PENSIONS: An Introduction

It has been a relatively quiet year for pensions, with the usual relentless march of legislative developments slowed to a gentle plod. This has no doubt come as a great relief to scheme trustees who, like most businesses, have been battling hard to get ready for the European General Data Protection Regulation (GDPR). But the brief legislative lull is due to end, with the Government’s White Paper on protecting defined benefit (DB) pension schemes set to generate numerous consultations over the coming year.

To the GDPR and beyond  

Put simply, trustees of occupational pension schemes process personal data to ensure the effective running of the scheme, enabling the right benefits to be paid to the right people at the right time. The sort of personal data held will be wide-ranging, including names, contact details, gender, age, income and national insurance numbers. Assessing ill-health applications or distributing death benefits may also result in trustees holding sensitive personal data.

So, like businesses across the country, key steps for trustees preparing for the GDPR have included carrying out a data mapping exercise, updating privacy notices, and ensuring appropriate policies and procedures are in place. Unlike traditional businesses though, trustees (many of whom are volunteers) are highly reliant on third parties to help them deliver benefits. Consequently, the road to the GDPR has been paved with unprecedented levels of contracts all up for review at the same time.

With 25 May 2018 marking only the beginning, schemes are still adjusting to their new GDPR-compliant world, with many already facing increased interest from members looking to exercise their rights. As the new requirements will take time to properly bed down, trustees should take stock over the next six to twelve months of how their revised processes are working, factoring in any new guidance emerging from the Information Commissioner’s Office (or beyond).

Hasta la vista White Paper!  

Barely a year goes by without a significant pensions consultation, and 2018 did not disappoint.

Following on from 2017’s Green Paper, the Government’s hotly anticipated White Paper finally made an appearance in March 2018. Having concluded that there is “no systemic problem in the regulatory and legislative framework” for DB schemes, the Government’s proposals are aimed at improving the way the current system works, as well as increasing the protection of members’ benefits.

A key area of focus is the regime governing the funding of occupational pension schemes. A revised Code of Practice is in the offing, with the aim of strengthening the Pensions Regulator’s (TPR) ability to enforce standards and looking at how “prudence” is demonstrated when assessing scheme liabilities. Where a DB scheme is in deficit, the factors which should go into the mix when deciding the strategy for getting the scheme back on track (known as the “recovery plan”) will also be addressed.

But whilst TPR’s powers will be beefed up to enable it to be “clearer, quicker and tougher”, the Government has ruled out a so-called statutory override to allow employers or trustees with rules governing annual pension increases pegged to RPI to switch to something more modern (like CPI). It will, however, continue to monitor developments in the use of inflation indices, so there may yet be movement here.

Other proposals on the table include:

• space for new commercial consolidators to develop, with the Government keen to offer an accessible solution to maturing DB schemes and their sponsoring employers seeking to secure members’ benefits or to transfer risk
• requiring DB trustees to appoint a chair
• following in the footsteps of their defined contribution (DC) counterparts, requiring a DB chair’s statement setting out information on the trustees’ key funding decisions to be provided to TPR alongside the scheme’s triennial funding valuation.

With delivery of its proposals being phased in, and consultations expected both later in 2018 and into 2019, the White Paper’s proposals will be a source of industry debate for some time to come.

We’ll always have DC costs and charges… 

With DC arrangements now the workplace pension savings vehicle of choice for many employers, the Government has been steadily ramping up measures to keep costs and charges under control and members better informed.

Changes to the annual DC chair’s statement mean that more detailed information must be included on costs and charges, including an illustration (in pounds and pence) of the compounding effect they have on members’ pension savings. These changes will affect statements prepared for a scheme year ending on or after 6 April 2018.

Also, within seven months of the first scheme year ending on or after 6 April 2018, the following information taken from the chair’s statement must be published free of charge on a website (and be available for general, public consumption):

• content relating to the scheme’s default investment strategy
• costs and charges information
• the trustees’ assessment of the extent to which the charges and transaction costs (costs incurred, for example, when switching investments) represent good value for members.

Looking further ahead, measures relating to the disclosure of information on a scheme’s pooled funds will come into force on 6 April 2019. The Government’s proposals are “designed to provide information to help give members access to further material such as the funds’ top holdings, how the asset managers select investments on trustees’ behalf; and how they engage with the companies in which they invest”. The idea here is that this information will enable engaged members to bring trustees’, or the employer’s, attention to specific aspects of the scheme’s investment practices.

Show me the master trust  

Master trusts are large-scale multi-employer occupational pension schemes, set up to manage the pension investments of many non-associated companies and their employees. Seen as having specific areas of risk, not least of which is the potential impact should one fail, a new master trust authorisation regime comes into force on 1 October 2018.

TPR will have powers to intervene where a master trust is at risk of failing. For a master trust to become authorised, TPR must be satisfied that the scheme can demonstrate that it meets specific criteria, including:

• persons involved in the scheme must be “fit and proper” to act in their roles
• the scheme must be financially sustainable
• the systems and processes used in running the scheme are sufficient to ensure it is run effectively, and
• the scheme must have an adequate continuity strategy.

With so many changes on the horizon, 2019 promises to be a blockbuster year for pensions developments.