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 regulations on the employer resources test for contribution notices; and a discussion paper on value for money.

• Contribution notices: regulations on ‘employer resources test’

• DC: New TPR/FCA discussion paper on value for money

From 1 October 2021, the Pension Schemes Act 2021 introduces two new tests for contribution notices, known as the employer insolvency and employer resources tests. Regulations addressing how an employer’s resources are assessed for the purposes of the new employer resources test have now been published.

As a reminder, the employer resources test is met if the Pensions Regulator (TPR) is of the opinion that an act or failure to act reduced the value of the employer’s resources, and that reduction was material relative to the estimated section 75 debt in relation to the scheme. The regulations set out a profit before tax measure as the basis for the snapshot assessment of the employer’s ability to support its DB pension scheme before and after the relevant act/omission (or series of acts/omissions); however, the legislation also leaves a number of matters to TPR’s discretion. Even where the employer resources test is met, this does not mean that a contribution notice will necessarily be issued – a statutory defence may exist, and TPR must also satisfy other criteria (including a ‘reasonableness’ test).

TPR is expected to issue further guidance on the employer resources test shortly – it has previously consulted on an updated code of practice (and related guidance) on this: read the consultation.

Read the regulations.

DC: New TPR/FCA discussion paper on value for money

TPR and the Financial Conduct Authority (FCA) have published a new discussion paper on driving value for money (VFM) in DC pensions, with the aim of developing a common framework for measuring value for money, and encouraging a long-term focus on VFM in the pensions sector. Common principles and standards for VFM were identified as a regulatory priority in their 2018 joint regulatory strategy.

The discussion paper proposes a common framework for disclosing information on investment performance; scheme oversight; and costs and charges. It aims to improve value by various means, including increased transparency and comparability. It focusses on VFM in the accumulation phase.

The deadline for comments is 10 December 2021; a statement on next steps is expected in 2022.

Read the discussion paper.

PASA: initial administration considerations for ‘statement season’

PASA’s Benefit Statements Working Group has published a paper on initial administration considerations for a ‘statement season’. As a reminder, the government has been exploring whether annual benefit statements by DC schemes used for auto-enrolment should be sent out in a specific time window, called a ‘statement season’.

The paper discusses two potential approaches: a common ‘publication date’ where all benefit statements are published at the same time; or a common ‘valuation date’ where all benefit statements are produced ‘as at’ the same valuation date (which would be more complex to implement).

Although the Working Group is supportive of the statement season concept, the paper highlights the significant lead-time that will be required for implementation, and potential resource constraints that may arise.

Read the paper.

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.