Pensions: what's new this week - June 2022

Allen & Overy LLP

Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover topics including: New regulations: fiduciary management and investment consultancy; TPR/FCA pensions consumer journey feedback; TPR: clarification on ‘stronger nudge’ requirements; TPR: CDC code; Extension of EU clearing exemption; HMRC Pension Schemes Newsletter; High Court: when members can bring claims against trustee directors; High Court: stopping survivors’ pensions on marriage/civil partnership/cohabitation not incompatible with ECHR.

  • New regulations: fiduciary management and investment consultancy
  • TPR/FCA pensions consumer journey feedback
  • TPR: clarification on ‘stronger nudge’ requirements
  • TPR: CDC code
  • Extension of EU clearing exemption
  • HMRC Pension Schemes Newsletter
  • High Court: when members can bring claims against trustee directors
  • High Court: stopping survivors’ pensions on marriage/civil partnership/cohabitation not incompatible with ECHR

New regulations: fiduciary management and investment consultancy

The government has published its long-awaited consultation response and laid regulations in relation to requirements for pension schemes using fiduciary management (FM) services and investment consultancy (IC) providers.

From December 2019 many schemes fell within the scope of rules from the Competition and Markets Authority (CMA) requiring trustees to set strategic objectives for IC providers and run competitive tenders for FM services. The new regulations, which establish a similar (but not identical) replacement regime, were originally due to take effect from April 2020, but this was delayed due to Covid-19. Subject to Parliamentary approval, the Department for Work and Pensions (DWP) anticipates that the regulations will come into force on 1 October 2022. TPR will update its current guidance to reflect the final regulations ahead of their commencement.

What will change?

Although aiming to largely replicate the CMA requirements, key differences in the new regime include:

  • Certain in-house providers, known as Occupational Pension Scheme (OPS) firms, were exempt under the CMA requirements but this exemption has not been carried over to the new regulations, so compliance (setting objectives and monitoring performance against those objectives) will now need to be considered in relation to those arrangements. The requirements cover not only those OPS firms that are wholly-owned by trustees, but also those that are owned by a number of different schemes.
  • The CMA requirements did not cover schemes where the principal or controlling employer is itself a provider of FM and/or IC services or master trusts for which an IC/FM firm (or an interconnected body corporate of the IC/FM firm) is the scheme strategist or scheme funder. The DWP has continued this exemption in relation to carrying out FM tenders (because it would be impractical in these circumstances to expect scheme trustees to carry out a competitive tender for FM when they would have a clear and legitimate preference to use the services of the sponsoring employer), but will require trustees to set IC objectives for these providers and monitor performance against them. Schemes whose trustees own a provider of FM and/or IC services will remain out of scope.
  • The DWP has used a wider definition to determine whether organisations are connected for the purposes of identifying whether a scheme is sponsored by an IC/FM or connected body (to benefit from the exemption mentioned above), or a service meets the definition of FM. It has excluded joint ventures from the test of being connected, to address the risk of a scheme sponsor and FM entering into a joint venture to avoid the tendering requirements. This means that the requirements may have changed for arrangements affected by these definitions.
  • The regulations include a condition that a provider is considered to provide FM services where (subject to other conditions) it is appointed to carry out asset management prior to being appointed to provide IC services. This is to avoid a potential loophole whereby schemes effectively appoint a FM provider in stages to avoid them falling under the definition.
  • Providing transition management services (where the trustees delegate authority for a short period to move assets in their current portfolio to another arrangement and replace/remove the current manager) alone will not mean that a person is a FM provider for the purposes of the regulations.
  • The Pensions Regulator (TPR) will now have regulatory oversight, rather than the CMA. Trustees will be required to report compliance through their scheme return.

Read the consultation response and regulations.

TPR/FCA pensions consumer journey feedback

TPR and the Financial Conduct Authority (FCA) have published a feedback statement in relation to their May 2021 joint call for input on the pensions consumer journey. The call for input invited views on how best to engage consumers so they can make informed decisions that lead to better pension saving outcomes. The statement discusses feedback on issues with engagement throughout the pension journey and current steps being taken to address these. It also sets out some upcoming initiatives, including: producing guidance which enables employers to support staff returning to the workforce; an equality review to understand how well the market works for different groups of savers (for example, in relation to provision of sharia-compliant funds); and a review of TPR’s ‘communicating to members’ section of the DC code-related guidance to give more information on inclusivity, using behavioural insights, and the timing of communications.

Read the statement.

TPR: clarification on ‘stronger nudge’ requirements

TPR has updated its guidance for DC schemes on communicating and reporting to clarify that the new ‘stronger nudge’ requirements do not apply to communications sent after 1 June (the date on which the requirements came into force) if the application was being processed before that date.

As a reminder, schemes are now required to provide a ‘stronger nudge’ to pensions guidance in relation to members aged 50 or above who have a right to flexible benefits (and to individuals aged under 50 who meet the ill-health condition), when those individuals contact them with a view to accessing flexible benefits (or transferring to obtain access). Schemes will be required to provide information about appropriate pensions guidance and offer to book an appointment with Pension Wise.

Read the updated guidance.

TPR: CDC code

TPR has laid its new code of practice for the authorisation and supervision of collective defined contribution (CDC) pension schemes before Parliament, as well as publishing its response to the consultation on the code held earlier this year. Subject to completing the legislative process, the code will apply from 1 August 2022.

Read the consultation response and the code of practice.

Extension of EU clearing exemption

The European Commission has published a regulation extending the exemption for European pension scheme arrangements from clearing requirements for over-the-counter derivatives. The exemption has been extended for what is expected to be a final time, to 18 June 2023 (matching the expiry date of the exemption under UK EMIR).

Read the regulation.

HMRC Pension Schemes Newsletter

HMRC has published Pension Schemes Newsletter 139 which includes a reminder that the deadline for submitting the 2021-22 annual return of information is 5 July 2022; information on a project to digitise the relief at source service; and guidance on migrating schemes to the Managing Pension Schemes service.

Read the newsletter.

High Court: when members can bring claims against trustee directors

The High Court has recently ruled on an application by scheme members to be allowed to bring claims against the trustee directors of their pension scheme. The claims in this case were unsuccessful, but the judgment is interesting in its discussion of the test for members being able to bring such a claim, in effect allowing them to stand in the shoes of the trustee company. Broadly, they must:

  • prove they have sufficient interest or standing to pursue the claims on behalf of the company or other entity. They must show that the company has suffered a loss and that this is reflective of their own loss;
  • establish a prima facie case that each individual claim falls within one of four situations, including (most relevant in the pensions context) the company doing something beyond its powers or (as argued in this case) there being a fraud, meaning that the directors had committed a deliberate or dishonest breach of duty or that they have improperly benefitted themselves at the expense of the company;
  • establish a prima facie case on the merits in respect of each claim; and
  • show that it is appropriate in all the circumstances to permit them to pursue the derivative claim or claims.

This test sets a high bar for scheme members being able to bring claims against trustee directors, in particular because the judge found that the prima facie requirement was a higher test than proving a seriously arguable case; the Court had to be satisfied that in the absence of an answer by the defendant, the members would be entitled to judgment.

Read the case.

High Court: stopping survivors’ pensions on marriage/civil partnership/cohabitation not incompatible with ECHR

The High Court has recently rejected claims that rules in the police pension scheme which meant that surviving partners’ pensions stopped if the surviving partner married, entered into a civil partnership or cohabited with a new partner were contrary to the European Convention on Human Rights (ECHR). The judge found that the rules were objectively justified and proportionate, and therefore not contrary to human rights law, despite the fact that the rationale for such rules is now socially outdated. Key considerations were that the rules were part of the design and costing of the scheme, and the basis on which members had contributed; that a new scheme had been created without these provisions, which the members chose not to join; and that there would be a significant economic impact if these rules were disapplied.

Read the case.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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