include that:

  • the pensions industry, government and regulators should continue to work on opportunities for consolidation on request, particularly in relation to deferred small pots; and
  • the pensions industry and government should jointly prioritise work on enabling automatic and automated large-scale low-cost transfers and consolidation for the auto-enrolment mass-market.

The government press release is available here.

Next edition of WNTW: 11 January 2021

This is our last edition for 2020. We hope you have a peaceful and restful break; What’s New This Week will return on 11 January 2021.