Mansion House speech: interim Pensions Review report and new consultations
Following the Chancellor’s Mansion House speech, the government has published an interim report from its Pensions Investment Review, setting out commentary on its work to date. For the defined contributions (DC) workplace market, the workstreams are scale and consolidation, and costs vs value – these are both covered separately below.
In relation to its Local Government Pension Scheme (LGPS) workstream, the government proposes to legislate for the 86 LGPS administering authorities (AAs) to consolidate their assets into fewer, larger pools of capital. It is consulting on proposals to: (a) reform the eight current LGPS asset pools by mandating minimum standards, including requiring AAs to delegate their investment strategy to the pool and transfer legacy assets to the pool; (b) boosting LGPS investment in UK localities and regions; and (c) strengthening the governance of both AAs and LGPS pools. The consultation closes on January 16, 2025.
In relation to UK investment more generally, the government has decided not to make specific recommendations (for example, mandating how assets should be invested) but will consider at the next stage of the review whether further interventions may be required.
Read the interim report of the Pensions Investment Review.
Read the consultation paper on proposals relating to the LGPS.
Accelerating consolidation in the DC market
The government is consulting on proposals aimed at facilitating and accelerating the consolidation of UK DC schemes. The headline proposals are that master trusts and group personal pensions (GPPs) used for auto-enrolment should have a maximum number of defaults and that these should operate at a minimum size.
The consultation seeks views on whether the requirements it proposes should be applied at arrangement or fund level. It notes that contributions to a default arrangement may all be invested in one default fund or in a range of default funds, depending on the provider’s strategy, and that different schemes may use the same range of default funds (effectively pooling assets).
The government proposes to set a maximum number of default funds that a provider may operate and seeks views on what the right number should be and whether there should be any exceptions (such as Sharia-compliant funds). It also seeks views on setting a minimum level of assets under management at default fund level and seeks views on a range of issues around this. The requirements would not apply before 2030 at the earliest, to allow time for the aoshearman.com market to achieve the transition. Some smaller master trusts and GPPs are unlikely to achieve the required scale by that date and could therefore look to consolidate.
For contract-based schemes, the requirement to obtain individual consent to transfer makes it difficult for providers to move members into newer or better-performing arrangements. The government proposes to introduce contractual overrides for GPPs to enable transfers without consent into either trust- or contract-based arrangements. The consultation asks a series of questions about how the process for these bulk transfers would work, who would bear the costs and what saver protections should apply.
More generally, the government seeks views on questions relating to the roles of employers and their advisers in shifting the focus from costs to value, including the following options:
- Introducing a duty on employers as part of the auto-enrolment framework to consider the overall value of the arrangement during scheme selection and to review this every five years.
- Establishing an explicit duty at Board level for a nominated executive to have responsibility for ensuring the pension arrangement delivers good value retirement outcomes for staff.
- Bringing pension scheme selection advice services and investment consultancy within the FCA regulatory perimeter so that these advisers are required to consider the value of schemes or investment strategies in their advice.
The consultation closes on January 16, 2025. A decision on whether to include these measures in the upcoming Pension Schemes Bill will be made following the consultation process.
Read the DC market consultation: ‘Unlocking the UK pensions market for growth’.
DB funding code now in force
The new Code of Practice on defined benefits (DB) funding came into effect formally on November 12, 2024 under an Appointed Day Order, meaning that the revised DB funding regime is now fully in force.
Read the DB Funding Code of Practice.
High Court overcomes missing document and execution errors
The High Court has ordered the rectification of a scheme’s consolidating deed, as well as the rectification of several previous amending documents whose validity was thrown into question due to discrepancies in their execution clauses: Ballard v Buzzard.
Between 2001 and 2005, the scheme trustees and the employer had intended to make reductions to annual increase provisions and (in 2005) to change the scheme’s definition of pensionable earnings. In each case, the trustees had signed a document known as a ‘scheme amendment authority’ (SAA) in order to comply with the requirement under the scheme rules for the trustees to ‘declare’ any alteration in writing.
The first issue to be considered by the court was that it had not been possible to locate a version of the 2001 SAA that was signed by all the trustees. Mr Justice Thompsell was clear that it is permissible to rely on secondary evidence of the contents of a lost document. In this case, two part-signed drafts had been located and witness evidence was provided of matters relating to execution. On this basis, and noting that it was not surprising that the definitive document had been lost after some 23 years, the court made findings of fact that the SAA had been fully 2 aoshearman.com signed and that the contents of the draft provided were as executed. The court’s analysis may be helpful in other cases where a written document – such as an actuarial confirmation relating to an amendment – cannot be located.
The court went on to consider whether the SAAs had been properly executed in line with the declaration requirement in the scheme rules. In each case, the SAA had been provided to the trustees with five signature blocks. One provided for a signature ‘for and on behalf of the Principal Employer’ and four were labelled ‘Trustee’. All five trustees signed, meaning that one trustee apparently signed in his employer-side capacity (and had added his employment title next to the block). This raised the question of whether a signature that was expressly stated to have been given in one capacity could be treated as having been given in a different capacity.
The court looked at this as a question of rectification and, on the basis that there was ‘overwhelming’ evidence that both the individual trustee and the trustees in general intended that his signature would be effective in both his employer and his trustee capacity, granted rectification of the signature blocks to confirm that the individual had signed in both capacities. On the basis that the SAAs were valid, the court also ordered rectification of a subsequent consolidation of the rules that had failed to reflect the changes made by one of the SAAs.
Read the decision.
TPR publishes CDC scheme supervision and enforcement policy
TPR has published a supervision and enforcement policy for collective defined contribution (CDC) pension schemes. Under the CDC framework, TPR can issue risk notices requiring corrective action if it is concerned that a CDC scheme is not being effectively run, governed or funded. It also has powers to de-authorise a scheme. The policy sets out TPR’s expectations for CDC schemes and what the ongoing supervision process will look like, as well as its statutory powers and use of regulatory intervention.
Read the CDC supervision and enforcement policy.
