Pensions Weekly Update – 28 June 2023

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Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes that you might have missed, with links for further information.

The government has published its review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, which were introduced under the Pension Schemes Act 2021. The purpose of the regulations was to provide greater protection for pension scheme members from pension scams. The pensions industry has found that parts of the regulations, which introduced a system of red and amber flags on a proposed statutory transfer, have proved impractical to operate in relation to incentives and overseas investments. The industry had high expectations that the review would take steps towards resolving these practical issues, but the government has simply said that it will consider these issues further in conjunction with the pensions industry and The Pensions Regulator (TPR).
The Work and Pensions Committee has published its report on defined benefit pensions with liability driven investments (LDI), following calls for evidence in October 2022 and February 2023. The report concentrates on the “September 2022 episode affecting pension funds invested in leveraged LDI”. The report notes that both accounting standards and pension scheme funding requirements contributed to the development of LDI because the requirement to calculate a present value of liabilities using a market-based discount rate resulted in liability levels being very sensitive to changes in interest rates. The report is detailed and contains several conclusions and recommendations. These include that TPR should improve the regulation of trustees and governance standards, the government should bring forward plans for investment consultants to be brought within the Financial Conduct Authority’s regulatory perimeter before the end of this Parliament and, perhaps most radically, “DWP and TPR should halt their existing plans for a new funding regime, at least until it has produced a full impact assessment for the proposals, including the impact on financial stability and on open DB schemes.”
We noted in our weekly update of 14 June 2023, that there were two remaining issues that were the subject of “ping pong” between the House of Commons and the House of Lords in relation to the retained EU law bill. The House of Lords has now agreed that it will not insist on its two outstanding proposed amendments to the bill. During the final debate in the House of Lords, Lord Krebs said, “My Lords, the debates we have had on the various amendments that I have put forward to ensure environmental protection remind me of the train journey from Oxford to London in recent months, due to disruption of the Paddington Line. The journey takes longer than you would have wished and you do not end up at the destination that you had hoped to end up at.” The bill is scheduled to receive royal assent on 29 June 2023, at which point it will become law.
The Pensions Dashboards Programme (PDP) has issued some Frequently Asked Questions on its approach to producing dashboards connection guidance. Schemes caught by the existing regulations will have a mandatory connection deadline of 31 October 2026 (as explained in our update of 14 June 2023). PDP guidance will cover the expected connection dates for each scheme, and trustees will be required to demonstrate how they have had regard to the guidance. We can expect more collaboration with industry in the weeks and months ahead.
The government has said that it will not be introducing governance or disclosure requirements in relation to climate-related financial risks for the Local Government Pension Scheme (LGPS) in respect of the financial year 2023-24, as originally anticipated.
Also relating to the public sector, the government has published the Economic Activity of Public Bodies (Overseas Matters) Bill, which would prohibit public bodies, including LGPS administering authorities, from making an investment decision that has “regard to a territorial consideration in a way that would cause a reasonable observer of the decision-making process to conclude that the decision was influenced by political or moral disapproval of foreign state conduct”.
We are delighted that we have been shortlisted for the Law Firm of the Year at the LAPF Investment Awards 2023. Congratulations to all the nominees!