It can’t be long before someone starts discussing LDI-Gate (the turmoil in the gilts market following the Government’s September mini budget), looking for parties to blame. There have been rumours about potential claims against liability driven investment (“LDI”) managers and investment consultants, and pensions celebrities have been summoned to appear before parliamentary select committees to explain the way that LDI works and the role of leverage in product design. Some of the critics of LDI (in the “accident waiting to happen” brigade) have perhaps ignored the wholesale reform of the derivatives market that happened in the wake of the Global Financial Crisis (“GFC”) of 2008-9, which were designed to address systemic risks in the banking sector by introducing central clearing of trades and strengthened margin or collateral requirements. Those reforms were necessary and have served institutional investors well, not least by creating greater contractual certainty between parties.
According to complaints filed with Action Fraud, more than £30 million has been lost to pension scammers since 2017. All types of pension pots are targeted, with some individual savers losing hundreds of thousands of pounds. Given the current cost of living crisis, more people might feel tempted to access their pension savings, making them more vulnerable to pension scams. This increases the onus on pension trustees to protect their members and has encouraged more trustee boards to make the Pledge.
The Pensions Regulator (TPR)’s Pledge to Combat Pension Scams (the Pledge), launched in November 2020, is an invitation for schemes to self-certify to TPR that they have put in place certain practices to protect members against scammers. Schemes can sign up to the pledge using an online form, which acts as confirmation that the scheme has implemented the pledge commitments.
117 pledges were made within a month of the campaign’s launch, mainly by institutions and administrators rather than trustees. However, we are now observing a growing appetite for signing the Pledge from amongst our trustee client base.
How do you succeed in serving up pensions dashboards to scheme members? It is a bit like creating a complicated recipe. You know how you want your dish to look and taste, but how do you get there?
First, the ingredients have to be listed. Second, the method has to be tried and tested (and it also has to be simple, if you want domestic cooks to follow it, as well as master chefs). Thirdly, the dish has to be cooked to perfection and presented in a way that looks appetising.
How far have we got with cooking up a dashboards recipe?
The Pensions Regulator (TPR) is not pulling any punches in its latest messaging around pensions dashboards.
The Deadline campaign, launched on 22 June 2022, follows research conducted by TPR revealing that insufficient progress has been made by schemes in preparing for pensions dashboards and moving towards the level of digitalisation of member records that will be required. The research shows that 63% of schemes have not yet discussed dashboards at trustee board level. 63% seems like a lot. Hopefully, none of the 63% are those with staging dates in 2023 – otherwise time is in short supply if compliance is going to be a smooth process.
TPR’s initial guidance, based on draft regulations issued by the DWP, summarises what it expects trustees to do. If you have a basic familiarity with dashboards, the guidance is a fairly quick read. Importantly, it sets out a checklist/timetable for compliance. If there is already a plan in place for your scheme, it would be a good idea to check this against TPR’s action plan, to see if there are any gaps or mismatches in terms of timeframes. If your scheme does not yet have a plan, now would be a good time to reassess this.
Each year, I have a profound respect and admiration for colleagues and friends who have fasted during Ramadan. It is a very public demonstration of their faith, which clearly also has tremendous personal significance. I was particularly struck this year how LinkedIn was full of supportive comments and suggestions how employers might support those fasting.
Are there steps that employers – and trustees – can take to support Muslim employees and members from a pensions perspective? Indeed, is there a positive obligation to do so?
On 28 April 2022, at 4:35 pm we issued legal advice to our client regarding the GMP conversion exercise for two schemes, along with final versions of the deed of amendment to bring into effect GMP conversion; the Conversion Date was set for 1 May 2022. At 4:43 pm, we get an e-mail from our professional support lawyer stating that the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill, a private member’s bill proposing further changes to the GMP conversion legislation, has just received Royal Assent and is now the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022; “all those currently advising on GMP conversion should take note!” Talk about bad timing! As the reader will be aware, GMP conversion projects require months of planning and negotiations between advisers, trustees and employers. Would the changes introduced by the Act be in force on 1 May?! Would we have to update our legal advice? Could the deeds still be signed?! Would we have to send out new communications to members?
Once in a while trustees get frustrated with what the law appears to tell them is their fiduciary duty. If they can afford it, trustees can resolve such ambiguities or uncertainty by getting a ruling from the courts as to how to interpret their duties. This is what two sets of charitable trustees recently did in relation to an area of keen interest to pension trustees: how can one implement an investment strategy that is based on a commitment to align with the Paris Agreement on climate change (in keeping with a charitable purpose that expressly included environmental protection), which would inevitably mean excluding a significant part of the investment universe, without sacrificing financial returns to the trust?
From memory, the term “good governance” started to be widely used in the pensions industry at around the same time that the Pensions Act 2004 came into force. At first, it was a bit of a nebulous concept that could have been loosely described as 1. Complying with the requirements and expectations of The (then new) Pensions Regulator (TPR) and 2. A dollop of good practice on top.
Immediately post Pensions Act 2004, clients commonly asked what other clients were doing, as they wanted to benchmark themselves – i.e. they wanted to “do enough governance” without the scheme budget running away. The acronyms “JEG” and “ALAPBAMAN” were used (“Just Enough Governance” and “As Little As Possible But As Much As Necessary”). Continue Reading
In February 2022 the UK Government unveiled its long-awaited plans to improve corporate transparency and reform the company register framework, in a move widely regarded as having been accelerated (at least in part) in response to the conflict in Ukraine. In this blog, we look at how the changes could affect UK pension scheme trustees.
Planned Legislative Reform
In summary, the proposed changes that pension scheme trustees should monitor closely are as follows.
- Companies will be allowed a maximum of one “layer” of corporate directors, which must be based in the UK, and the natural persons directing each corporate director will be subject to identity verification.
- Companies House will take on more of a regulator’s role – it will review and query information that is submitted, with individuals who fail to verify their identity or comply with new requirements under these reforms becoming subject to new criminal and civil sanctions.
- Anyone wishing to make a filing at Companies House, alongside all company directors and persons with significant control, must verify their identity using photographic identification.
Directly on the heels of the Biden Administration’s digital asset Executive Order issued on March 9, 2022 (Executive Order), the U.S. Department of Labor (DOL) published its own guidance on the use of cryptocurrencies as a 401(k) plan investment in Compliance Assistance Release No. 2022-01 (CAR). The DOL guidance is not limited to crypto, but advises plan fiduciaries regarding all digital assets, including Ethereum, tokens, and other derivations thereof.
Ominous Warning – Duty of Prudence & Personal Liability at Stake
The DOL CAR is nothing short of an ominous warning for plan fiduciaries. Similar to the Executive Order, the DOL CAR highlights that there are many risks involved when offering cryptocurrencies or other digital assets as plan investment options. In light of these risks, the DOL CAR “cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”