In recent years, there have been more than 150 lawsuits alleging violations of ERISA[1] fiduciary obligations that are based on “excessive fees” being charged to participants in defined contribution retirement plans.
A more recent trend also seems to be focusing on the investment performance of target date funds. This Post discusses that litigation trend, and offers some practical advice to employer investment committees or other plan fiduciaries.
As a consumer, I am a big fan of the concept of dashboards. A brilliant idea. As a lawyer advising pension plan trustees, I am looking forward to helping my clients to make them a reality. Until now, dashboards have felt a long way off in the future and there has been no shortage of pressing work to do (Guaranteed Minimum Pension equalisation anyone?). However, we received a lot more information with the publication of the DWP’s consultation on 31 January – 137 pages’ worth.
Given the evident complexity, I have to say that recent criticism levelled on the pensions industry for not having taken action voluntarily feels a bit harsh. The investment is huge in terms of both time and money and personally I believe it is unrealistic to think that dashboards could ever have come to fruition without compulsion.
There is a lot to digest as we prepare Squire Patton Boggs’ detailed response to the consultation but here are a few immediate thoughts on the proposals: Continue Reading
Today, 28 January, is international “data protection day” (as explained on Wikipedia). Its purpose is to raise awareness and promote privacy and data protection best practice; there is no suggestion that organisations (including pension schemes) can ignore data protection the other 364 days of the year!
Here in the UK, many clients will remember the rush to get their pension schemes compliant with the EU’s General Data Protection Regulation (GDPR) back in 2018. But, like the pensions industry itself, data protection is a fast moving legal and regulatory area. Not least, the introduction of the Data Protection Act 2018; the adoption of the UK’s own version of the GDPR following Brexit; the Information Commissioner’s Office’s (ICO) new Code of Practice on data sharing; court cases impacting privacy notices and international data transfers; a growing awareness of data privacy issues meaning pension scheme members are increasingly cautious about the use of their personal data and streetwise about their rights; and the UK government is consulting on an overhaul of the data protection regime. What’s more, both the ICO and The Pensions Regulator (TPR) say data protection should be regularly reviewed, and the ICO can fine up to £17.5 million or 4% of global turnover for the most serious cases of non-compliance. So what does data protection day 2022 mean for UK pension schemes? If you have not done so already, it’s a timely reminder to review your scheme’s data protection status. Here are four key issues to follow up on. Continue Reading
The new Pension Schemes Act 2021 paved the way for potential changes to the notifiable events framework which is intended to give The Pensions Regulator (TPR) early warning of possible calls on the Pension Protection Fund.
The Department for Work and Pensions (DWP) has now issued draft regulations (Draft Regulations) and consulted on proposed changes to the notifiable events framework to introduce new requirements to notify TPR of material corporate activity that may affect a pension scheme, with high penalties for failure to comply. The consultation closed on 27 October 2021, and the regulations are expected to come into force in April 2022.
New “Super” Notifiable Events
The Draft Regulations establish two new notifiable events and update an existing notifiable event, each treated as “super” notifiable events, addressing material corporate sales and granting or extending certain security. Continue Reading
Today marks the third anniversary of the landmark Lloyds legal case. This case confirmed a legal requirement to provide sex equality in pension scheme benefit structures, and remove any remaining inequality resulting from the way in which Guaranteed Minimum Pensions (GMPs) have to be provided under Government regulations.
Earlier this year, we issued a survey of our clients, to see the progress being made in this direction. Although very few of our clients had completed an exercise to equalise for GMPs, our survey found that
Since the first Lloyds judgment, trustees and sponsoring employers have, understandably, been focussing on some of the more straightforward elements of GMP equalisation (if there is such a thing). However, following Lloyds 3, some tricky issues have reared their head; employers and trustees are having to take a closer look at previous transfers and in many cases it feels as if this is raising more questions than it answers. PASA recognised some of these issues in its recent guidance; we examine a few particular issues below, which are causing a headache for trustees attempting to take the next step in their GMP equalisation project. Continue Reading
Governments can do many things to help tackle climate change. Insulation in older houses is in the news. New houses matter too. I know of a new housing estate, under construction now, with a gas boiler in every home. No heat pumps. No solar panels. Planning laws could be tweaked to make that impossible (or financially unattractive). But no such tweak has happened to date, although it is reported to be under consideration by the government.
Yet laws have been tweaked to put regulatory and other pressures onto pension scheme trustees to consider holding green assets. (Interestingly, pension scheme trustees, but not charity trustees.)
And now the government is helpfully addressing the new demand for green assets (which its regulations created) by issuing a green asset. The first “green gilts”, issued this month, were over-subscribed despite having, overall, a yield 1.5bp lower than the nearest equivalent traditional gilt. That’s the “greenium” which the sponsor of a DB scheme (or the member of a DC scheme – including most automatically enrolled members) would pay to the Treasury, in the form of a lower return for essentially the same asset.
For that recurring, annually-compounded price, what do they get? (1) A green-tinted gilt instead of the equivalent gilt-edged gilt. (2) A slightly salved conscience. (But only if they (a) are aware of, (b) understand, and (c) agree with, the investment decision that has been made at their expense.)
Fine, I suppose. But… don’t low gilt yields make DB pension liability values appear higher? Haven’t low gilt yields already resulted in many employers paying increased deficit reduction contributions? Hasn’t this hastened the end of DB pension provision and made annuities very expensive for DC members? So why would a DB trustee – or any trustee – buy a green bond, with an even lower yield?
It’s Not All About Climate Change!
On 1 October 2021, new regulations came into force requiring larger pension schemes (starting with occupational schemes that have £5 billion or more of assets, plus authorised master trusts) to put in place appropriate governance, reporting and publication arrangements in connection with climate-related risks and opportunities. It is unusual for statute to direct trustees as to the extent of their fiduciary duties although when the legislation was going through Parliament, the government of course denied it was directing trustees how to invest their members’ money. These new requirements reflect the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). This is a big change, which will apply to schemes with assets of £1 billion or more from 1 October 2022. The government is keeping this under review and it is likely that the majority of schemes will be caught by the new requirements over the next few years, as the government continues to review the detail of the requirements. More information on the TCFD requirements is set out in our #How2DoPensions quick guide on TCFD Reporting.
As far back as February 2019, I blogged that plans were afoot to strengthen the powers of The Pensions Regulator (TPR). The Pension Schemes Act 2021 (PSA21) has been a long time in the making. It was enacted some two years later, in February of this year and many of the proposed measures, which I considered back in February 2019, will come into force on 1 October 2021. It’s not quite your average tomato sauce (remember that advert – good things come to those who wait?), and it won’t bring good things to everyone, but it is designed to enable TPR to act with more speed and with more impact for the good of pension schemes generally.
So, what measures am I talking about? Well, if you are a trustee, it’s inevitable that you will have been hearing about TPR’s new powers at trustee meetings for the last year at least. If, however, you are an employer of a defined benefit pension scheme, chances are you have been busy with other more pressing issues over the last 18 months or so.
For those of you who aren’t quite up to speed, here is a recap of what will (and won’t!) be coming into force on 1 October.
Shortly after the High Court’s decision now referred to as “Lloyds 3“, which considered the issue of guaranteed minimum pension (GMP) equalisation and the extent to which past transfers-out should be revisited, we published a summary of the decision and our initial reaction.
In this series of blogs, we have put under the microscope some of the key issues raised by the Lloyds 3 decision, including some of the unanswered questions and practical difficulties that trustees will face in tackling GMP equalisation issues. Because of the complexities involved, with the best will in the world the majority of trustee boards will find that it will not be practicable to fully address all the potential GMP equalisation risks facing their scheme. In this blog, we go from “microscope” to “telescope” and examine the steps trustees might consider taking to prevent this reality from interfering with their long term objectives for securing liabilities outside their scheme. Continue Reading
