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13 November 2020

31: Pension requirements for investment consultants and fiduciary managers – compliance statements are due

With effect from 10 December 2019 trustees of most occupational pension schemes had to comply with the Competition and Markets Authority (CMA) order concerning their use of investment consultancy and fiduciary management services.

The order imposes a number of requirements on trustees intended to address the CMA’s finding that there was a lack of proper competition in the market. Key among these is a requirement for trustees to submit a compliance statement to the CMA, confirming they have complied with the CMA order. This must be submitted by 7 January 2021.

As a reminder, the action points for pension scheme trustees from the CMA order are:

  • if trustees wish to delegate investment decisions for 20% or more of their scheme’s assets to a fiduciary manager or managers they must run a ‘competitive tender process’. This also applies where less than 20% of scheme assets are currently under fiduciary management and the trustees want to increase this above the 20% threshold;
  • if trustees have already appointed a fiduciary management provider or providers in respect of a total of 20% or more of the scheme’s assets then the service must be put out to competitive tender with five years of the fiduciary manager’s original appointment. If the appointment has already passed that five year mark, or will before 20 June 2021, then there is a grace period until 10 June 2021;
  • trustees cannot receive investment consultancy services without setting ‘strategic objectives’ for their investment consultant. If the trustees already received investment consultancy services at 10 December 2019, then strategic objectives had to be put in place immediately;
  • the purpose of the strategic objectives is to better help the trustees monitor the performance of the investment consultant and so they should be kept under review and performance tested against them on an annual basis; and
  • trustees (and fiduciary managers and investment consultants) must submit compliance statements to the CMA within four weeks of 10 December 2020 ie by 7 January 2021 and annually thereafter.

Obligation to submit a compliance statement to the CMA

The Pensions Regulator has published four sets of guidance to help trustees meet the strategic objective and competitive tender requirements and it was intended that the Regulator would oversee ongoing compliance for occupational pension schemes.

Draft regulations were prepared by the DWP to replace the CMA order when they come into force. The regulations set out the timing and detail of pension scheme trustees’ monitoring and review obligations, the enforcement and penalty powers of the Regulator and crucially intend to introduce a duty for trustees to report on compliance to the Pensions Regulator via the scheme return, rather than reporting to the CMA.

However, the DWP regulations have not come into force to date and as such, the CMA order still applies. This means pension scheme trustees must prepare their first compliance statement and submit it to the CMA by 7 January 2021.

Next steps

Trustees should contact their investment consultants, fiduciary managers and legal advisors for assistance with preparing and submitting their compliance statement.

Trustees must also submit a certificate confirming that the compliance statement has been prepared in accordance with the CMA order and that the trustees have complied with the CMA order in all material respects and reasonably expect to do so.

Given this requirement to certify a reasonable expectation of ongoing compliance, trustees should also be checking when their annual review of investment consultant performance is due and making sure that they have plans in place to comply with any timing obligations for a competitive tender of fiduciary management services.

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