If the pandemic has shown us anything it’s that the future cannot be predicted with any certainty – nobody has that magical crystal ball.
However, come what may, we are committed to striving to ensure all pension savers are protected and the start of 2022 presents an opportunity to look forward to what the new year will bring to workplace pensions.
Different groups of pension savers face distinct challenges in meeting their needs today and making provision for tomorrow. Our focus on the different kinds of pension saver, their needs, their challenges and how the changing landscape may shape their financial futures forms a cornerstone of our Corporate Strategy.
Our strategy aims to ensure pensions are protected now and in the future and our focus will continue to evolve from a scheme-based view to one that puts the saver at the heart of all that we do.
This year we will continue to work with our regulated community to stop the scourge of scammers. We also want to see pension schemes embrace the challenges and opportunities of climate change and greater diversity across trustee boards so that decision making is robust and represents all savers.
Defending savers from scams
Regulations arising from the Pensions Schemes Act 2021 introduced a system of red and amber flags giving trustees more power to refuse transfers where there is a heightened risk of a scam. We want trustees to take a decisive and common-sense approach to the new regulations for halting suspicious transfers so that savers are protected.
Pensions scams destroy lives and this year we’re renewing our calls to schemes to do everything they can to protect savers – including reporting suspected scams to Action Fraud or by calling 101 in Scotland.
We want to see more trustees, administrators and scheme managers showing savers they are committed to stopping the scourge of scammers by signing up to our pledge to combat pension scams. We’re delighted that so far nearly 400 schemes have pledged or self-certified they meet the campaign’s saver-protecting principles covering an estimated 16 million pension pots. However, we want to see increased reporting of suspected scams and every administrator, trustee and provider take responsibility for protecting savers by joining the pledge.
Progressing the DB code
Working with DWP, we are developing and progressing a package of DB funding measures to provide schemes with the continued flexibility around funding to suit their particular circumstances, while seeking to improve security for pension savers. We will of course engage with industry on these proposals.
It is critical however that the draft Code and DWP’s draft regulations work together in a coherent and integrated way. We have been working closely with colleagues at DWP to achieve this and agree a timetable that works for DWP, us and industry.
We want to learn from DWP’s consultation on the draft funding and investment regulations, which we expect to be published in Spring 2022. And we want to ensure that stakeholders have ample opportunity to engage with and input into our proposals as they are developing.
As we announced before Christmas, our second consultation on the draft Code will not therefore follow immediately after DWP’s consultation on the draft regulations, but will be launched in the late summer of 2022. The existing Code and funding regime remain in place until such time as the new legislative requirements and the new code come into effect.
Single code helps schemes meet our expectations
The new single code of practice is the first step towards our ambition to have a single up-to-date source of information setting out our expectations. It will be clearer and more accessible for all pension scheme governing bodies.
This user-friendly new code will show governing bodies how to approach governance and administration and provide consistent expectations across different types of scheme set at a level we consider appropriate for any well-run scheme.
We hope the new code, expected to be laid before parliament this summer, makes it easier for governing bodies, and those providing them with professional services, to distinguish between legal duties they must meet and what we expect should be done to comply with those duties.
Only lawbreakers need fear our new criminal powers
In respect of our new criminal powers, it should by now be crystal clear to all that we don’t intend to prosecute behaviour that we consider to be ordinary commercial activity.
We will investigate and prosecute the most serious examples of intentional or reckless conduct that were already within the scope of our contribution notice power – or would be in scope if the person was connected with the scheme employer.
What we will not do is overstretch the intent and purpose behind the powers. We will always take an appropriate and proportionate approach.
Our powers should not worry those who are doing the right thing and properly thinking through the actions and decisions they take. They should, however, cause a great deal of concern for those who intentionally or recklessly and without reasonable excuse avoid liabilities or put pension savings at risk.
We are not in the business of making the lives of competent and responsible trustees, advisers or employers, or anyone operating in this space, harder. We have the interests of savers at heart, and we remain focused on making workplace pensions work.
Savers get value for money
Pension savers are entitled to expect good value for their money. This means that savers’ money must be suitably invested, costs and charges must be reasonable and good quality services and administration must be driven by robust data.
We do not want to see savers languishing in poorly governed schemes which do not offer the same value for money as larger schemes. In line with regulations which came into force at the beginning of this year, DC schemes with less than £100 million in assets must prepare a more rigorous value for members assessment. Where trustees are not able to demonstrate their scheme provides value, they must wind up and transfer their members to an alternative. If they do not, they must explain why and what improvements they will be making to ensure the scheme is good value.
Going beyond this, all schemes should be able to demonstrate value for money. We will work with our regulatory partners and industry to establish common standards on value for money, setting clear expectations and sharing good practice. Following our joint discussion paper with the Financial Conduct Authority published at the end of last year, we will publish feedback and next steps in the coming months. We are committed to moving quickly on developing a common framework which will enable trustees and independent governance committees to compare costs and charges, investment performance and service standards.
Innovation for savers and employers
Later this month (January) we will be calling on the industry to take part in our consultation on a new code of practice for the authorisation and supervision of collective defined contribution (CDC schemes).
The draft code will reflect regulations for CDC schemes published by the Department of Work and Pensions and laid before parliament last month (December 2021).
CDC schemes have the potential to change the pensions landscape by offering savers and employers a viable alternative to traditional defined benefit and defined contribution schemes. We welcome innovation and we look forward to working with DWP and the industry on the development and expansion of CDC schemes.
Defined benefit consolidation vehicles (DB superfunds) also offer employers and trustees another option for achieving good outcomes for savers.
Last year we announced the first DB superfund to be assessed as meeting our expectations, as set out in our guidance. We will continue to closely supervise superfunds and they will have to demonstrate their ongoing application of our guidance.
Superfunds have the potential to become very large funds and so it is vital that an employer and trustee board seeking to transfer their scheme to a superfund have the confidence that their chosen superfund meets our expectations to protect savers.
Trustees who think a transfer to a superfund would be a suitable outcome for their members should contact TPR. And to be clear, consideration of transferring to a superfund should only be considered if a full insured buyout for full member benefits is not feasible in the near future.
Climate-related risk is managed
We want trustees to continue to build their capability around climate and ESG.
As set out in our corporate strategy, we will be monitoring decision-making to ensure it stands up to scrutiny. Our research shows too few schemes are integrating climate change into their decision making, which means investment performance and savers could suffer. We want to see this change.
We look forward to seeing more schemes demonstrating they are considering climate change in their investment strategies, allocating sufficient time and resources to assessing financial risks and opportunities associated with climate change and ensuring process used to manage those risks and opportunities are robust.
We also want to see trustees required to submit Task Force on Climate-Related Financial Disclosures (TCFD) reports do so without the need for us to take enforcement action. Trustees should also ensure the advice they receive from external experts is robust and represents value for money.
Pension industry embraces diversity
We have been clear in our Corporate Strategy that we want all savers to get good value for their money, and that decisions made on behalf of savers stand up to scrutiny. Improving diversity across the pensions industry is fundamental to these goals.
Building diverse boards means all of us all sharing information and working collaboratively. To this end, we set up an Industry Working Group to tackle the barriers to diversity and inclusion across the industry. When we first called on industry to join the group, we were delighted that more than 60 representatives from across the sector wanted to be involved.
Regular meetings began last year and an action plan will be published in the coming months. Our volunteers are producing some fantastic materials and insights that will help support the recruitment and appointment of more diverse trustees and also provide a baseline to measure how we are making progress. We all want to make a sustained difference; this is not a short-term initiative and it will take time to embed.
In our Equality Diversity and Inclusion strategy, we pledged to work towards gaining an increased understanding of why pensions inequalities occur. We will work with government and the industry to look at ways of reducing inequalities in saving. As part of that, we remain supportive of the DWP’s 2017 automatic enrolment review proposals which seek to open up workplace pensions to more savers.
We cannot realise our commitments without our regulated community all pulling in the same direction and trusting we are doing the right things as a regulator.
Last year we published results from our Perceptions Tracker Survey which showed 95% of respondents thought we were trustworthy and 77% thought were fair and evidence based. We want to ensure we continue to build and maintain that confidence and trust so that we can all work successfully together to achieve the best for all savers.
By Charles Counsell