Government announces delays to the dashboards programme roll-out
On 2 March, the Government announced that it was "re-setting" the Pensions Dashboards Programme in order to provide additional time to deliver the complex technology required to enable pension arrangements to connect to the dashboards infrastructure. Laura Trott, the current pensions minister, noted, in particular, that more time was needed to facilitate the successful connection of a wide range of different IT systems to the dashboards digital architecture.
The DWP intends to legislate at the earliest opportunity to amend the current "staging dates" set out in the Regulations, which are the deadlines by which different pension schemes need to connect to the dashboard. There is not yet any indication of how much longer the industry will be given to implement the technological aspects of the programme and what this will mean for pension schemes. However, the Government has said that it will ensure that the pensions industry has adequate time and the necessary technical information to prepare for any revised connection deadlines. The Government also noted that the framework set out in the current Regulations remains fit for purpose and so it is only the timing of implementation that is changing.
Final Regulations - What has changed?
The final form of the Pensions Dashboards Regulations 2022 were made on 21 November 2022 and came into force on 12 December 2022. Equivalent FCA rules will come into force on 30 March 2023.
The key points for trustees to note in relation to the Regulations are as follows:
- Changes to certain staging dates - Under the final Regulations, the staging date for certain categories of pension scheme was altered for the first two cohorts of scheme. However, given the March 2023 Government announcement mentioned above, most, if not all, of these staging dates are likely to be pushed back.
- Simplified DB deferred benefit value data – As suggested in the original consultation, the final Regulations were altered to permit a simplified approach when calculating deferred members’ DB benefits. The simplified calculation allows trustees to use a method to revalue benefits that they consider to be appropriate (such as using inflation figures or other percentages set out in the most recent statutory revaluation order). However, this simplified method is only permitted for the limited period of two years from the scheme's connection date. The DWP thinks this will give schemes sufficient time to improve their data and systems to then be in a position to provide more accurate figures.
- Treatment of hybrid schemes – Trustees will be given flexibility when returning values in respect of hybrid benefits. They will be able to exercise discretion on which methodology to apply, based on what they consider to best represent the value of the members’ benefits under the scheme.
- Liability for data errors – As we have noted previously, the pension industry has been concerned about trustee liability for incorrect data given on a dashboard. The DWP's view is that the concept of “possible matches” (i.e., a match which allows trustees to flag where they may have found a pension, but are not 100% sure), should mitigate risks for trustees. The Government has commented on several occasions that it is trustees' responsibility to ensure that data given to the dashboard is accurate and has left the onus very much on trustees in this area. That said, in terms of actual enforcement of dashboard duties, as noted further below, the Regulator has noted in its consultation on compliance and enforcement matters that it will be taking a proportionate approach to non-compliance incidents.
The Regulator's consultation on its compliance and enforcement policy
In November last year, the Regulator published its consultation on its compliance and enforcement strategy in relation to dashboard duties. The consultation ran until 24 February.
Early in its consultation document, the Regulator recognises that delivering pension dashboards is a "huge challenge for industry" and it states that it will take a "pragmatic" approach to compliance, with its focus being on "willful or reckless non-compliance". Importantly, the Regulator also acknowledges that schemes will be highly dependent on third parties to comply with their duties and so those third parties (such as scheme administrators) may also be the subject to compliance measures.
The Regulator will be focusing on connection compliance, matching difficulties or errors and where value data is not sufficiently recent. The draft policy includes a section on schemes operating adequate internal controls and governance in line with the new, yet to be finalised, code of practice, and so trustees will need to review the new code, once available, to ensure that they are complying with the updated requirements.
In terms of monitoring compliance, the Regulator has said that it will receive regular data from MaPS to identify breaches and schemes may be approached for further information. Separately, we are aware that the Regulator is also expecting to gather intelligence on potential breaches from industry whistleblowers, and this is referenced in the draft document. Predictably, the Regulator has said that it will be proportionate in its approach, and that "breaches of the law that are persistent, intentional, willful or indicate dishonesty" will be a higher priority. The Regulator has the power to issue "compliance notices" and "penalty notices" under the Regulations. The purpose of a compliance notice is to remedy non-compliance and, under a penalty notice, a fine is issued (in line with the Regulator's existing monetary fines policy). Penalty notices can be issued on an individual basis, including to some trustees and not others (for example, if a breach occurred prior to a trustee joining a trustee board). Questions remain about how the Regulator would approach multiple breaches in relation to a large group of members, but all resulting from the same issue; the Regulator may give more guidance on this point following the consultation exercise as we are aware that many industry bodies have raised this point with the Regulator. The Appendix to the draft policy also includes various helpful illustrative breach scenarios and how the Regulator would be likely to react in each case, although the Regulator has been asked by the PLSA to expand the range of scenarios covered.
- In June 2022, the Regulator published initial guidance for trustees in relation to pensions dashboards compliance, including guidance on staging dates, connecting to dashboards and matching members.
- The pensions dashboards standards consulted on by MaPS in the Summer were published in their finalised form on 21 November 2022. These standards will provide the rules and controls that will facilitate the pension dashboards ecosystems. The PDP also ran a consultation on design standards, which will set mandatory standards for how information and pensions values will be presented. The consultation closed on 16 February 2023 and updated standards will be published later this year.
- The Pensions Dashboards (Prohibition of Indemnification) Bill is a Private Members' Bill currently working its way through Parliament. It had its first reading in June 2022 and its aim is to prohibit trustees from reimbursing themselves out of scheme assets to meet penalties issued for non-compliance with the Regulations. It will amend Section 256 of the Pensions Act 2004 so that breaches in relation to dashboard compliance will also be covered under the general non-reimbursement rule.
- The FCA has consulted on setting out its proposed regulatory framework for pension dashboard service firms. This sets out, among other things, how disclosures, signposts and warnings to dashboard users should be given. Following review of the feedback received, the FCA intends to publish a Policy Statement and finalised rules in Summer 2023.
-The PDP has launched a "connection hub", where trustees can access support and resources to assist in relation to the connection process.
Key takeaways and action points
Notwithstanding the pushing back of the dashboards programme timetable, it is clear that the Government remains committed to implementing the new regime in its current form. The lengthened timescales give trustees more time to work closely with their administrators to agree their route to connection, including to agree whether a third-party Integrated Service Provider (ISP) will be required, and to review data and agree an appropriate data matching policy. Trustees should also consider any changes required to administration agreements and the potential additional costs of the work needed to comply with the new requirements so that this is factored into any annual budget.
Please speak to your usual Baker McKenzie contact if you would like to discuss any of the matters mentioned in this alert.