Need to know:
- Workplace pension schemes are facing huge amounts of change in the coming months.
- Employers, trustees and administrators have to be aware of the new reporting requirements on climate change.
- Preparing for the pensions dashboards will see schemes having to supply data in line with a 2023 deadline.
Pension managers, trustees and administrators are coping with enormous regulatory and cultural change in pension provision, often against the clock.
Climate risk
The environmental, social and governance (ESG) is one challenge generating volumes of work, amid an evolving regulatory environment and a momentum shift in attitudes. The Pensions Regulator (TPR) has recently published its proposed guidance on climate risk, which will require trustees or managers of large occupational pension schemes to maintain oversight of climate-related risks and opportunities, with monetary penalties for non-compliance.
In what is likely to be the first phase of a wider roll-out, funds exceeding £5 billion will be required to report against standards set by the Task Force on Climate-related Financial Disclosures (TCFD) on how they are considering the impact of climate risk on their investments from October this year, and from 1 October 2022, this will apply to schemes of £1 billion plus.
Nigel Peaple, director policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), says: “A few years ago, only the largest schemes such as BT and the Church of England had sustainable investment policies in place. There has been a big change in attitudes since then. Schemes have had an obligation to include their stance on ESG issues in their Statement of Principles since October 2019, and there are new reporting requirements on climate change. The big difficulty at the moment is clarity, and meaningful and comparable data about what exactly is green.”
Digital dashboards
The pensions dashboards, an essential element of efforts to drag pensions into a more digital environment, are also moving forward. The expectation is that multiple dashboards will be run by private firms, alongside a public service free dashboard run by the Money and Pension Service (MAPS). Schemes will have to supply data to the dashboard in line with a timetable that sets the first deadline as Spring 2023, which leaves just 24 months to get to grips with the challenge.
“The first ‘waves’ of schemes will have to supply data from 2023 onwards, though the dashboards may not go live to the public until a later date,” says Steve Webb, partner at Lane Clark and Peacock. “When they do, this is likely to lead to a huge volume of queries to schemes and employers. Members will see pensions they do not recognise, gaps for pensions they expect to be there and pension values that don’t tally with the statements they have received. If the ‘switch-on’ of the dashboards is not itself phased, for example by age of member, then employers and schemes could face a surge of inquiries they are not geared up to deal with.”
Longer term, however, dashboards will be the central way in which savers engage with their retirement plans. They have enormous “potential as a means for people to transact online, for example, instructing transfers to new employer schemes by simply dragging and dropping a previous pension pot into a new one”, says Jamie Jenkins, director of policy and external affairs at Royal London. “Look at how open banking has developed, and how the dashboard fits within the wider architecture of open finance, whereby hopefully people will be able to manage all their financial products in one place.”
Pension scams
The prevention of scams is another priority for pensions minister Guy Opperman. New rules require members whose transfers raise ‘amber flags’, such as transfer to a scheme with high risk or unregulated investments, to take guidance from MoneyHelper, which was launched by Maps in June. Where ‘red flags’ are raised, the transfer can be refused, for example where the individual has been contacted out of the blue. This should avert situations where individuals insist on a transfer, and providers have been powerless to prevent it going ahead, even where fraud is suspected.
To foster engagement, the DWP has also outlined plans to help savers looking to access their pots become more informed before moving their money. New ‘stronger nudge’ rules propose trustees and scheme managers ensure the individual has either received, or opted out of receiving, Pension Wise guidance, before proceeding with their application. Schemes must also offer to book a Pension Wise appointment on the individual’s behalf.
In the world of defined benefit (DB) pensions, TPR is introducing a new funding code that allows fast-track or alternative bespoke funding, but is keen to head off extreme funding solutions such as where there is covenant weakness or overblown return projections.
The Pension Schemes Act introduced two criminal offences which relate to corporate actions that deprive a DB scheme of funding, carrying a maximum seven-year prison sentence or civil penalty of up to £1 million. “TPR has been given greater powers to enforce rules relating to corporate action, in particular,” says Dale Critchley, policy manager for workplace savings and retirement at Aviva. “This means the impact of corporate actions on the scheme will need to be considered to avoid any inadvertent impact that could be misconstrued as intentional.”
Minimum contributions
The adequacy of minimum contributions is likely to become a major focus of the policy world. The DWP has said its plans from a review conducted in late 2017 will be implemented by the mid 2020s, which is likely to lead to increased contributions from employers who currently pay only the statutory minimum. This includes automatic enrolment starting at 18 rather than 22, and the mandatory 8% contribution applying to the whole of earnings, not just ‘qualifying’ earnings.
“Little is being done on the gender pensions gap as a whole, but work goes on in relevant areas,” says Ros Altmann, former pension minister. “The 2017 auto-enrolment review is likely to consider low earners who are excluded, part time workers who are also excluded from pensions auto-enrolment and have to opt in, the net pay issue has not been resolved and there are important issues to be addressed in terms of contributions during periods out of work for caring responsibilities and ensuring adequate provision on divorce.”
Laura Stewart-Smith, head of workplace savings and retirement at Aviva, suggests that employers adopt salary sacrifice for pension contributions for employees on maternity leave. “This results in pension contributions being maintained at pre-maternity levels throughout paid maternity leave. It would replace the current situation in which employee contributions fall to £1.56 per week in an automatic enrolment minimum scheme,” she says.
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