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: new DC governance and reporting duties; new recommendations on voting by pension schemes; and a consultation on fixed rate GMP revaluation.
- New DC governance and reporting duties
- Stewardship: new recommendations on voting by pension schemes
- Fixed rate GMP revaluation: consultation on reduction in rate
- Changes to PPF compensation: latest update
- Investing pension funds sustainably – a lawyer and provider’s view
New DC governance and reporting duties
Trustees of schemes that provide money purchase benefits (except where these are AVC-only) will shortly be required to meet new governance and reporting duties in relation to returns on investments and value for members. Key points to note are:
- Starting from the first scheme year ending after 1 October 2021, trustees must publish net investment returns on DC default and self-select funds in the chair’s statement.
- Starting from the first scheme year ending after 31 December 2021, schemes with under £100 million in assets that have been operating for at least three years will have to undertake a specific DC value for members assessment, measured against three comparator schemes, and report on whether or not the scheme provides good value. Where trustees do not establish that their scheme offers value, the Pensions Regulator (TPR) expects trustees to either begin winding up (with members’ money purchase benefits transferred to an alternative arrangement) or to explain why this is not proposed and the steps being taken to achieve good value.
- Trustees will be required to publish information on a publicly available website on the net investment returns and (if applicable) the outcome of the value for members assessment.
- Related changes are being made to the information that must be provided in the scheme return.
The regulations also contain changes to: the charge cap on default funds in schemes used for auto-enrolment; the statement of investment principles requirements for wholly-insured schemes and schemes offering ‘with profits’ default arrangements; and costs and charges disclosure for funds that have been historically offered (but are not available for selection in the relevant scheme year).
Read the regulations.
Guidance on the new requirements
Statutory guidance has been published on the new value for members assessment and reporting of net investment returns: read the guidance.
TPR has also updated its related guidance on value for members, communicating and reporting (including the chair’s statement quick guide and technical appendix) and winding up a DC scheme.
An updated version of the statutory guidance on reporting costs and charges has also been issued – updates include changes in relation to the illustrations used in the chair’s statement and the smoothing of performance fees, and clarifications on publication requirements: read the guidance. TPR has added a reference to the smoothing of performance fees in its DC investment governance guidance: read the guidance.
Stewardship: new recommendations on voting by pension schemes
New recommendations have been made on improvements to pension scheme voting, by an industry taskforce established last year by the Pensions Minister (the Taskforce on Pension Scheme Voting Implementation).
The Taskforce has published a detailed report looking at current barriers to voting by occupational schemes (complexity in pension and investment structures and in how voting is delivered, issues with split voting in pooled funds, stakeholder attitudes, and asymmetry of power) and key principles for voting and recommendations for change. Its recommendations include:
- Trustees should either set their own voting policy or acknowledge responsibility for the voting policies that asset managers implement on their behalf. These matters should be covered in their statement of investment principles and implementation statement.
- Asset managers should offer pooled fund investors the opportunity to set an expression of wish. The Financial Conduct Authority should publish guidance for asset managers on expressions of wishes, and reporting and disclosure of voting policies and behaviour.
- The government should provide further guidance and encouragement for trustees, including guidance on the ability of trustees to set an expression of wish over their own voting policy in pooled funds, and best practice examples of voting policies to aid trustees in setting their own policy, or in reviewing asset manager policies.
- If the market does not move sufficiently quickly to offer an expression of wish or equivalent arrangements across all pensions investment structures, the government should ask the Law Commission to propose legal frameworks that give owners the necessary rights.
Read the press release.
Read the report.
Fixed rate GMP revaluation: consultation on reduction in rate
The government is consulting on proposals to reduce the rate of fixed rate revaluation of guaranteed minimum pensions (GMPs) from 3.5% per annum to 3.25%. It is proposed that, for schemes that use the fixed rate revaluation method, this reduced rate would apply to members who leave pensionable service in the period 6 April 2022 to 5 April 2027.
The proposed change would come into effect from 6 April 2022. In schemes where the current rate has been hardwired into the rules without scope for substitution, an amendment may be required if this measure is adopted. The consultation closes on 18 November 2021.
Read the consultation.
Changes to PPF compensation: latest update
The Pension Protection Fund (PPF) has published a further update on its implementation of changes to compensation payable to pensioners. This covers both pensioners who are subject to the PPF compensation cap, as well as other members who were not subject to this cap but are receiving increases to ensure that they receive 50% of the value of their accrued benefits. A decision has not yet been made about whether to apply a six-year time limit to the payment of arrears.
Read the update.
Investing pension funds sustainably – a lawyer and provider’s view
11am on 28 September 2021
With over £2.4 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.
Click here to register.
