An update by The Pension Regulator
25 May 2019
This article was featured in the June 2019 issue of the magazine.
The Regulator provides information on its compliance enforcement role
The Pensions Regulator (‘the Regulator’) is continuing to be clearer, quicker and tougher to ensure savers are protected and saving into safe and secure pension schemes. We have been working to tackle criminality as well as intervening to persuade employers, advisers, providers and trustees to do the right thing without us having to take court action.
Recent enforcement firsts include:
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the launching of our first money-laundering prosecution
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the securing of our first convictions for fraud and making prohibited employer-related investments, and
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the first defendant being jailed after prosecution.
The jailing of accountant and pension scheme trustee Roger Bessent for fraud and making prohibited employer-related investments showed that the courts will not tolerate abuse of the system. Judge Nicholas Barker highlighted that the defendant had breached the trust that the whole pensions system is based on – that savers can rely on pension scheme trustees to invest their funds prudently so they are available for their retirement.
...setting a long-term funding target and agreeing a clear strategy...
DB scheme funding
The Regulator recently published the Annual Funding Statement which clarifies how it expects trustees and employers to fund a defined benefit (DB) scheme. This is particularly relevant to those conducting valuations with effective dates between 22 September 2018 and 21 September 2019.
Compared to previous years, we have put additional focus on scheme maturity, more emphasis on employers and trustees establishing a long-term funding target and, for the first time, set out expectations on investment and covenant. Trustees and employers should be setting a long-term funding target and agreeing a clear strategy, or journey plan to achieve it, recognising how the balance between investment risk, contributions and covenant support may change over time.
We have articulated how a comprehensive approach to integrated risk management should allow schemes to ensure they only take an appropriate level of risk with investments. This is an important approach that helps trustees to assess, prioritise and manage the employer covenant, investment and funding risks, only taking investment risk where it can be supported by the covenant.
Since the majority of DB schemes are closed to new members and future accrual, we expect scheme maturity issues to assume greater significance for setting funding and investment strategies in the future, particularly where schemes are experiencing high levels of transfer values.
This year we are contacting more schemes before triennial valuations are submitted to identify potential risks which could impact on members.
Master trusts
Following the official closure of the window for master trust applications for authorisation, we are working to assess the large volume of submissions received. We are confident we will process them within the legal timeframe and will update weekly the list of schemes which have achieved authorisation.
Authorisation puts safeguards around master trusts by ensuring they are run by fit and proper people and have the right systems, processes, plans and finances in place. We are looking forward to a market of master trusts which millions of pension savers can have confidence in. We will: maintain a close relationship with authorised schemes as part of our supervision work to ensure standards continue to be met; and continue to oversee the exit from the market of those that did not apply or receive authorisation.
Where a master trust is being wound up, trustees must provide us with a plan of how they will transfer out members’ assets. We will analyse elements of the transferring and receiving schemes, challenging trustees where necessary, to ensure members get the best outcomes. Where trustees are managing an exit well, we will take oversight and have regular engagement, but if there are concerns about an exit our engagement will be more frequent and intense.
Action to protect savers
The Regulator’s recent compliance and enforcement bulletin showed that between September and December 2018, we used our powers 21,814 times. This is in line with the volume of employers with responsibilities and demonstrates that we will not tolerate staff missing out on the pensions to which they are entitled.
Darren Ryder, director of automatic enrolment at the Regulator, commented: “Employers do not save money by failing to make contributions as payments must be back dated so staff receive what they are due. Ongoing failure to make the correct payments may lead to a fixed penalty or escalating penalty notice.
“Working with government, the pensions industry and adviser community we’ve changed the savings culture. Automatic enrolment is now business as usual for employers, staff now expect a pension as part of their jobs and 84% of staff are now saving into a workplace pension.
“Let’s ensure this success continues and that people continue to save and to save more.”