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Pensions Matter at Pinsent Masons: July 2018

Monthly update from the Pinsent Masons Pensions team.

Select a topic to read more:

Regulator's new powers and higher fines to protect DB schemes

The government is consulting on new powers for the Pensions Regulator as part of reforms to enhance the protections for defined benefit (DB) pensions.  It wants to extend the list of corporate events which must be notified to the Regulator, in some cases bringing forward the deadlines.  Sponsoring employers or parent companies will need to make a declaration of intent before certain business transactions.  They will need to confirm that they have consulted with the trustees, stating whether or not the trustees agree and explaining any detriment to the scheme and how it is to be mitigated.  The government also plans to strengthen the regimes governing financial support directions and contribution notices, including tighter rules and tests for companies and enhanced powers for the Regulator.

Alongside these new powers, the government is proposing more comprehensive and headline-grabbing sanctions, including penalties up to £1m for serious breaches.It proposes new criminal offences of wilful or grossly reckless behaviour in relation to a DB pension scheme, and failure to comply with a contribution notice or the notifiable events framework.  The potential targets of some existing offences will be widened to include, for example, directors, sponsoring employers (and associated or connected persons) and, in some circumstances, trustees. 

Updated pension scams code urges schemes to talk to members

A pensions industry code of practice on combating pension scams has been updated to reflect current strategies adopted by scammers and case law which can make it difficult for schemes to refuse transfer requests.  The revised Pension Scams Industry Group code now includes case studies on decisions made by trustees and providers when faced with suspicious requests, as well as expanded template letters to members and discharge forms for "insistent customers" who decide to press ahead with transfers.  The code recommends that schemes telephone members as part of the due diligence process relating to transfer requests.  It also encourages schemes to refer insistent customers to The Pensions Advisory Service for impartial guidance.

Government clarifies trustee duties on environmental and social investments

The government has published plans to require trustees to assess the environmental, social and governance (ESG) factors involved in making investment decisions, and communicate this to members.  Statements of Investment Principles (SIPs) will need to set out how the trustees take account of financially material considerations which could affect investments in future, as well as trustees' stewardship policies and how they take account of members' views.   Defined contribution (DC) schemes will need to make their updated SIPs publicly available. The government says the changes are designed to give institutional investors confidence to increase allocations in areas such as social impact investment or green finance. 

The changes are expected to come into force from October 2019.  The Financial Conduct Authority has announced plans to consult in 2019 on equivalent reforms for independent governance committees (IGCs) responsible for workplace personal pensions.

Court decides restricting civil partnerships to same sex couples is discrimination

Steinfeld and Keidan v Secretary of State for International Development (Supreme Court)

The Supreme Court has decided this week that the UK law is discriminatory in preventing heterosexual couples from entering into civil partnerships.  The law permitting civil partnerships for same sex couples was not repealed when same sex marriage was introduced in 2014, and campaigners have argued that this puts opposite sex couples who have a conscientious objection to marriage at a disadvantage.  The Supreme Court agreed and its judgment could have cost implications for pension schemes providing survivors' benefits if the government decides to extend civil partnerships to opposite sex couples.  However, the court's decision does not strictly require the UK government to change the law.  It is not clear that there would be large numbers of heterosexual couples opting for a civil partnership rather than marriage.

FCA plans reforms to support DC savers with retirement decisions

The Financial Conduct Authority (FCA) is consulting on a range of reforms relating to defined contribution pensions.  The measures are designed to promote consumer engagement and better decision-making, and include changes to pre-retirement wake-up packs.  Members would be sent a wake-up pack at age 50 and then at five-yearly intervals until they had fully withdrawn their pension.  They would receive one-page pension passport summary documents and specific retirement risk warnings.  The FCA is also considering the introduction of ready-made drawdown investment pathways to reflect standardised consumer objectives and encourage appropriate charge levels.  Final rules are expected in July 2019.

PPF guidance on company voluntary arrangement proposals

The Pension Protection Fund (PPF) has issued guidance for employers on how to present a company voluntary arrangement (CVA) for PPF approval.  This follows a recent increase in the number of these agreements between businesses and their creditors, including some high profile cases where the PPF has exercised creditor rights for DB schemes.  The PPF acquires trustees' voting rights when a CVA proposal is made because a PPF assessment period is triggered.  The PPF says it will not lightly agree to a CVA and the guidance is intended to ensure that employers address areas of concern for the PPF at the outset, to help make the process more efficient.  The guidance sets out questions the PPF will consider on matters such as the company's restructuring plans, working capital and available finance, deficit reduction contributions and PPF levy payments, de-risking, and protection for the scheme when finance providers exit the CVA.  The PPF expects that trustees will instruct their advisers to report on areas of concern and urges employers and advisers to build in sufficient time for this.

Supreme Court: independent contractor entitled to workers' employment rights

The Supreme Court has ruled that a plumber engaged as an "independent contractor" by London firm Pimlico Plumbers is a "worker" entitled to particular employment rights.Although the court judgment did not specifically consider pension rights, workers are generally entitled to a workplace pension if they meet age and earnings criteria.Employers who use self-employed contractors will need to check contracts carefully and consider whether they should be providing workplace pensions.The Supreme Court's decision does not mean that all those working in the "gig economy" will be classed as workers – each case will need to be considered on its own facts.However, employers should be aware that the government is currently considering reforms to make clearer the rules which determine an individual's employment status, as part of its response to the Taylor Review of modern working practices.

Single financial guidance body – chair appointed

The launch of the new single financial guidance body (replacing the Pensions Advisory Service, Pension Wise and the Money Advice Service) is inching closer.  The DWP has appointed a chair of the new body, former Financial Services Authority Chief Executive Sir Hector Sants, whose term of office will begin on 3 October 2018.

Parliament launches inquiry into continued use of RPI

The House of Lords Economic Affairs Committee has launched an inquiry into the use of the retail prices index (RPI) as an inflation measure, following comments by the Governor of the Bank of England that it may be time to move away from using it.  The Committee will consider whether there are reasons for keeping the index and the impact of any change on the people and organisations who use it.

And finally…

A woman from Sheffield who recently celebrated her 106th birthday believes her longevity is at least partly due to avoiding the stresses caused by marriage and relationships.  The Mirror reports that Madeline Dye from Sheffield has never been on a date and has only visited a pub once, on her 90th birthday.  She has lived her whole life in Sheffield and spent her entire career working as a bookbinder for the same firm.  She lived with family for many years and, although she is now in a care home, her niece reports that she remains very independent – changing her bedroom curtains herself at the age of 103.

Pensions Matter @ Pinsent Masons

Pensions matter to us because they matter to you. As one of the largest dedicated pensions teams in the UK, we are embedded in the pensions industry - but we understand that the value of that lies in our ability to simplify complexity and deliver practical solutions for you and for scheme members. We hope that you enjoy this update, and welcome your feedback.

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