To say we live in uncertain times is both a cliché and an understatement. Very little by way of new legislation that is not related to Brexit has emerged recently, even in draft form. We have no clear idea of the date to expect the next Queen’s Speech, which traditionally foreshadows the government’s intentions to legislate in the forthcoming parliamentary session
A queue has formed, though; and we know what the Pensions Minister Guy Opperman will be pushing for. Indeed, he might already have got the DWP busy on drafting provisions for his ambitious Pensions Bill. Collective Defined Contribution (CDC) Schemes is one racing certainty for inclusion, following assurances given to Royal Mail and the CWU.
Other prominent candidates include new powers for The Pensions Regulator (TPR) to authorize and regulate Defined Benefit (DB) consolidation vehicles (‘superfunds’). Changes to the DB funding framework are expected, following the DWP’s March 2018 White Paper, strengthening TPR and obliging trustees to adopt a long-term objective. A new draft Code of Practice on DB funding has also been promised, in which TPR will be looking to set clearer parameters around journey plans and associated technical provisions.
Less publicised candidates for inclusion in the Bill include provisions to extend the powers of The Pensions Ombudsman to facilitate early resolution of disputes before a determination, and to allow an employer to make a complaint or refer a dispute, eg in respect of maladministration of a GPP.
And then of course there are pensions dashboards (remember that idea?). Last December, Mr Opperman promised legislation to maximise pension scheme participation in a reasonable timeframe, without compelling all schemes to provide data: when parliamentary time allows, and following the creation of a robust delivery model with the appropriate governance.
It remains to be seen whether all this is folded into one giant Pensions Bill, such as we have seen in 2004, 2008 and many other times; or a series of smaller Bills spread over two or three years.
Meanwhile, what is the Treasury likely to bring up? Draft legislation for the next Finance Bill was published in July, but it has virtually nothing to say about pensions. At the moment Ministers are trying to fend off a growing torrent of criticism of the Tapered Annual Allowance (TAA), with proposals for greater flexibility in the NHS Pension Scheme.
The government might be forced to extend this flexibility to other public sector schemes. However, the Treasury is still trying to defend the indefensible, neither recognising the taper is unworkable, nor to extend the complicated and costly-to-administer NHS proposals to private sector pension schemes. Instead, they persist in citing highly questionable figures for the cost of pensions tax relief, to justify the TAA.
The vacuum created by the absence of much new pensions legislation this year has been filled enthusiastically by the Regulators. As noted above, TPR is working towards a revised DB funding code. It will be interesting to see how exactly the tension between conflicting objectives of protecting the PPF and minimising adverse impact on the sustainable growth of employers pans out; as well as the balance between dividend payments and recovery plan contributions.
The Financial Conduct Authority (FCA) is becoming more and more influential in pensions. A ban on contingent charging - ie a financial adviser is only remunerated if a transfer or conversion goes ahead - is likely to be introduced, except for groups of consumers with certain identifiable circumstances that mean a transfer is likely to be in their best interests e.g. individuals with a materially shortened life expectancy. This will widen the ‘advice gap’.
The FCA also intends to implement 'investment pathways' for Defined Contribution (DC) scheme members entering drawdown or transferring assets already in drawdown, without taking advice. This means four options for how they might want to use their drawdown pot. Meanwhile we expect a final report next year on the linked reviews of Retail Distribution and the Financial Advice Market.
We expect more evidence of closer cooperation between TPR and the FCA, for example on regulating the DB transfer market and on combatting scams.
Finally, the outcome of some key pensions cases will have a significant impact on the industry. In mid-October the Court of Appeal is due to hear the Berkeley Burke case, which is about the extent of due diligence required by the FCA for SIPP operators and their responsibility regarding possible fraud. We also await the judgment in another SIPP case involving Carey Pensions.
Ian Neale
Director, Aries Insight
