Pensions: What's new this week 22 June 2020
23 June 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.
Covid-19: TPR ends easements, issues new guidance
The Pensions Regulator (TPR) has updated its Covid-19 guidance, signalling the resumption of reporting duties in most cases and changes to its expectations around DB funding. A press release and new blog post have also been published.
Reporting duties and enforcement
TPR has confirmed that current reporting easements will end on 30 June, with the exception of the easement for reporting late payment of contributions (except deficit repair contributions (DRCs)) which will continue, with a review at the end of September. TPR will continue to assess ‘on a case-by-case basis and respond pragmatically where these breaches are Covid-19 related’, but from 1 July reporting requirements will resume as normal, including for: suspended DRCs; delays in cash equivalent transfer quotations and payments; and failures to prepare audited accounts.
TPR has also confirmed that it will not review any chair’s statements received until after September, and that statements received will be returned unread; fines for failing to prepare a Chair’s statement will continue to apply. TPR will take a pragmatic approach to late preparation of audited accounts and will accept delays to 30 September, and does not expect to take regulatory action about a delay in reviewing a statement of investment principles (SIP), or a default SIP, as long as this does not go beyond 30 September 2020.
TPR’s relationship supervision programme will also focus more on near-term risks rather than standard activities, and TPR will be contacting schemes it has assessed as presenting risks.
DB funding and investment
The guidance for trustees on DB funding and investment has been rewritten and consolidated. Key points include:
- Suspending or reducing DRCs: In view of improved visibility of employers’ financial situations, TPR does not expect trustees to ‘unquestioningly extend’ original suspension arrangements on a three-month rolling basis based on limited information. TPR expects most trustees will be able to undertake due diligence on the employer’s financial position before agreeing a new suspension or reduction. Trustees are expected to seek protections and mitigation if they do agree to a request.
- Valuations due to be finalised: as the reporting easement is being removed from 1 July (see above), trustees will need to comply with normal reporting requirements but TPR notes that ‘Our preference is for the best outcome to be reached for the scheme, rather than one agreed under pressure simply to meet the deadline’.
- DB transfers: TPR expects trustees to be able to report any breaches of their transfer obligations from 1 July 2020, but will continue to take a pragmatic approach to breaches caused by Covid-19 issues.
DB funding: guidance for employers
The guidance urges employers to provide trustees with the information they require, and to keep trustees informed of discussions with other stakeholders. It also notes that employers and trustees should work together on best using, and paying for, professional advice.
The guidance has been updated to note that trustees should ensure members (especially vulnerable members) are able to contact administrators (for example, by providing safe and secure processing of post, and a telephone service for critical queries). TPR notes that it will take some time for services to return to normal, and advises trustees to continue to work closely with administrators and to agree a ‘robust but pragmatic’ plan for delivery.
Covid-19: new guidance on CJRS changes
The Coronavirus Job Retention Scheme (CJRS) is changing: ‘flexible furlough’ will be allowed from July, and from August the government will gradually reduce the level of support for employers until the CJRS ends on 31 October. Employers will no longer be able to claim the pension contributions grant from August. Updated guidance is available from HMRC and TPR (click here and here). Points to note include:
- Salary sacrifice and flexible furlough: where an employee is working part-time (on normal terms and conditions), it may be possible to operate salary sacrifice as normal if the amount of pay above furlough pay is sufficient, meaning that the employee’s pay for working could (in theory) be entirely sacrificed.
- TPR has provided guidance on running payroll processes in the coming months (for employees who are flexibly furloughed, and for when the CJRS grant is reduced).
- In April, TPR published an easement for full employer consultation where an employer wishes to reduce DC pension contributions to the statutory auto-enrolment minimum. This easement was due to expire at the end of June but TPR has extended this to 30 September (although TPR will review this date as matters progress).
Corporate Insolvency and Governance Bill
The Corporate Insolvency and Governance Bill has completed the Committee stage in the House of Lords; Report stage will take place on 23 June. The government is proposing some significant amendments to the Bill at Report stage with the intention of:
- narrowing which debts will receive ‘super priority’, including by permitting the government to amend the definitions of ‘moratorium debt’ and ‘priority pre-moratorium debt’ using secondary legislation;
- providing for TPR and the Pensions Protection Fund (PPF) to be notified about moratoriums (including the commencement, extension or ending of a moratorium), and also about proposals to use the new restructuring plan. The PPF would also have the power to challenge the monitor in respect of a moratorium; and
- enabling the PPF to exercise creditor rights where a relevant company enters a moratorium or is the subject of a proposal for a restructuring plan (this would be set out in regulations).
More information on some of the government amendments is available here. The Bill is being fast-tracked through Parliament and we expect it to be passed in the coming weeks. We will provide a full briefing on the Bill once the legislation is finalised.
Latest TPR compliance and enforcement bulletin
TPR’s latest compliance and enforcement bulletin provides an update on relationship supervision, and encourages all schemes in this programme to engage openly with their dedicated supervisor. It contains case studies of TPR’s experience with a well-run DC scheme, and also with a DB scheme whose trustees were not able to answer ‘straightforward questions’ about how they had agreed a recent recovery plan and assessed affordability. TPR reminds trustees that they must have the appropriate level of TKU, and that responsibility for running the scheme cannot be delegated to third-party advisers.
TPR also reports on auto-enrolment enforcement, including inspections – the bulletin contains a case study of a spot check on a company with 5,000 employees, which had a number of compliance issues. As a result, the employer paid a £350,000 fine (due to escalating penalties) as well as more than £100,000 in backdated contributions, and implemented new policies and procedures.
Covid-19: new ICO guidance
TPR issues new guidance on interim superfunds regime
TPR has published guidance for those setting up and running a DB ‘superfund’ – the guidance sets out the standards TPR expects to be met before the longer-term legislation is in place (the government has not yet published a response to the consultation it launched in December 2018). The guidance covers all superfunds, except SPV models put in place before 18 June 2020.
TPR expects superfunds to meet certain standards, including demonstrating that the scheme and capital buffer meet TPR’s requirements, and that the superfund is run by fit and proper persons and has adequate governance, systems and processes. Superfunds will be required to provide certain information as part of TPR’s initial assessment and ongoing supervision process. In announcing the interim regime, TPR aims to give employers and trustees more choice in the current climate of Covid-19 related uncertainty, whilst ensuring that savers and the PPF are protected.
Where trustees and employers are considering a transfer to a superfund, TPR has stated:
- Trustees need to be certain that a transfer to a superfund is in their members’ interests, and should only consider using a superfund once TPR has completed its assessment.
- TPR expects superfunds to provide employers and trustees with full and transparent details of the offering, fees, funding and investment objectives, and their methods for achieving their objectives. Where a scheme has the ability to buy-out (or is on course to do so within the foreseeable future), TPR does not expect a superfund to accept the transfer.
- TPR expects employers to apply for clearance in relation to a transfer from their scheme to a superfund (this is considered to be a Type A event) – TPR expects to see evidence of a ceding trustee’s due diligence as part of the application.