New guidance published for DC investments
Updated DC Investment Guidance has been published by TPR. The guidance now incorporates regulations which come into force from October 2019 and October 2020 and responds to industry requests for further guidance in certain areas.
David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at TPR, said: “Good governance and the management of investment risk in pensions schemes is fundamental to provide savers with a good retirement.
“Climate change is a core financial risk which trustees will need to consider when setting out their investment strategy. They will be obliged to show how they are taking this and other financially material considerations into account over the lifespan of investments.
“This guidance provides updates as well as clarity for trustees, including considerations when planning scheme investments.”
Guy Opperman, Minister for Pensions and Financial Inclusion, said: “Pension schemes have a significant part to play in tackling the climate emergency. They should be thinking about how they can meet the long-term interests of their members by driving new investment in important sectors of the economy – helping to deliver sustainable environments, jobs and communities.
“I welcome The Pension Regulator’s updated guidance which follows the government’s game-changing regulations clarifying and strengthening pension scheme trustees’ environmental, social and governance responsibilities.”
The guidance has been updated to reflect recent changes to legislation for DC schemes:
- Trustees must make their Statement of Investment Principles (SIP) - a scheme’s investment strategy - available free of charge on a website from October 2019.
- From October 2020 trustees must produce an implementation report which explains how trustees have followed and acted on the investment policies outlined in the SIP.
- The SIP must include the trustees’ policies on:
- financially material considerations including environmental, social and governance matters such as climate change.
- stewardship of investments, such as exercising rights (including voting rights) and engaging with activities in respect to the investments.
- the extent to which members’ views, including ethical, social and environmental, are considered when planning investments.
- arrangements with asset managers.
The updated guidance also provides further clarity around what is meant by financial material considerations, stewardship and provides more information about preparing an implementation statement.
Firefighters win landmark pensions discrimination case
The Fire Brigades Union (FBU) has secured a major victory in its long-running dispute with the Government over changes made to firefighters’ pensions in 2015. By an order dated Thursday 27 June 2019, the Supreme Court has refused permission for the Government to appeal against the decision of the Court of Appeal in Lord Chancellor and another v McCloud and others; Secretary of State for the Home Department and others v Sargeant and others . The refusal is on the grounds that the applications do not raise an arguable point of law. In addition, the Government has been ordered to pay the costs of the case.
This is the last legal hurdle in the dispute, leaving the Government with no further avenue to exhaust. The case will now be remitted back to the Employment Tribunal for remedy.
The firefighters’ pension scheme was substantially worsened in 2015, and the FBU argued that the protection imposed on younger members was unlawful on age, sex and race discrimination grounds. The 2015 changes meant that older members could stay in the existing and better pension scheme, and younger members had to transfer to a new and worse scheme, causing huge financial losses. The FBU initiated over 6,000 Employment Tribunal claims alleging that the changes amounted to unlawful discrimination.
The Government’s transitional arrangements for pensions were ruled discriminatory by the Court of Appeal last December. The Government had appealed against the Court of Appeal's decision, having provisionally estimated that the judgment could cost the equivalent of approximately £4 billion per annum. The landmark legal case will likely impact on other public sector schemes.
Pension Schemes Newsletter
HMRC has published its latest Pension Schemes Newsletter which looks at:
- Relief at source
- Master Trusts supervision
- Managing Pension Schemes service
- Guaranteed Minimum Pension (GMP) equalisation - HMRC working group
- Telling HMRC about pension tax charges on the SA100 tax return
Appendix 1 - guidance on receiving your Notification of Residency Status Report
As regards point 4, the newsletter says:
“HMRC’s GMP Equalisation Working Group met in May and June to consider the pension tax issues that may arise as result of GMP equalisation and is scheduled to meet again in early July 2019. The group is currently focusing on what certainty can be delivered within the existing legislation and supported by guidance where appropriate. We’re making good progress in exploring a number of approaches and are considering these to ensure they have the desired outcome and avoid potential unintended tax consequences. This makes take some time so it’s unlikely we’ll be able to update guidance before the autumn.
We also know the issues can be complex and it’s possible that we may not be able to resolve these by using the existing legislation, however HMRC is committed to finding a pragmatic and proportionate outcome to all of the pension tax issues. We will continue to provide further updates on progress through this newsletter.”
Scheme Funding Analysis 2019
The Pensions Regulator (TPR) has published Scheme Funding Analysis 2019, which is an update to its annual funding statistics for UK defined benefit (DB) and hybrid schemes.
The update is based on Tranche 12 schemes (with effective valuation dates falling from 22 September 2016 to 21 September 2017 inclusive). These valuations (with due dates for receipt falling within the period December 2017 to December 2018) fall within the fourth triennial cycle of scheme funding.
The report shows funding trends in the context of market conditions, assumptions and scheme characteristics that impact on valuations. It also describes reported arrangements for recovery plans, employer contributions and contingent security.
By the end of January 2019, TPR had received over 1,880 valuations with an effective valuation date for Tranche 12 - just under a quarter (23%) of which reported a surplus on the Technical Provisions (TPs) funding basis. Of schemes submitting these valuations, 77.6% had previously submitted valuations in respect of Tranches 9, 6, and 3.
The growth in assets matched the growth in liabilities between Tranche 9 and 12 valuation dates for many schemes, resulting in a relatively unchanged average funding ratio on a TPs basis. Compared to Tranche 9, average annual deficit reduction contributions (DRCs) as a proportion of TPs for Tranche 12 are relatively unchanged, at the median in nominal terms. The relative increase in average annual DRCs is 18% at the median, while the average (median) extension to the recovery plan end date is around two years.
New Chief Executive outlines TPR’s priorities
TPR’s new Chief Executive, Charles Counsell, has set out how he will lead the organisation to ensure savers are treated fairly.
In his first speech since taking up the post in April, Mr Counsell outlined how he will deliver TPR’s goals and priorities.
Speaking at the Pension Benefits UK conference, Mr Counsell told delegates: “I’m here to deliver. Deliver the standards savers rightly expect and deliver robust protection for them. I want savers to have confidence their pensions are safe.”
TPR is currently going through significant change in the way it regulates. By working proactively with more pension schemes through a new range of approaches, TPR is clearly setting out its expectations, understanding the impact of any risks on savers and taking tough action where necessary.
“I am committed to delivering the change and concluding the transformation,” Mr Counsell said.
He also talked about the importance of the individual saver, and how regulators, government and the industry must work together to ensure they are protected. “People are now, more than ever, being encouraged to engage, plan and understand their pension. This is a huge cultural change. And it’s why we at TPR must increase our focus on savers.”
Mr Counsell added that pension savers are “individuals who carry the risk – and who are largely neither engaged nor experienced at managing this risk”.
He also set out how TPR is working to ensure savers are treated fairly: “They are people who need to be better supported and crucially better protected. It’s right that we hold to account those who put savers pensions at risk. We have used more of our powers, more often and been creative in using the law to protect savers.”