Pensions Weekly Update – 02 October 2024

Authors:

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’s call for evidence on the first phase of its pensions review (focusing on pensions investment) closed on 25 September 2024. There was a particular focus on defined contribution (DC) and the Local Government Pension Scheme (LGPS). The LGPS Scheme Advisory Board (Board) has published its response. The Board notes that the key concern for employers in the LGPS is that contributions remain affordable. The average employer contribution is currently 21%, which the Board notes does compare favourably with other large public sector pension schemes. Most LGPS funds were in surplus at the 2022 valuation, meaning increased pressure from some employers to lock in these gains and de-risk. With varying views among employers on derisking, the Board says that this “may not be the time to incentivise a move into asset classes like venture capital as suggested” and emphasises “the importance of holding to the fiduciary duty which ensures contributions are invested in the best financial interests of scheme members and employers”.
The Society of Pension Professionals (SPP) has also published its response to the government's call for evidence, alongside an SPP paper on “Solving the UK investment puzzle”. This contains a useful recap of the political landscape, it discusses DC, defined benefit and the LGPS, as well as examining the barriers to investing in productive finance (including that there is no universal definition of either “productive finance”, or “UK asset”). The paper considers the potential for complexity if the government were to mandate that trust schemes should invest a specified proportion of their assets in UK productive finance. It also speculates as to whether some sort of safe harbour provisions would be required for trustees whose discretion to invest a part of a fund’s assets is overridden by legislation.
The Pensions Regulator (TPR) has issued its compliance and enforcement bulletin for January 2024 to June 2024. In an accompanying press release, TPR confirms that it has issued seven penalties and three improvement notices to DC schemes for failures to deliver value for money. TPR warns that it is likely to issue more penalties once it has analysed data from scheme returns. Two pension schemes have also been fined for failures relating to annual climate change reports.
TPR has published its occupational defined benefit scheme funding analysis 2024, which is based on tranche 17 schemes, with effective valuation dates of 22 September 2021, to 21 September 2022. Comparisons are made against tranche 14 schemes with effective valuation dates three years previously. TPR notes that 47% of schemes in tranche 17 reported a surplus on the technical provisions funding basis, compared with 32% in tranche 14. TPR also notes a reduction in average recovery plan length from 6.2 years to 4.7 years.
The Pensions Ombudsman (TPO) has published a blog post giving an update on TPO’s operating model review. Dominic Harris says that expedited decision-making has been piloted over the summer and that it has produced good results. It picks off some of the “easy wins”, where an initial decision is made by a caseworker, but is capable of being referred to an ombudsman by either party. TPO says that, to date, very few of these initial decisions have been referred to an ombudsman. A full roll-out will occur shortly. Expedited determinations will not normally be published, so TPO is considering how general learnings will be shared more widely with the industry.
Our Labour and Employment team are running two upcoming webinars, on managing sickness absence (9 October 2024) and effective performance management (14 November 2024).