The results of a Departmental review of the Pension Protection Fund (PPF), led by an independent reviewer and conducted Q1 2022, have been published. The terms of reference included consideration of the PPF’s efficacy, efficiency, accountability and governance.
The review found the PPF to be a well-run public body offering high standards of service and value for money to those who use it and pay for it. There were few recommendations, the most significant being that the:
In addition, the DWP and the PPF should work together to understand the implications of the PPF’s funding position in light of expected future developments in the population of Defined Benefit pension schemes and plan well ahead for any legislative changes that might be needed; for example, to address what happens to any funding which is surplus to requirements.
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The Chancellor has revealed the planned date for his first Spring Budget – Wednesday 15 March 2023 and has asked the Office for Budget Responsibility (OBR) to produce an economic forecast to accompany it. Separately, HMT has published guidance on how interested parties should make “representations to be processed and considered as part of the Budget”, stating that it welcomes these. The closing date for such representations is 1 February 2023.
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In an anniversary blog published on 13 December, David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at The Pensions Regulator (TPR) stated that a 14-week consultation on the second DB Funding Code will commence before Christmas.
Unusually, this will be based on draft, rather than finalised, regulations. This appears to be necessary if the Code is to come into force from October 2023, which in turn means that it needs to be laid before Parliament in the summer.
David Fairs states that TPR has “taken on board recent events and the current economic backdrop, and the balance between security for members and affordability for employers”. TPR still believes that “the direction of travel from DWP regulations and [its] Code remains the right one. Long-term planning and risk management remain key tenants (sic) of good scheme management across all market conditions”.
He contends that TPR is not “looking to fundamentally change the shape of the existing pensions landscape but embed good practices”. TPR expects trustees “to reduce reliance on their sponsoring employer as their scheme becomes mature, improve risk management and raise the bar for evidencing supportable risk taking”.
TPR will adopt a twin track approach to assessing whether schemes meet the code ie Fast Track or bespoke. These routes do not form part of the code. The Code will not contain details of the Fast Track, but this will be subject to a separate, but simultaneous, consultation and the blog confirms that “bespoke is an equally valid approach”.
David Fairs adds that Fast Track is not a legislative tool, but “will act as a filter for [TPR’s] assessment of actuarial valuations” such that if a valuation meets the series of Fast Track parameters, TPR is “unlikely to scrutinise it further or engage with trustees”.
TPR confirms that trustees currently working on a valuation will be judged against the existing legislation and Code.
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The government has published a wide-ranging package of reforms across financial services, intended to drive economic growth. In a Written Statement to the House of Commons, under the banner of unlocking investment, the Chancellor announced that the government is “committed to accelerating the pace of consolidation so that no pension savers are left in poorly governed and underperforming schemes”. To this end, there will be a consultation next year on a new Value for Money framework, with which all defined contribution (DC) schemes will need to comply. The consultation will set out required metrics and standards across investment performance, cost and charges and quality of service. It will be led by DWP, alongside the Pensions Regulator and Financial Conduct Authority.
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The DWP has published guidance for trustees of schemes that have embarked on retendering their administration or are transferring their administrator and wish to defer their connection to the pensions dashboards ecosystem. The regulations allow schemes to defer their staging deadline by up to 12 months in such circumstances. The additional requirement to provide additional evidence showing that compliance will be disproportionately burdensome or that it would put personal data of members at risk will restrict the number of schemes that can use this option to defer. The latest date for making an application would be 11 December 2023 and it must be made at least two months before the scheme’s staging date.
DWP’s primary objective is to ensure public access to dashboards at the earliest opportunity. It therefore expects administrators to work efficiently with applications for deferral setting out how the scheme will achieve connection to the digital architecture. Applications for deferral can only be made once and DWP warns that it will not grant deferral where there appear to have been delays to changes of administrator or re-tendering to avoid needing to meet the connection requirements. As part of submissions, contractual information will be required, as will summaries of key documents. DWP will consult TPR and MaPS about all applications.
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Readers will recall that the Competition and Markets Authority (CMA) published an Order in 2019 setting out what trustees had to do in relation to setting objectives for their investment consultants and tendering for Fiduciary Management (FM).
Trustees were required to confirm that they met these duties by submitting a compliance statement to the CMA in January each year. However, from October 2022, the responsibility for monitoring compliance passed to the Pensions Regulator (TPR) under The Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2022.
TPR was expected to add new questions to the 2023 Scheme Return whereby trustees could confirm compliance with their duties in accordance with the Regulations to:
However, when TPR published its example returns for Defined Benefit and Hybrid Schemes on 5 December, there were no such questions. WTW therefore contacted TPR to ask what its expectations are in this regard. TPR has stated that it will “provide trustees with reasonable notice to comply” and “there will be a communication programme in advance of the requirements”. It went on to say that “schemes should continue to [record this information] and be ready to provide data to TPR when data collection is announced”.
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TPR has published details of the 2023 scheme return form for defined benefit and hybrid schemes. The main changes are to the asset breakdown section with the introduction of the new tier system that TPR and the PPF both consulted on last year. Detailed guidance is included in the Exchange help files. TPR is also seeking information on DGFs and absolute return funds, but no longer requires details of insurance funds, hedge funds and commodities. Scheme return forms will be sent out from 1 February 2023 and must be completed in two stages by 31 March 2023. Schemes will now also be able to record the most recent version of Pension Protection Fund valuation guidance (A9) and assumptions (A10) if appropriate.
A further change sees the trustee assessment of employer covenant has been moved from the part 1 online section (accessed and completed via a link that TPR will send) to part 2, whereby responses are given via Exchange.
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The Pensions Dashboards Programme (PDP) has published a consultation on the design standards for qualifying pensions dashboard services (QPDS) having held a Call for Input on them in July and August 2022.
The design standards will specify what the individual should see when they arrive at the dashboard and what those search results should produce. The results should provide a summary, which should have an entry in respect of each benefit a saver has, through which they can then access detailed pensions information to allow the user to see all their pensions information from each provider, scheme, or the State in one single space, though it will be possible to use scrollable functionality.
The consultation is running at the same time as the FCA’s consultation, below, with the same closing date of 16 February 2023 and expectation that the final standards will be published in the summer.
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The FCA has published a 328-page consultation document on its proposed regulatory regime for commercial pensions dashboard service firms.
It proposes allowing service providers to add services beyond the core ‘find and view’ function of a pensions dashboard provided those add-on services have the potential to improve pension outcomes and meet rigorous conduct standards.
The requirements will be framed in terms of outcomes, rather than as prescriptive standards, and fall into the following categories:
The consultation closes on 16 February 2023. The FCA intends to publish a Policy Statement and rules in Summer 2023 and to open the authorisations gateway shortly after these have been finalised.
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The PPF has published the 17th edition of The Purple Book. For the first time more than half of defined benefit (DB) schemes (51%) are closed to all benefit accrual – with the total number in the PPF universe now down to 5,131 schemes. Of the 9.6 million members covered, just 10% are active members.
The PPF reports that the universal funding position had improved to 31 March 2022 with the aggregate funding ratio up from 102.8% to 113.1% over the year, or from 73.7% to 79.2% on an estimated full buy-out basis. Funding is projected to improve further with total annual recovery plan payments expected to decrease by around 88% over the next 10 years, from around £12.3 billion in 2022 to around £1.4 billion in 2032. The Purple Book also looks at other topics including funding sensitivities, insolvency risk, and asset allocation (the aggregate proportion of scheme assets invested in equities rose slightly to 19.5% while the proportion in bonds dropped slightly to 71.6%).
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