Following the publication of its January 2022 consultation on pension dashboards and accompanying indicative draft regulations, the DWP has now responded to its consultation.
As mentioned in our earlier update in February, the Pension Schemes Act 2021 brought in provisions relating to pensions dashboards and enabled the Government to make regulations requiring relevant occupational pension schemes to make pensions data available to individual members via qualifying pensions dashboards services. The Government has stated that its vision, as shared by other key partners such as the Pensions Regulator and the FCA, is for pensions dashboards to "enable individuals to access their pensions information online, securely, and all in one place, thereby supporting better planning for retirement and growing financial wellbeing".
As part of preparing for the new dashboards regime, the Regulator has published initial guidance in relation to the dashboard programme and the Pensions Dashboards Programme (PDP) is consulting on relevant standards, specifications and technical requirements for dashboards.
DWP consultation response - What is changing?
The key changes proposed by the DWP to the relevant dashboard regulations are as follows:
- Changes to certain staging dates - The DWP has altered the "staging date" (i.e., the date by which a pension scheme has to connect to the dashboard system) for certain categories of pension scheme. The DWP described the changes as "modest", as they only cover the first two cohorts of schemes, and the date has only shifted by two months in each case (from 30 June to 31 August 2023 for master trusts with +20,000 relevant members and from 31 July to 30 September 2023 for defined contribution (DC) auto-enrolment schemes with 20,000+ relevant members).
- Liability for certain data errors – The DWP acknowledged in its response the pension industry's concerns around breaching the dashboard and/or data protection legislation where trustees fail to match members properly or return data to the wrong person. However, the DWP did not provide much comfort in this area, referring to the existing concept within the dashboards framework of “possible matches”, which are designed to ease this tension as they allow trustees to flag where they may have found a pension, but are not 100% sure. The DWP confirmed that changes will be made to the draft regulations to clarify what trustees must do when dealing with a possible match. The DWP also reiterated the importance of trustees fulfilling their duties to maintain accurate data and support effective matching.
- Simplified DB deferred benefit value data – As suggested in the original consultation, the updated regulations are going to be altered to permit a simplified approach when calculating deferred members’ non-money purchase benefits. The simplified calculation will allow for an accrued value calculated to the illustration date by adjusting the value of the benefit at the date of leaving for the effect of inflation. However, the DWP is going to restrict the use of this simplified method to a limited period – which is 2 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. The DWP also put forward a simplified approach to work out hybrid schemes' staging deadlines.
- Schemes in PPF assessment / wind-up – Entire schemes already in PPF assessment before their staging deadline will be exempt from connecting to the pensions dashboards. For schemes that enter wind-up, trustees should only provide value data if they consider it appropriate to do so.
In response to concerns about staging deadlines for defined benefit schemes with complex benefit structures and issues, the DWP noted that response timeframes for returning value data returns might be more challenging for these schemes. However, the DWP did not want to provide exceptions from the relevant response times, on the basis that it wishes to deliver the best user experience possible and that it may take time to understand the range of possible challenges for schemes. The DWP does, though, note that the compliance framework will provide the Regulator with discretion in deciding whether to take enforcement action in respect of breaches, including with respect to multiple compliance breaches. Note that the Regulator will be consulting on its draft enforcement policy when the regulations are laid in the Autumn.
The Regulator's "initial guidance"
For the most part, the Regulator's initial guidance, published in June, merely summarises the dashboards requirements for trustees. However, it does include a helpful checklist to assist trustees during the connection preparations, and covers matters such as member communications, matching criteria, connection requirements and governance tasks. It also contains some potentially helpful comments, later echoed in the DWP consultation response, about the Regulator using its powers fairly and proportionately and being pragmatic, with its focus being on "intentional or reckless non-compliance". As noted above, the Regulator will consult on its compliance and enforcement policy later this year.
Key takeaways and action points
It is clear that the Government and other relevant regulators have high expectations of trustees in terms of their readiness for pensions dashboards. The DWP notes in its response that "there is a great deal that schemes and administrators can be doing now to prepare their data and engage with their administrators and other suppliers on how they will meet their duties". The consultation response also refers to the Information Commissioner's Office's comments, in the context of pension scheme data and dashboards that “it is vital that steps are taken to rectify or remove any inaccurate data without delay”.
Although the DWP has recognised in its consultation response the challenges that lie ahead for many schemes (particularly for defined benefit schemes with more benefit complexities and legacy data issues), it repeatedly refers back to its overriding desire to push forwards on the delivery of dashboards and deliver on the Government's commitment to make dashboards available within the shortest timeframe possible. As such, the onus is very much on trustees to work promptly with their administrators to make sure they are ready to connect to pensions dashboards at the appropriate time, in particular in relation to the quality of their data and the suitability of their IT systems. In addition, trustees may wish to consider whether their GMP reconciliation and equalisation projects (and any other benefit rectification exercises) will be complete before their schemes have to connect to the dashboards.
Please speak to your usual Baker McKenzie contact if you would like to discuss any of the matters mentioned in this alert.