There is a definite ‘back to school’ feel this Autumn. Now that your feet are under the desk (perhaps even back in an office, rather than home), you might be wondering what should be on your DC agenda. Our DC Excellence team have brought together the key DC-specific developments which might impact your DC occupational pension scheme this Autumn.
Key points
- From 1 October 2021, new regulations will require trustees of all ‘relevant’ occupational pension schemes, regardless of scheme size, to report the scheme’s past investment performance (net returns), having regard to new guidance from the DWP. You should check in with your investment consultants if you haven’t already.
- Trustees of ‘relevant’ schemes with under £100 million of total assets which have been operating for three or more years will have to carry out a more detailed assessment of how their scheme delivers ‘value for members’ (the VFM assessment). This requirement comes into effect from the first scheme year ending after 31 December 2021.
- The DWP recently published a new call for evidence on barriers to greater scheme consolidation in the DC pension market. This is yet another signal that trustees need to consider whether to improve their scheme governance, or start to get houses in order for consolidation, before the Regulator forces the issue.
- The Pensions Scams Industry Group (PSIG) published Version 2.2 of its Code of Best Practice on Combating Pension Scams plus new regulations. You should check that your scheme administrators are applying these regulations.
Investment return reporting requirements
From their first scheme year after 1 October 2021, all DC schemes will be required to report on their net investment returns for default arrangements. You can access the draft regulations here.
The requirement will be to calculate and publish the return on investments from their default and self-select funds, net of costs and charges. The reporting period will comprise, as a minimum, the scheme year but it is recommended that schemes record data for at least the last five years where possible.
The information on net investment returns must be stated in the Chair’s Statement for the first scheme year ending after 1 October 2021, and published on a publically available website. The DWP’s guidance on completing the annual Value for Members assessment (see below) and Reporting of Net Investment Returns found here contains further detail on what this reporting should look like, including tables which illustrate how returns can be reported.
Value for members assesment for DC schemes under £100 million
From 1 October 2021, trustees of ‘specified’ schemes will be required to carry out a detailed assessment of how their scheme delivers value for members. This will come into effect from the first scheme year that ends after 31 December 2021.
The VFM assessment must include a comparison of costs and charges and net returns against three other schemes and also a self-assessment of specified scheme governance and administration criteria, having regard to new DWP guidance. Where the comparison does not demonstrate good value for members, trustees should consider winding up and transferring members to a scheme that does offer good value.
The VFM assessment must be recorded in the Chair’s Statement, published on a website and reported to the Pensions Regulator via the annual scheme return. Again, the DWP’s guidance on completing the annual Value for Members assessment and Reporting of Net Investment Returns found here contains further detail on what this reporting should look like. For example, the guidance suggests building on the existing requirements in relation to disclosure of charges and transaction costs by recording existing disclosures alongside the anonymised costs and charges data from the three comparator schemes in a simple table.
Greater consolidation
On 21 June 2021 the DWP published a new call for evidence on barriers to greater scheme consolidation in the UK DC pension market. The call for evidence related to ‘phase 2’ of the DWP’s drive to consolidate DC schemes further and faster. The VFM assessment only applies to schemes below £100 million so now the DWP are considering how to incentivise consolidation for medium to large schemes with assets between £100 million and £5 billion.
The DWP believes that scale is the biggest driver in achieving value for money for savers and ultimately better retirement outcomes. Larger, better-governed schemes are able to develop more innovative investment strategies.
This call for evidence is the next step on the journey to further consolidation but the DWP has stated that further action will follow, starting with schemes up to £5 billion. The DWP also stated that it is not the intention to stop at £5 billion but this is the appropriate cut off for now.
It certainly seems that now is the right time to undertake a review of the value that members are receiving, and consider if there is anything else you could be doing to improve the value for members. If you are responsible for a master trust, be prepared for even more bulk transfers into your arrangement!
Pension scams
The Pensions Scams Industry Group (PSIG) has published its new version 2.2 of its Code of Good Practice on Combating Pension Scams. The updates to the code reflect recent regulatory and legislative changes. Key changes include:
- the introduction of a new letter from The Pensions Regulator for members considering transferring from a DB scheme to a DC scheme;
- calls for trustees to encourage use of Pension Wise or take regulated advice; and
- warnings about complex investment structures.
You might use this as an opportunity to check in with your administrators to confirm what their processes are to help your members avoid scams in future, and avoid difficult complaints if transfers go wrong. The clear expectation is for administrators to follow this new Code of Good Practice.
Coming down the tracks
There are some other things that you should be aware of:
Simpler annual benefit statement
The DWP consulted on draft regulations and accompanying statutory guidance introducing new requirements to simplify annual benefit statements. You can find a link to the consultation here. The proposal to move to a simpler annual benefit statement will enable the member to see:
- How much money the member has in their pension plan and what has been saved in the statement year
- How much money they could have when they retire; and
- What they could do to give themselves more money at retirement.
The proposed changes are expected to come into effect in April 2022. Watch this space to see if you could adopt these for your scheme.
New ‘stronger nudge’ requirements
The DWP and FCA have consulted on measures to introduce a ‘stronger nudge’ to pensions guidance when individuals seek to access, or transfer for the purpose of accessing their pension flexibilities. You can find a link to the consultation and the draft regulations here and here.
The ‘stronger nudge’ requirements will be achieved by amendments to the statutory disclosure requirements and transfer provisions and aim to require trustees and managers of schemes in scope to ensure these individuals have either received or opted out of receiving the appropriate pensions guidance. The DWP’s draft regulations are expressed to come into force on 6 April 2022 and the FCA intends to publish a policy statement and final rules in Q4 2021.
Ban on flat rate fees
The DWP has consulted on draft regulations to introduce a ban on the flat rate element of a combination fee where the member’s pot size is equal or less than £100. You can find a link to the consultation here. The proposed ban will have effect from 6 April 2022 and will apply to active and deferred members. Small pots present challenges to master trusts and to the success of auto-enrolment as a whole and their depletion by charges and administrative fees have long been a problem for members.
The DWP noted in its consultation that although automatic enrolment has been a huge success, some people, particularly those on the lowest incomes, are changing jobs more frequently which has resulted in an increase in number of deferred small pension pots.
