Transfers
New Regulations have significantly changed the due diligence requirements and processes for pension transfer requests. One of two conditions now needs to be met for there to be a statutory right to transfer. The Regulations are widely drafted and, amongst other things, require subjective assessments by trustees as to whether investments and investment structures are, for instance, "high risk" or "unorthodox". There is also inconsistency between the Regulations and Regulator's Guidance regarding the scope of the requirements around "overseas investments" and what this means in practice.
Trustees should work with their administrators to ensure their processes and communications are compliant, and review the Pensions Regulator's guidance on dealing with transfer requests.
Guaranteed Minimum Pension (GMP) equalisation and conversion
Trustees should move promptly this year, if they haven't already, to select their equalisation method and begin implementation of GMP equalisation, and to agree an approach to paying back-payments (particularly where they have any discretion under a scheme forfeiture provision). They should also agree a strategy on addressing top-ups in respect of past transfers out, even if they decide to deal with the main GMP equalisation as the first priority.
Trustees should engage and communicate effectively with other stakeholders about the key aspects of their GMP equalisation project, most importantly with the pension scheme's employers and membership.
New DB funding code
Following industry feedback and in light of current economic conditions, it is not clear whether the Regulator is reconsidering the twin-track ("fast track" and "bespoke") approach to scheme valuations proposed in its first consultation in March 2020. It is also unclear whether the draft Code to be issued with the next consultation in Summer 2022 will follow the overarching principles of the first consultation; namely the focus on long-term planning, employer covenants, investment risk, recovery plans and application to open schemes.
Trustees who have not done so should think about their long-term funding objective, to be included as part of their funding and investment strategy in current and future actuarial valuations - this can mean self-sufficiency as well as buy-out.
New Single Code of Practice
Watch this space for an updated draft of the new Single Code of Practice and a full consultation response from the Regulator. The interim response released in August 2020 suggests there are several areas under review. While parliamentary approval is still required, the new Code is expected to be in place by this Summer.
Schemes should consider undertaking a gap analysis of their current policies against the requirements for written policies and procedures under the draft Code, including in relation to the requirement to undertake a regular "own risk" assessment of how well governance systems are working and the way potential risks are managed. A gap analysis should also include identifying any longstanding practices that just need to be codified.
Focus on DC
A busy year ahead for schemes with DC benefits, with a number of new legislative requirements due to come into force including: a new GBP 100 de minimis for flat fee automatic enrolment charges (from April); the new stronger nudge regime (from June); simplified annual benefit statements (DC only automatic enrolment schemes) (from October) and new disclosure requirements as part of annual chair's statements (legislation already in force).
Whilst many of the changes have been well trailed, the timing between final form legislation being published and new requirements coming into force in a number of areas means that trustees will need to be quick off the mark to implement changes to administration processes, members communications and governance structures to ensure that they comply with the new requirements as they come into force. In the case of the annual benefit statement changes, trustees may need to consider whether to move to the new style statements ahead of the coming into force date to avoid having to issue duplicate statements after October.
The Pension Regulator's new powers
The bulk of a new regulatory regime, designed to strengthen the Regulator's powers and protect DB savings, is now in force, and will be relevant to companies and trustees with DB schemes who are undertaking M&A or certain financing transactions.
The Government's response to its consultation on proposed changes to the notifiable events framework is yet to come, with the main changes to this aspect of the Regulator's new powers expected to come into force in April. This gives employers and trustees time to ensure they have an established governance process in place to avoid falling foul of the new notification requirements, which is especially important in light of the new penalties (civil penalties of up to GBP 1 million). It is not yet clear when employers' obligations to notify will be triggered, both at the "in principle" and "main terms" stages. It will therefore be important to seek legal advice early on to make sure that any target notification dates are met. It will also be important for employers and trustees to agree and understand workable information sharing processes ahead of trigger events.
Increase to normal minimum pension age
The planned increase to normal minimum pension from age 55 to age 57 in 2028 is still some time away. Trustees will, however, need to think through carefully about how to communicate with affected members about the planned changes, paying particular attention to how the new protection regime will apply in the context of their particular scheme. A review of the scheme's particular governing documentation as part of this process is likely to be needed.
RPI/CPI
A court hearing is expected in summer 2022 to hear a judicial review challenge by the BT, Ford and M&S pension scheme trustees to the Treasury and UK Statistics Authority's decision to align RPI with CPIH from 2030.
In the meantime, the member and funding impact of inflation basis switches will remain a hot topic. The proposed aligning of RPI with CPIH in 2030 still leaves time for employers and trustees to benefit from (or contest) the gap either way, with the deadline prompting a "now or never" discussion across pension plans.
ESG
Trustee obligations in the climate change and ESG space have mushroomed over the past two to three years. The legislative landscape has become complex, with different requirements applying at different times to different schemes. The new legislation mainly focuses on incorporating ESG and climate change considerations into governance processes, stewardship and disclosure to members and the wider public. Trustees should avoid becoming preoccupied with the minutiae, recognising that their fiduciary duties remain the same. While advisers will undertake much of the associated compliance work, trustees must retain ownership of their strategy and processes and make sure to develop the knowledge required to enable this.
Dashboards
With the dashboard project having taken a significant step forward with the publication of the Government consultation a couple of weeks ago, consideration of how trustees will comply with new legal obligations to provide data to the dashboard ecosystem will start to move further up trustees' agendas. The deadline for trustees to comply with the new requirements has not yet been confirmed, although the proposed staging timetable in the consultation is fairly ambitious, with the largest schemes earmarked for staging between April 2023 and September 2024 and a further two waves thereafter.
