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Pensions: what's new this week - 3 October 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 expectations on mergers and acquisitions; TPR guidance: 1 October climate reporting obligations; TPR equality, diversity and inclusion (ED&I) action plan; TPR warning on AE compliance; PPF consults on 2023/24 levy rules; Economic Crime and Corporate Transparency Bill; ICO tips on subject access requests; Dates for your diary: Pensions Academy Online – 31 October, 2 and 4 November.

TPR expectations on mergers and acquisitions

The Pensions Regulator (TPR) has published a blog post setting out the steps it expects employers and bidders to take in merger and acquisition/distress scenarios to protect pension savers. While this is not official guidance, it sets out in some detail TPR’s expectations, in particular in relation to bidders’ obligations. This has significance in light of the Pension Schemes Act 2021 criminal offences and TPR’s guidance around what constitutes a ‘reasonable excuse’ in relation to those offences. It also suggests that TPR may be seeking to fill the gap in relation to the continuing delay in introducing the new notifiable events regime by nudging changes to market practice. Some key expectations set out by TPR include:

  • employers should immediately alert trustees about a proposed corporate transaction and ‘should not use market sensitivity and regulatory notification provisions as an excuse to keep trustees in the dark’, on the basis that TPR expects trustees to have confidentiality provisions in place;
  • employers and bidders should communicate with schemes as a primary creditor when structuring any acquisition or financing package; equitable treatment for schemes means providing trustees with direct access to the bidder and their advisers at the earliest opportunity in the transaction process;
  • bidders should show they have a clear, credible and well thought out business plan which considers the scheme’s long-term funding objective, backed up with robust corporate governance and underpinned by suitable protections for the scheme. To ensure arrangements are not changed, TPR expects a legally binding agreement to be reached with the trustees ahead of completion, and strong governance protections to be put in place which ensure the independence of the trustee board.

TPR also flags that, given the current uncertain economic outlook, trustees should be alive to signs of financial distress from their sponsoring employer. TPR notes that it monitors market activity and will intervene if it considers that savers are not being protected.

Any practical outworkings from TPR’s statement will depend on the specific circumstances of a particular scheme or deal. If you have concerns or questions about TPR’s expectations in relation to any current or proposed activity, please contact your usual A&O adviser.

Read the blog post.

TPR guidance: 1 October climate reporting obligations

TPR has updated its guidance on governance and reporting of climate-related risks and opportunities, to include references to the new requirements on ‘Paris alignment’ reporting, in force from 1 October 2022.

As a reminder, all schemes in scope for TCFD reporting from 1 October (i.e. including £1bn+ schemes in the second wave of the rollout under the existing regulations) will be required to calculate a selected portfolio alignment metric and use this metric to identify and assess the relevant climate-related risks and opportunities. A portfolio alignment metric is one which measures the alignment of the scheme’s assets with the climate change goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels. This will not apply in respect of a scheme year ending before 1 October 2022 even if the report is published after that date.

The amendments also give an update on timing for TPR’s revised covenant guidance: this is expected to be published in ‘late 2022’. The accompanying press release notes that the Department for Work and Pensions intends to consider whether to extend the TCFD rules to smaller schemes in 2023.

Read the updated guidance.

TPR equality, diversity and inclusion (ED&I) action plan

TPR has published an action plan to support schemes in improving their ED&I practices, following research (published on the same day) which suggests that ‘too few trustees are prioritising diversity’ and only a minority of schemes collect data on the diversity of their boards. TPR will clarify its expectations in the forthcoming single code of practice (responding to feedback that industry would welcome inclusion of clear expectations on ED&I in the code). This will be supported by a package of good practice guides, case studies and tools for employers, trustees and advisers, to be published by the end of the 2022/23 financial year.

Read TPR’s ED&I strategy and research.

TPR warning on AE compliance

TPR has also published a press release accompanying its most recent compliance and enforcement bulletin, warning employers to ensure that they are complying with their ongoing auto-enrolment (AE) obligations. TPR has carried out inspections of more than 20 large employers across the UK and found a number of common administrative errors in respect of calculating pensions contributions and communications to staff. TPR identifies using incorrect earnings thresholds and miscalculating maternity pay as key areas where errors can arise. It also flags common communications errors such as inaccurate wording or using online portals for communicating general pensions information, rather than direct emails to staff about how auto-enrolment affects them.

Read the press release and the compliance and enforcement bulletin.

PPF consults on 2023/24 levy rules

The Pension Protection Fund (PPF) is consulting on its 2023/24 levy rules. The consultation closes on 10 November 2022. The PPF’s improved funding position and changed risk profile means it is looking to collect GBP200 million in 2023/24 – a reduction of GBP190 million compared with 2022/23. This means that ‘almost all schemes’ will see a reduction in their levy.

The PPF is also looking to simplify the way the levy is calculated. It is aiming to move to a methodology that ‘places more weight on underfunding and less on insolvency risk, makes greater use of a scheme-based levy, and differentiates between schemes of very different sizes’. The consultation seeks views on the first proposed changes in pursuit of that longer-term aim, including:

  • to reduce the sensitivity to insolvency risk, the levy rates for levy bands 2 to 10 will be changed, halving the band-to-band increase. This means that a move from one band to the next, in isolation, would have a more limited impact on schemes’ levy bills. Work on how the PPF might assess insolvency risk in the longer term, and on the right number of levy bands, will be taken forward over the coming years;
  • the Levy Scaling Factor will be set at 0.37 (0.48 in 2022/23) reducing risk-based levies by 23%, other things being equal;
  • the Scheme-Based Levy Multiplier will be reduced to 0.000019 (0.000021 in 2022/23), reducing scheme-based levies by 10%, other things being equal;
  • the risk-based levy cap will remain at 0.25% of scheme liabilities; and
  • the 2022/23 limit on increases in levies (the ‘2022/23 adjustment’) will not be continued.

A number of documents have been published with amendments to reflect the proposals, new asset class breakdowns and associated stress factors, and other changes: the Determination, Alternative Covenant Scheme Appendix, Deficit-Reduction Contributions Guidance, Deficit-Reduction Contributions Appendix, Insolvency Risk Appendix and Transformation Appendix.

Read the consultation and other draft levy documents.

Economic Crime and Corporate Transparency Bill

The Economic Crime and Corporate Transparency Bill has had its first reading in the House of Commons. The Bill is part of a legislative package targeted at tackling economic crime, including fraud, money laundering and terrorist financing, and preventing the abuse of corporate structures. The provisions of the Bill are extensive; areas which (if enacted) would impact corporate trustees and other pension scheme entities include:

  • turning Companies House into a ‘much more active gatekeeper over company creation and custodian of more reliable data’, including enhanced powers to query suspicious appointments or filings;
  • introducing requirements for all new and existing registered company directors, People with Significant Control, and those delivering documents to have their identity verified with Companies House or via an anti-money laundering supervised authorised corporate service provider (ACSP); and
  • strengthening transparency requirements on limited partnerships (including Scottish limited partnerships), including: requiring more information about the partners and requiring that this information is submitted by an ACSP; requiring them to have a registered office in the part of the UK in which they are registered; requiring them to submit statements confirming that the information held about them on the register is correct; and identity verification for general partners.

The Bill is at the beginning of its journey through Parliament; we will provide further updates as it progresses.

Read the Bill.

ICO tips on subject access requests

The Information Commissioner’s Office (ICO) has published a blog post on ‘getting the basics right’ when dealing with subject access requests (a request for someone’s personal information). The blog post identifies some key tips from its experience of dealing with complaints:

  • ask what a requester wants – people often ask for all information held about them, when actually only some is wanted; although you cannot ask requesters to narrow the scope of their request, a controller can ask them to provide additional details – such as the context in which information may have been processed and likely dates when processing occurred – to help you locate the requested information;
  • communicate pro-actively – for example, tell the requester if you will be unable to meet a deadline;
  • explain decisions e,g, where an exemption applies or documents have been redacted, and use plain English;
  • keep a record of decision-making – this can then be shared with the ICO if needed; and
  • be open – keep your privacy policy up to date and make sure it’s accessible and easy to understand.

Read the blog post.

Dates for your diary: Pensions Academy Online – 31 October, 2 and 4 November

We will be running our next Pensions Academy Online (an update on issues for pension schemes and the people that run them) on 31 October, 2 November and 4 November, 9:30 – 10:30 a.m. Sessions will cover a range of issues currently on schemes’ agendas including the single code, dashboards, transfer issues and a general legal update. Full details will be available shortly.