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Home / News and Insights / Blogs / Pensions / 71: Key pensions issues for 2022

At the start of 2022, we consider our top five issues for pension scheme sponsors and trustees in the year ahead.

New pension transfer regulations

Trustees have had limited time to ensure their transfer procedures comply with the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 which came into force on 30 November 2021. Transfer packs should be updated to reflect the new regulations as soon as possible and if this process hasn’t started, this is likely to be an early year priority for many schemes.

To help protect members from scams, the regulations introduce new conditions in respect of the statutory right to transfer benefits out of occupational pension schemes. They also give trustees some extra flexibility, requiring them to continue to carry out certain due diligence checks before complying with a transfer request but with the potential for greater proportionality about the extent of those checks.

Transfers to specified low risk schemes (broadly public sector) are permitted if the trustees are satisfied beyond reasonable doubt that the receiving scheme has the relevant credentials. For transfers to other schemes, trustees must check for an employment link, overseas residence and/or amber or red flags. TPR recommends that trustees take a risk-based approach to determine the extent to which the checks they carry out are proportionate and reasonable, such as relying on prior experience of transfers to schemes they’ve identified as low-risk, including personal pension schemes.

In order to minimise the risk of complaints by members, trustees should liaise with scheme administrators and legal advisers to agree on an approach and ensure that all necessary processes and documentation are in place. The Government will review the regulations within 18 months to ensure they remain effective in targeting the evolving methods used by scammers.

Time to tackle GMP equalisation

Guidance, especially from the GMP Equalisation Working Group run by (PASA) as well as from the DWP and HMRC, together with a growing body of experience means the industry is increasingly better placed to help schemes through the thorny actuarial, legal and practical issues associated with GMP equalisation.

We have worked with a number of schemes to successfully implement GMP equalisation via conversion, especially where they are moving from buy-in to buy-out of scheme liabilities. We are also seeing increasing numbers of ongoing schemes starting to engage with GMP equalisation in a meaningful way and our experience with buy-out schemes is helping to cut through the noise and manage costs of those exercises.

We have also helped a number of schemes that are close to winding up or merging on suitable methods to deal with ‘no further liability’ issues; historic transfers, lump sum payments or deaths especially around decision making and risk management so that they can take a proportionate and pragmatic approach.

Trustees should be formulating a plan of action with their administrators and legal and actuarial advisers to ensure that all relevant issues are covered and properly documented. While there are likely to be costs attaching to the process, well experienced advisers can help minimise those. Now is the time to grasp the nettle.

Changes in notifiable events regime for DB schemes

The notifiable events regime requires certain types of corporate activity to be notified to TPR. Changes to the regime are planned, most likely from April 2022, which will have implications for scheme employers and trustees. These are set out in the draft Pensions Regulator (Notifiable Events) (Amendment) Regulations and an accompanying consultation published in October 2021.

There will be two new notifiable events which must be notified where a ‘decision in principle’ has been made, which is the point at which there is a decision to proceed, but there does not need to be agreed specific terms or a written contract:

  • the sale of a material proportion (in excess of 25%) of the business or its assets; and
  • granting or extending relevant security over more than 25% of consolidated revenue or assets where this results in the secured creditor being ranked above the pension scheme in debt priority.

The existing requirement to notify TPR where a DB sponsor relinquishes control of an employer company will also apply at an earlier stage than currently applies.

Companies contemplating relevant transactions in 2022 should begin getting to grips with the details of these changes, not least because of TPRs extended powers. Trustees should also consider putting in place, or updating, information sharing procedures to ensure a sufficiently early exchange of relevant corporate information. The timing, content and requirement for notification will be key and while additional guidance is expected from TPR, advice is likely to be needed.

Continuing shift towards consolidation of smaller DC schemes

We expect the trend towards consolidation of DC schemes to continue in 2022, accelerated by the new value for members (VFM) assessment requirements which came into force on 1 October 2021 (Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021).

Under the new VFM rules, schemes with assets of up to £100 million which have been running for over three years must compare themselves against 3 large schemes on a number of matters including scheme governance and administration, and comparisons of charges and net investment returns.

If this assessment indicates that a scheme (or DC section) does not provide value for members, trustees must take immediate remedial action, or consider winding up and consolidation into a larger scheme. TPR is clear that it expects trustees to wind up and consolidate DC schemes (or DC sections of schemes) which do not offer good value for members and it can intervene and force a winding-up if it determines that the correct action is not being taken.

During 2022, trustees and employers of DC schemes or sections of schemes will need to complete their first VFM assessment and may find the costs of that relatively high, even for schemes with small memberships and assets. If the scheme is considering consolidation in any event, trustees should start the process as soon as possible if they want to avoid those extra costs. We have a wealth of experience advising on trustee duties and the mechanics of consolidation.

Superfunds: moving towards consolidation of DB schemes

Following TPR’s announcement on 30 November 2021 that it has completed the assessment and approval process for the first DB superfund, Clara-Pensions, we are likely to see more trustees and sponsors having the confidence to move forward with DB consolidation during 2022.

Superfunds are single employer schemes, with an external capital buffer, which take on the assets and liabilities of DB schemes by means of a bulk transfer. The transfer severs any further link to the transferring scheme or its sponsoring employer.

Superfunds may offer a DB de-risking option for schemes: that cannot afford to buy out liabilities with an insurance company now; have no realistic prospect of buy-out in the foreseeable future given potential employer cash contributions and the insolvency risk of the employer; and in respect of which a transfer to the chosen Superfund will improve the likelihood of members receiving full benefits.

Consolidating through a superfund is likely to involve lots of preparation and due diligence (with the attendant costs), not least because clearance must be obtained from TPR, which has indicated that its own clearance process will take at least three months.

Trustees and employers who are planning to de-risk and close their DB schemes will want to keep a close eye on developments as we anticipate a number of schemes taking this step this year.

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