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Pensions Matter at Pinsent Masons: March 2019

Monthly update from the Pinsent Masons Pensions team.

Select a topic to read more:

Regulator's annual funding statement highlights long term funding and maturity
New standards for professional trustees include mandatory qualification
Trustees should review communications after financial guidance body name change
No pensions reforms in Chancellor's spring statement
Scams still rife despite cold calling ban
New guidance on winding up a defined contribution scheme
FCA proposes new rules on costs and charges disclosure

And finally…

For a video briefing giving more details about key issues in this bulletin, please click here(link may not work with all browsers, try Edge (Windows 10) or Google Chrome)


Regulator's annual funding statement highlights long term funding and maturity

The Pensions Regulator's latest defined benefit funding statement requires trustees to set a long-term funding target and have a journey plan for achieving it. Asset allocation should be consistent with this target. Trustees should quantify the impact of adverse investment performance; they need evidence about the employer's ability to support this (without extending the recovery plan). 

This latest funding statement sets out for the first time the Regulator's expectations on scheme investment strategies. The Regulator expects scheme maturity issues to become more significant when schemes are setting funding and investment strategies, now that most DB schemes are closed to new members. In particular, trustees should be considering the scheme's ability to close the funding gap from investments and new contributions in a reasonable timeframe. In the next few months, the Regulator will be contacting schemes where it has concerns that distributions to shareholders are excessive compared to scheme contributions or where there are long recovery plans. The Regulator is interested in steps taken by trustees to challenge covenant leakage (when value leaves the company e.g. through dividend payments) and secure a fair deal for the scheme. The Regulator still expects to consult on a revised DB funding code later this year - but slightly later than the spring consultation we had been expecting.

New standards for professional trustees include mandatory qualification

A new set of standards for professional trustees has been published, which includes a mandatory qualification. The standards have been developed by a group of professional trustee bodies and representatives from small firms/sole traders, supported by the Pensions Regulator and various industry groups. The new regime is expected to be in place by mid-2019.  

To be accredited, professional trustees will need to comply with a "fit and proper" requirement (similar to the duty for trustees of master trusts), with references from senior industry figures. They must pass a qualification from the Pensions Management Institute and an online test assessing "soft skills". There will be ongoing continuing professional development requirements. Additional standards will apply for professional trustees who act as chairs and sole trustees. Chairs will be expected to provide leadership and be fully engaged with all the issues of strategic importance to the trustee board. Sole trustees (who should not be sole traders) need to ensure that their firm has appropriate governance and assurance reporting arrangements. 

Trustees should review communications after financial guidance body name change

The government's single financial guidance body has finally been given a new (and thankfully less clumsy) name. From 6 April 2019 the body providing money and pensions guidance and debt advice will be known as the Money and Pensions Service. Schemes will need to update member communications issued from this date which refer to Pension Wise or The Pensions Advisory Service (such as transfer quotes, internal dispute resolution procedures, information for new joiners and wake-up packs).

Meanwhile, the government has launched a separate new website promoting the mid-life MOT, outlining the guidance and support available on pension planning, later life working options and staying healthy. The yourpension.gov.uk site encourages people to check their state pension and it links to the Money Advice Service's pensions calculator to help savers understand the value of their total pension pot.

No pensions reforms in Chancellor's spring statement

The Chancellor of the Exchequer has made his spring statement to Parliament. As expected, it did not include any pension changes. One future development to watch out for is the government's response to the House of Lords Economic Affairs Committee report on the future use of RPI. It plans to publish this in April, which could reignite the debate about schemes switching from RPI to CPI. (The Committee concluded earlier this year that the government should use a single measure of inflation and avoid "index shopping" - where an index is chosen because of its impact on public finances rather than because it is an appropriate measure of inflation.) 

Scams still rife despite cold calling ban

New data shows that pension scams continue to evolve, despite the introduction of a cold calling ban. Victims are increasingly contacted online, and are still falling prey to offers of free pension reviews. Project Bloom, which is backed by a number of government departments, regulatory and law enforcement agencies, is investigating a number of organised frauds. These involve members of the same family, who in some cases hired rogue financial experts with specialist pension knowledge to help them run large-scale scams.

New guidance on winding up a defined contribution scheme

The Pensions Regulator has issued guidance for trustees of defined contribution (DC) schemes, setting out the steps they should take to wind up the scheme. The guidance breaks down the winding up into four stages: deciding whether to wind up; preparing for and entering formal winding up; securing members' benefits; and completing the wind up process. There is detailed information about the considerations at each stage, including the relevant scheme rules, checking member data, communicating with members and options for securing benefits, as well as the role of various advisers and regulatory bodies.

FCA proposes new rules on costs and charges disclosure

The Financial Conduct Authority (FCA) is consulting on new rules to require independent governance committees (IGCs) of contract-based schemes to disclose costs and charges to scheme members. The FCA is proposing a broadly similar reporting framework to that which already applies to trustees of occupational schemes. Providers will need to hand over data to IGCs, and the IGCs will then need to give members illustrations showing how costs and charges affect returns over time.

And finally…

A pensioner from Devon took matters into her own hands when scaffolding blocked the sea view from her apartment. 86-year-old Hazel Kampler has been nicknamed Spidergran by other residents at her retirement complex after climbing out of her window to remove parts of the "steel forest" which had been left for months after a dispute between a scaffolding firm and building contractors. Mrs Kampler was eventually persuaded to climb back inside by the building manager, although she remains unconcerned about health and safety regulations and has been hailed a hero by her neighbours.

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