Pensions; TPR cracks down on pension scheme governance failures and more

• Dormant assets scheme now set to include some DC pension funds
• TPR suggests transfer in stages solution to the gated DC funds issue
• TPR cracks down on pension scheme governance failures
• DWP publishes response to call for evidence on costs, charges and transparency measures
• DWP: Pension charges survey 2020: Charges in defined contribution pension schemes
• ONS publishes first FSPS statistical bulletin

 

Dormant assets scheme now set to include some DC pension funds

(AF3, FA2, JO5, RO4, RO8)

In the Government’s response to last year’s consultation on expanding the Dormant Assets Scheme (see Pension Research and Survey Data to 28 February 2020) it has announced that further dormant assets across the insurance and pensions, investment, wealth management, and securities sectors will be included in the scope of the Dormant Assets Scheme.  The Government states that this could mean more than £800 million will be made available to support the UK as it recovers from the coronavirus pandemic.  Funding raised through the expansion of the Scheme will enable continued support of good causes, social investments and environmental initiatives.

As far as pensions goes, the consultation response states that the Government “will reconsider whether contract-based defined contribution pensions should be included in an expanded Scheme”.  This is a change from the Government’s view when the consultation was launched.  This has apparently been driven by the responses received by the Government with many asserting that the Scheme would interact positively with the Pensions Dashboard project – both of which have the primary aim of reuniting owners with their assets.

The consultation response goes on to list those pension products that are now potentially in scope.  They include proceeds of annuities with a guaranteed payment term, income drawdown and deferred annuities.  The products will need to have reached a point whereby they ‘crystallise to cash’ and to meet a dormancy definition which is being worked on, but with a preference for the provider to have received a death notification.  The consultation response continues, but it is not clear whether the Government has in mind that any other dormant contract-based DC pensions should be included and if so how.

Based on industry estimates the Government believes that up to £2.1bn of dormant insurance and pensions sector assets could be included in the Scheme, of which £1.17bn could be reunited to rightful owners and leading to £575m being released to social and environmental initiatives.

The timetable for these proposals is not clear with the Government simply stating that it intends to legislate for the Scheme expansion “when parliamentary time allows”.

Comment

As is so often the case, more details are needed since the consultation response is somewhat vague as to what pension assets will be in scope.  But the Government is stressing that rigorous safeguards will be in place for pension assets within the Scheme.  This should lead to a win-win situation, where either lost pension funds are reunited with their owners or unclaimed assets are used to help society. 

TPR suggests transfer in stages solution to the gated DC funds issue

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has updated its “DC scheme management and investment: COVID-19 guidance for trustees” to cover transfer requests where all or part of the member’s DC fund is gated.  Gating, mainly of property funds, has been a continuing issue during and indeed before the pandemic struck.

The inability of trustees to disinvest a member’s DC funds ahead of transfer is not envisaged by the cash equivalent legislation and so it is not surprising to see TPR state that it doesn’t believe it is able to agree to requests to extend the six-month statutory timeframe for payment of transfer values in this situation.

TPR suggests that the transferring scheme should see whether a partial transfer would be acceptable to the receiving scheme, with the gated funds to follow on as soon as the fund re-opens.  However, TPR warns that any significant failure to pay transfer values within the statutory period should be reported, outlining the reasons why and the steps being taken towards compliance.

TPR cracks down on pension scheme governance failures

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has issued a Determination Notice (C59291233/3) which has confirmed their decision to ban a corporate trustee and one of its directors from acting as pension scheme trustees after multiple governance failures which it said highlighted a lack of competence, capability and integrity.

The problems included failure to resolve issues with the scheme’s HMRC registration, and failure to comply with requirements to take professional advice, carry out transfer requests, make lump sum payments or ensure effective oversight of scheme investments.

The failings occurred at Audax Pension Trust, a defined contribution occupational scheme which had 38 deferred members, as of its last known membership, and assets valued at some £1.2m.

Following its establishment and savers having transferred into Audax, HMRC contacted the trustee saying they did not regard its administrator, Masons Pensions Administrator, as ‘fit and proper’ and would deregister Audax if the trustee did not resolve the matter.

TPR investigated whether the trustee was addressing the risk of deregistration by either appointing a new administrator or transferring members and assets to another registered scheme.

Despite being given time to address the problem, the trustee failed to carry out either option.

Eight Audax members also complained to TPR about the trustee. Complaints included that the trustee had declined transfer requests with inaccurate and inadequate explanations.

A warning notice issued by TPR also set out other serious problems with Audax’s structure and governance, particularly that Audax no longer had an employer, administrator or investment advisor and no scheme bank accounts. No responsibility was taken by the trustee to resolve these issues to the benefit of the scheme’s members.

As a result, TPR’s determination panel has appointed Dalriada Trustees as an independent trustee to Audax.

Erica Carroll, director of enforcement at TPR, said: “In this case, the corporate trustee and director showed a severe lack of knowledge and understanding. This case shows we will ensure those trustees that fail to meet the statutory requirements and the high standards we expect in respect of scheme governance are stopped from failing other savers by continuing to be able to act as pension trustees.”

DWP publishes response to call for evidence on costs, charges and transparency measures

(AF3, FA2, JO5, RO4, RO8)

The DWP has published the Government's response to the call for evidence on the review of the default fund charge cap and standardised cost disclosure. The response provides details of the next steps involved in reviewing the effectiveness of costs, charges and transparency measures in protecting pension member outcomes, and it confirms that flat fees will be banned for auto-enrolment pots worth £100 or less. The Government also acknowledges the concerns raised by respondents, particularly regarding the impact of market uncertainties relating to the COVID-19 pandemic and the importance of affording schemes flexibility to deal with these challenges, with the response confirming that the charge cap level will not be changed “at the present time”.

Nigel Peaple, Director of Policy and Advocacy at the PLSA, in their Press Release, praised the fact that the level and composition of the 0.75% DC pension charge cap has been retained following the review, describing the cap as “an important consumer protection” to ensure that “savers receive better value for money from their pensions”. Mr Peaple added: “Setting a minimum balance of £100 below which flat administration fees cannot be applied will protect the pension savings of workers with the lowest pension balances but a longer-term solution to the small pots issue must be developed.”

Tom Selby, Senior Analyst at AJ Bell, commented in their Press Release: “The Government is clearly concerned about the impact flat fee charging structures could have on those with very small deferred retirement pots. This problem is likely to get worse as time goes on, with people having 11 employers on average during their careers and potentially building up a new pension each time they change jobs. By banning flat fees on deferred pension pots worth £100 or less, the DWP hopes to end the most egregious rip-offs in this market and protect the fragile reputation of automatic enrolment.”

DWP: Pension charges survey 2020: Charges in defined contribution pension schemes

(AF3, FA2, JO5, RO4, RO8)

The DWP has published a report outlining the types and levels of charges across DC trust-based and contract-based workplace pension schemes. According to the data, all members in the qualifying schemes covered by the research are now below the 0.75% cap, and the average charge of 0.48% across all members is significantly below the cap. The figures also revealed that the average charge for other workplace pensions not covered by the cap (non-qualifying schemes) is now 0.53%.

ONS publishes first FSPS statistical bulletin

(AF3, FA2, JO5, RO4, RO8)

The Office for National Statistics (ONS) has published data providing quarterly estimates of membership, income and expenditure, transactions, assets and liabilities of UK-funded occupational pension schemes from the Financial Survey of Pension Schemes (FSPS). This is the first FSPS statistical bulletin, which outlines results for Quarter 4 (Oct to Dec) 2019, Quarter 1 (Jan to Mar) 2020 and Quarter 2 (Apr to June) 2020. According to the figures, growth in membership of DC occupational pension schemes slowed in Quarter 2 2020, with membership reaching just over 23 million. Contributions by employee and employer to DC schemes decreased by 11% and 5% between Quarter 1 and Quarter 2 2020 respectively.

Tom Selby, Senior Analyst at AJ Bell, commented in their Press Release that the statistics provide a “clearer view of the impact the first wave of the pandemic had on people saving for retirement”, with lower employee and employer pension contributions being observed. Mr Selby added: “With the vaccine programme boosting hopes of an economic recovery in the second half of 2021 and beyond, those who have hopped off the retirement saving horse should get back on as soon as they can. In doing so, they will benefit not only from a matched contribution from their employer, but the added bonus of pension tax relief.”