Pensions: what's new this week - 3 May 2022
03 May 2022
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: latest annual funding statement; GMP conversion bill receives Royal Assent; Dashboards: progress update report; HMRC Pension Schemes Newsletter; Net Zero Stewardship Toolkit; Trustees jailed for pensions scam.
- TPR: latest annual funding statement
- GMP conversion bill receives Royal Assent
- Dashboards: progress update report
- HMRC Pension Schemes Newsletter
- Net Zero Stewardship Toolkit
- Trustees jailed for pensions scam
The Pensions Regulator (TPR) has published its latest annual funding statement. All DB schemes and sponsors should familiarise themselves with the content, and especially those with an effective valuation date between 22 September 2021 and 21 September 2022 (Tranche 17), or where funding and risk strategies are being reviewed in connection with wider scheme changes. Some key points are set out below.
- TPR highlights that there are a number of market uncertainties currently at play which could affect scheme funding and employer covenants. In particular: high rates of inflation; high energy prices; increasing interest rates; Russia’s military invasion of Ukraine; the ongoing impact of Covid-19; and Brexit. It notes that these events emphasise the importance of robust risk management and trustees should remain alert to their scheme’s funding position and covenant changing very quickly.
- As in previous years, TPR advises schemes to consider independent specialist covenant advice (particularly if the covenant is complex or deteriorating, or if it has been materially impacted by current market events) and to undertake stress testing and scenario planning. The statement notes that in this period of volatility it is particularly important for schemes to engage with sponsors.
- As in last year’s statement, TPR expects trustees to take a ‘business as usual’ approach to setting recovery plans where market conditions have had a limited impact on a sponsor’s business. The statement includes guidance for trustees on considering requests to reduce or suspend contributions and obtaining mitigations. TPR continues to view shareholder distributions as being inconsistent with a scheme receiving lower contributions, and echoes previous advice and expectations around schemes being treated fairly where sponsors are allowing cash to be returned to shareholders, for example through dividends and share buybacks.
- TPR also maintains last year’s expectation that trustees should be prepared to act quickly in the event of corporate activity, with levels of such activity remaining high. Trustees should take a rigorous approach to assessing the impact of any corporate transaction and have a suitable record of the considerations made in respect of their scheme. Trustees should also refamilarise themselves with TPR’s clearance guidance, which has been updated following the Pension Schemes Act 2021.
- Trustees should consider taking steps, if they have not already done so, to develop a long-term strategy designed to deliver an agreed long-term objective (a forthcoming requirement under the Pension Schemes Act 2021). They should adopt a long-term funding target, agree it with the employer, and set their journey plan accordingly.
- The statement repeats last year’s tables of key risks and expectations, with the exception that the reference to the length of the recovery plan has been updated to six years, to reflect a reduction in recovery plan lengths in recent years.
- The statement repeats a previous update on TPR’s second consultation on the new DB funding code: it is expected to be launched later in 2022, allowing enough time to learn from the DWP’s consultation on the draft regulations. TPR also plans to set out in that consultation proposed changes to its guidance on Assessing and Monitoring the Employer Covenant and other related guidance, providing more detail on how to treat guarantees for scheme funding purposes and on environmental, social and governance considerations.
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 has received Royal Assent. When the provisions of the Act come into effect (on a day to be appointed in regulations), they will make technical changes to the existing GMP conversion provisions that are intended to make the process of conversion work more effectively. For example, the Act clarifies that the legislation applies to survivors as well as earners; provides a power to set out in regulations who must consent to the conversion and the conditions that must be met in relation to survivors’ benefits; and removes the requirement to notify HMRC of a conversion exercise.
The Pensions Dashboards Programme (PDP) – the team responsible for designing and implementing the dashboards infrastructure and governance framework – has published a new progress update report covering the past six months. The report describes key milestones reached and ongoing work on the central digital architecture, development of legislative and technical standards, and research and testing. It notes that the PDP expects the standards that schemes will need to comply with to be consulted on over the summer, with final versions published later this year. The PDP encourages data providers to start working now on getting their data ready for dashboards, and considering how they will connect to the ecosystem. Compulsory staging of connection of schemes to the ecosystem is currently proposed to begin in April 2023.
HMRC has published Pension Schemes Newsletter 138, which includes two deadline reminders:
- 5 July 2022 is the deadline for making the 2021/22 annual return of information; and
- 15 May 2022 is the deadline for migrating a scheme to the Managing Pension Schemes service in order to submit Accounting for Tax returns for Q1 2022.
The newsletter also includes information about updates to the annual allowance calculator, recent regulatory changes and newly-published statistics.
The Institutional Investors Group on Climate Change (IIGCC) has published a toolkit aimed at providing investors with a framework and guidance to enhance their stewardship practices to deliver rapid acceleration in decarbonisation and help meet net zero commitments. It sets out steps for investors to take, such as undertaking portfolio analysis, setting net zero alignment criteria and establishing engagement strategies. The toolkit currently focuses on listed equity but will be expanded to cover other asset classes.
Two pension scheme trustees have been sentenced to a total of more than ten years in prison for fraud by abuse of position. They were found guilty of persuading 245 savers to transfer their pots in legitimate occupational pension schemes into fraudulent schemes they controlled. This criminal conviction follows a civil case in 2018, which led to an order that the defendants must repay over GBP13 million. Both cases were brought by TPR.