Next steps for workplace pensions reform
Bright Blue and the Fabian Society – two leading think tanks from the right and left of British politics – today publish a joint paper exploring the views on pensions reform of Conservative and Labour politicians and policymakers. The report finds significant areas of agreement between the political parties and concludes that a new phase of consensus building on pensions is desirable and achievable.
Consensus continued? The next stage of pension reform is written by the chief executives of the two think tanks Andrew Harrop (General Secretary, Fabian Society) and Ryan Shorthouse (Director, Bright Blue). The paper shows that while the two political parties disagree on much of the detail there is significant convergence on key areas of pensions policy:
- Gradually increasing auto-enrolment contributions for workplace pensions – following careful assessment of the impacts of the first phase of the policy after it is fully implemented in 2019
- A major new pensions offer for the self-employed
- Better governed, larger Defined Contribution (DC) pension funds and support for CDC (Collective Defined Contribution) pensions
- Further reform to pensions tax relief, such as a single rate of tax relief
- Maintaining the generosity of the state pension but possibly ending the ‘triple lock’
Two likely areas of continuing political disagreement are future increases to the state pension age; and whether to steer unengaged pension savers towards a guaranteed income for life. But even on these issues, the report argues there could be scope for some accommodation.
Protection for pensions included in proposed shake up of insolvency regime
The government has unveiled proposals to shake-up the insolvency regime, including hefty fines or disqualifications for directors who dissolve companies in order to avoid paying workers or pensions. The proposals follow a consultation on corporate governance within companies which are in or are approaching insolvency.
Measures are to be taken forward to ensure greater accountability of directors in group companies when selling subsidiaries in distress; legislating to enhance existing recovery powers of insolvency practitioners in relation to value extraction schemes; legislating to give the Insolvency Service the necessary powers to investigate directors of dissolved companies when they are suspected of having acted in breach of their legal obligations; and creating alternative procedures to support business rescue.
TPR writes to pensions scheme over too generous transfer values
It has been widely reported in the media that a number of defined benefit (DB) pension schemes were asked to consider whether they are being too generous when quoting transfer values to members who are thinking about ‘cashing-in’ their accrued DB rights and investing the money in a defined contribution (DC) arrangement.
According to the press reports, the Pensions Regulator (TPR) has written to 14 DB schemes this year encouraging them to consider making reductions to cash equivalent transfer values (CETVs). The rational for this is TPR concerns that the CETVs were too high and could reduce the security of benefits for members who don’t transfer. Critically, the schemes were underfunded and/or had weak employers.
A JLT Client Alert on this issue is available.
PLSA research on tender process for fiduciary management
According to research from the Pensions & Lifetime Savings Association, more than eight in ten (81%) members of the PLSA would like The Pensions Regulator (TPR) to produce a comprehensive checklist for trustees to use during the tender process for fiduciary management and investment consultancy arrangements. The research was carried out as part of the PLSA’s response to the Competition and Markets Authority (CMA) Investment Consultants Market Investigation Provisional Decision Report.
In its report, the CMA recommended that pension trustees selecting their first fiduciary manager should have to run a competitive tender and trustees who have already appointed one without doing this must put the role out to tender within five years. The PLSA supports moves to improve the tendering process but believes greater guidance from TPR could be helpful.
The PLSA’s snapshot research found 77% of pension schemes had not run a tendering process for a fiduciary manager in the last five years and 55% had not run a tendering process for an investment consultant in the same period.
When asked what guidance from the regulator they would find useful in this process, 81% of PLSA members said they would like a checklist. Respondents also said they would appreciate best practice case studies (66%), templates for Request for Proposals documents (60%) and guidance on how to interpret information provided by potential suppliers (60%). In addition to the tender guidance, 69% of those surveyed also suggested that TPR should produce a checklist for what to consider when choosing an investment consultant. In addition, 63% would like a similar checklist on what to consider when deciding upon a fiduciary manager.
In its response, the PLSA also said that the CMA’s proposals should, overall, have a positive impact on the industry depending on the design and implementation of the suggestions. The PLSA said that it’s important that any remedies remain sufficiently flexible to allow for future market developments.
Pensions Regulator decision-making procedure for master trust authorisation applications
As part of its preparations for the master trust authorisation regime due to come into effect on 1 October 2018, the Pensions Regulator has published a note setting out its decision-making procedure when considering an application for authorisation.
The document sets out the process that will usually be followed by the Regulator's staff. An initial assessment will be made by the Regulator's authorisation team, who will issue a preliminary recommendation letter to the member of the Regulator's staff who has been delegated to act as decision-maker on behalf of the Determinations Panel. This letter will also be sent to the applicant master trust.
John W. Wilson LLB(Hons) FPMI ACII, Head of Research| Email: firstname.lastname@example.org
Stephen Williams, Senior Research Consultant | Email: email@example.com