Pensions: what’s new this week October 2021 | Allen & Overy LLP

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  • Pension Insurance Act 2021: New regulatory powers, sanctions begin; new TPR instructions
  • PPF advises on the draft of the tax code 2022/23
  • Latest guide to GMP clearing
  • DC Investments: New Productive Finance Report, TPR Blog Post
  • Climate change, responsibility and pensions: new parliamentary report
  • Latest HMRC newsletter
  • Small pots: Industry group reports on progress

Pension Insurance Act 2021: New regulatory powers, sanctions begin; new TPR instructions

On October 1, extensive new powers and sanctions for the Pension Regulation Authority (TPR) came into force:

  • new offenses and fines (up to £ 1 million) for avoiding employer debt, risky behavior of the system’s accrued benefits and failure to follow a Contribution Notice (CN);
  • Changes to the CN framework (including the new employer bankruptcy and employer resource tests);
  • new information gathering powers for TPR;
  • increased penalties for non-compliance with the existing framework for reportable events; and
  • new sanctions in connection with the provision of false or misleading information to TPR and pension fund trustees.

TPR has now released long-awaited guidance on its new regulatory powers and sanctions, including updated CN guidance (see below) and its final policy on investigating and prosecuting the new offenses of avoiding employer debt and behavior that risks accrued system benefits. While the guideline provides a clearer indication of TPR’s approach to crime, further guidance on key areas is pending. As a minimum, DB Systems trustees should be aware of the new offenses and CN tests as part of their trustee knowledge and understanding and if they might apply – if you would like to arrange training please contact your usual A&O advisor.

Crime policy and further advice

The crime policy has been significantly updated from the consultation version, including:

  • new guidelines on “reasonable excuses”, including new / updated examples and high-level guidelines on common behavior and activities (e.g. employer debt relief); and
  • an expanded case study (based on simplified facts) examining how TPR would rate the behavior of a (now bankrupt) sponsoring employer, its parent company, an independent client, and lenders.

The policy does not provide specific guidance to trustees other than on the easement of employer debt. However, TPR stresses that it intends to “investigate and prosecute the most serious examples of willful or reckless behavior that already fall within the scope of our contribution notice or would fall within the scope of application if the individual were associated with the employer of the system” .

Read the Crime Policy and the corresponding consultation response.

TPR needs to express its position on key elements of its new powers, including new fines of up to 1 million.TPR has launched a further consultation on guidelines in the following areas:

  • Situations where TPR has overlapping criminal / civil enforcement powers;
  • Fines that cover the new fines of up to £ 1 million; and
  • TPR’s approach to using its information gathering powers, including the associated sanctions.

The consultation ends on December 21, 2021, which means the final versions of these new guidelines will not be published until 2022.

Read the advice.

Contribution notices and approval

TPR also published:

TPR has stressed that the clearance only applies to its moral hazard powers, not the criminal offenses. If a party receives a release notice in relation to a particular act, it does not automatically mean that the person has a reasonable excuse for the purposes of the offense (but a receiver of a release notice could attempt to relate to theirs by arguing that they have a reasonable apology).

The updated Code of Conduct and guidance on TPR’s enhanced CN powers provide details on the new employer bankruptcy and employer resources tests. These can be used in addition to the existing property damage test and a separate test to avoid employer debt in order to request additional payments to a DB pension fund. The new tests focus on the impact of an act / omission on an employer and its ability to support the system due to its impact on either (a) the value of the employer’s resources relative to the deficit of the system, or (b) the hypothetical bankruptcy outcome for the system. The guidance provides examples of circumstances in which the various CN tests may / may not be performed, including various acts that may reduce the employer’s agreement or weaken a system’s creditor position.

PPF advises on the draft of the tax code 2022/23

The pension security fund (PPF) is advising on its allocation regulation 2022/23. The PPF intends to set the tax estimate at £ 415 million, leaving the tax scaling factor, schema-based multiplier and risk-based tax cap unchanged. The PPF predicts that over 80% of the systems will experience a tax reduction from 2021/22, but some systems will experience significant tax increases if the sponsor’s insolvency index has deteriorated (2% of the systems may experience a doubling of their levy).

The PPF proposes changes to its rules for consolidators and systems without a material sponsor (known as the rules for alternative covenant systems) and very limited changes to its rules otherwise. It has published draft versions of the Provision, the Appendix for Transfers, the Appendix on Alternative Covenant Schemes, and Guidelines on Alternative Covenant Schemes for consultation. The consultation document also points out that the waiver of the upper severance limit:

  • has a potential impact on systems performing s179 assessments – the PPF intends to issue updated s179 assessment guidance later in the year to clarify the position; and
  • has additional implications for certain documents that have not been made public during this consultation but will be updated and made public when the decision is finalized.

The consultation ends on November 9, 2021.

Read the advice.

Latest guide to GMP clearing

PASA’s GMP Equalization Working Group has published the following new guidelines:

  • Notices from Members in the Implementation Phase – This is another set of program communication guides that were published following the Communication Guidelines in the early planning phase last year.
  • Anti-Franking – This guide looks at the interplay between anti-franking and GMP clearing and discusses three potential techniques for applying anti-franking in the context of GMP clearing.

Read the member communication guidelines and anti-franking guidelines.

DC Investments: New Productive Finance Report, TPR Blog Post

New recommendations have been published on how to remove barriers to investing in less liquid assets through DC pension schemes and to shift the focus from cost to long-term value. The aim is to facilitate larger investments in UK ‘productive finance’, including venture capital, private equity and infrastructure. The report of the Productive Finance Working Group (chaired by HM Treasury, the Bank of England and the Financial Conduct Authority) recommends that trustees, where appropriate:

  • actively consider how increasing investments in less liquid assets could generate greater value for their members; and
  • Monitor long-term returns with robust metrics.

The report makes further recommendations, including regarding the fee cap, the consolidation of DC programs, and market changes (such as the Long-Term Asset Fund).

Read the report.

TPR responded to the report with a new blog post on “Investing in the Future” by DC. While TPR supports the report and suggests that innovation is needed in the DC market, TPR urges caution: Trustees have fiduciary duties and should only invest in assets if, after appropriate advice, they believe it to be in the members lies’ interests. TPR plans to provide further guidance for trustees on illiquid investments next year.

TPR also calls for active engagement from trustees, advisors and investment managers to drive investment and risk management innovations in the DC market and to accelerate the transfer of skills and innovations from DB to the DC market.

As soon as these industry developments lead to new investment opportunities, TPR expects Trustees to assess whether they are suitable for their program and be ready to demonstrate to members that they have considered the full range of investment opportunities in the context of potential future outcomes for members, and not just in the context of costs. If trustees feel that they do not have the size of the system or the governance capacity to accommodate these (future) investment opportunities, TPR also expects them to consider whether a consolidation might be appropriate.

Read the blog post.

Climate change, responsibility and pensions: new parliamentary report

In the run-up to COP26 in November this year, the Working and Pension Committee published its report on the management of pension systems, which contains a number of recommendations, including:

  • TPR should continuously monitor and update the detailed guidelines for trustees to consider the effects of climate change on members;
  • TPR should provide a definition of net-zero alignment and set up a working group to develop guidelines for programs aiming to set net-zero targets;
  • the government should consult whether it makes sense to require that standard arrangements in DC systems used for auto-registration should be aligned with the government’s climate goals; and
  • The government should publicize the steps it is taking to ensure that its policies do not incentivize divestment through good governance (but indicate that programs may consider divestment if there is no other option).

The government is expected to respond to the report in due course.

Read the report.

Latest HMRC newsletter

HMRC’s latest Retirement Plan Newsletter (# 133) contains information on multiple small payment reporting, updates to systems that operate at source, and the migration of pension schemes to the Managing Pension Schemes service.

Read the newsletter.

Small pots: Industry group reports on progress

An industry working group considering solutions for the diffusion of small deferred pension pots has published its first progress report. The group addressed administrative issues related to small pots and further explored possible solutions to the small pots problem.

Read the report.


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