Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pensions.
This week we cover topics including: the commencement of new regulatory powers and sanctions under the Pension Schemes Act 2021; and an interim response to the Pensions Regulator’s single code of practice consultation.
- Pension Schemes Act 2021: commencement of new regulatory powers and sanctions
- TPR publishes interim response to single code of practice consultation
- TPR blog post: reminder of auto-enrolment duties
- Employer-related investments: TPR announces prosecution
- Save the Date: Investing pension funds sustainably – a lawyer and provider’s view
Pension Schemes Act 2021: commencement of new regulatory powers and sanctions
New regulatory powers and sanctions under the Pension Schemes Act 2021 will come into force on 1 October 2021, including the new ‘headline’ criminal offences, as confirmed in a new commencement order.
The changes coming into force on 1 October include:
- the new criminal offences and financial penalties (of up to GBP1million) for failure to comply with a contribution notice, avoidance of employer debt and conduct risking accrued scheme benefits;
- changes to the current contribution notice framework (including the new employer insolvency and employer resources tests);
- new information-gathering powers for TPR;
- increased penalties for failure to comply with the existing notifiable events framework; and
- new sanctions around the provision of false or misleading information to TPR and pension scheme trustees.
The commencement order also contains some transitional and savings provisions relating to conduct prior to 1 October 2021. Importantly, these cover the new criminal offences and financial penalties and contribution notice changes referred to in the first two bullets above, as well as providing that the existing penalty level applies to a failure to comply with the current notifiable events framework (where the duty to notify arose before 1 October).
Draft regulations setting out matters relating to the new employer resources test have been laid before Parliament and are due to be considered in early September. The sections of the Act making changes to DB funding and introducing the new notifiable events/declaration of intent requirements are not yet in force; consultations on regulations relating to these changes are expected this year.
We will be running webinars this autumn to discuss the implications of the new regulatory powers and sanctions for pension schemes, sponsors and lenders; further details will be available in due course.
Read the commencement order.
TPR publishes interim response to single code of practice consultation
TPR has published an interim response to its single code of practice consultation, addressing several aspects of the draft code and highlighting that the final code is unlikely to come into force before summer 2022. Key points to note include:
- TPR is revising its controversial expectation in the draft code that normally, no more than a fifth of scheme investments should be held in assets not traded on regulated markets. TPR comments that it ‘will not be proceeding with this expectation in the way it is drafted. However, we will explore options for achieving our original policy objective whilst allowing schemes with liquidity risk management plans and prudent investment strategies to maintain exposures to unregulated assets’.
- Respondents raised concerns about the own risk assessment (ORA), including the work involved, timeframe, form of the completed product and the burden on smaller schemes. In the draft code, TPR had proposed tighter timescales for preparation and documentation of the first and subsequent ORAs than those set out in the relevant legislation. Following consultation feedback, TPR has stated that it considers that trustees should prepare their first ORA in a timely fashion and that the legal timescales should be considered as a maximum (with the ORA prepared in a shorter timescale as a matter of best practice); it is also considering other possible changes/guidance as a result of feedback, particularly for smaller schemes.
Read the interim response.
TPR blog post: reminder of auto-enrolment duties
TPR has published a new blog post reminding employers to continue to comply with their auto-enrolment duties, as they adjust to the ‘new normal’ after the Covid-19 pandemic and some businesses face greater financial pressures (and potentially insolvency) with the winding up of government support packages. TPR is also paying particular attention to certain sectors that are at greater risk of non-compliance, as well as monitoring the ‘gig economy’.
Read the blog post.
Employer-related investments: TPR announces prosecution
TPR is prosecuting breaches of the employer-related investment rules in relation to the ‘Norton Motorcycles’ case. It is a criminal offence to invest more than five per cent of the current market value of scheme resources in employer-related investments (ERI), unless an exception applies.
Last year the Pensions Ombudsman (TPO) determined that the former owner of Norton Motorcycles had acted dishonestly and in breach of his duties after complaints that, as sole trustee of several schemes, he had acted in conflict of interest, breached investment duties and committed breaches of trust: read the decision. TPO noted that he had not investigated whether there had been a breach of the ERI rules, but that he would bring this to TPR’s attention. The former owner has now been charged with three offences (one in relation to each scheme).
Read the press release.
Save the Date: Investing pension funds sustainably – a lawyer and provider’s view - 11am on 28 September 2021
With over GBP2.4 trillion of investments held by UK occupational pension schemes, it’s easy to see why ever-increasing sustainability obligations for pension schemes are an essential part of the UK government’s drive to net-zero, putting pressure on trustees to invest sustainably. But what are the legal requirements trustees need to consider when making sustainable investment decisions and how can they achieve a sustainable strategy that isn’t to the detriment of financial return?
In this webinar, Matt Townsend, Co-Head of Allen & Overy’s Sustainability Working Group, will chair a session with Jessica Kerslake, Partner in Allen & Overy’s Pensions team, and Steve Waygood, Chief Responsible Investment Officer at Aviva Investors. Jessica will outline the latest legal requirements and the factors trustees must consider. Steve will set out the steps Aviva has taken to navigate these legal requirements, reaching positive sustainable investment decisions based on financial factors and creating one of the UK’s first default investment strategies that incorporates both ethical and ESG considerations.