Here is our brief weekly summary of key legal and regulatory developments relevant to occupational pension schemes, which you might have missed, with links for further information.
Most UK pension schemes will have had Brexit on their risk registers for some time. However, as the transition period comes to an end on 31 December (deal or no deal), those risks will crystallise and start to play out to a greater or lesser extent. The key areas trustees will be monitoring closely are likely to be:
Investment – The degree of risk for schemes will depend upon existing strategies but few schemes will be completely immune from each and all of the immediate market reactions in the short term, the longer-term effect on the UK and EU economies, and consideration of how any risks and opportunities should be addressed.
Covenant – Trustees should also consider any Brexit effect on the business of the scheme’s sponsoring employers and, in turn, the impact on the employers’ covenant to the scheme. In many sectors, the end of the transition period looks likely to create significant additional challenges for businesses already stretched by the COVID-19 pandemic.
Benefit administration – Concerns remain that pension payments to EU resident pensioners may fail if the recipients have not been able to set up alternatives to their existing bank accounts. This could result in trustees and administrators having to work with members to identify other ways of making the payments. It could also result in complaints.
Enforceability of EU contingent assets – For schemes that have the benefit of an EU group company guarantee or other security, if no reciprocal arrangements are reached with the EU in relation to the enforcement of judgments, there could be extra cost and timing issues if trustees ever need to enforce the terms of the guarantee/security. This will depend upon certain variables, including the local laws of the relevant EU member state, whether the guarantee contains an exclusive jurisdiction clause and whether or not the UK has successfully acceded to the Hague Convention (EU) or the Lugano Convention (EEA) in its own right.
EU scheme employers – A further complication for defined benefit schemes that have EU employers is that the insolvency of the employer in an EU state may no longer automatically result in a PPF assessment period.
The government has opened consultation on a ban on corporate directors. Many trustee boards are incorporated as companies and might have a professional trustee company sitting as a corporate director on the trustee board. A wholesale ban on corporate directors would, therefore, prove problematic for professional trustee companies, in particular. A principles-based exception is proposed, so that a company could be appointed as a director of another company where (1) all of its directors are, in turn, natural persons and (2) those natural person directors are, prior to the corporate director appointment, subject to the Companies House identity verification process. This should provide most trustee boards with the easement they need, but some trustee boards will need to re-think their structure.
The Pensions Regulator (TPR) has confirmed that it is still thinking about the economic scenarios posed by COVID-19 and Brexit. TPR has not yet firmed up on the parameters for its proposed Fast Track valuation process and is, therefore, surprised by some pensions industry impact assessments. The second consultation on the new funding code is expected in summer 2021.
Did you see last week’s 30-second #PensionsTensions video on the subject of defined benefit consolidation? This week’s video contains a message from the whole Pensions team.
If you have not entered our festive quiz yet, there is still time! Entries close at 5 p.m. on Thursday 17 December.
Finally, we will be taking a break from our weekly updates and will return in January. We would like to wish all of our readers season’s greetings and a happy and healthy new year.
If you would like specific advice on any of these issues, or on anything else, please contact a member of our Pensions team.