Current Issues – May 2022

  TPR – Annual Funding Statement:   

TPR has published its annual funding statement. Whilst it is aimed at schemes with valuation dates between 22^nd September 2021 and 21^st September 2022 it is relevant to all schemes as it gives TPRs latest thoughts on funding matters. TPR continues to stress how important it is to have an integrated approach to risk management and warns trustees to be mindful that covenant and funding may change very quickly in the current turbulent environment, given the prospect of higher inflation, higher interest rates, and the impact of the war in Ukraine. On the issue of the impact of Covid-19 on mortality, TPR does not expect any reduction in liabilities to be more than 2%, unless accompanied by strong supporting evidence. On dividends to shareholders and other forms of ‘leakage,’ TPR is quite clear that ‘fair treatment’ is expected. Where shareholder distributions are being made, they should not be more than deficit reduction contributions, unless there is a strong funding target and a short recovery plan. Dividends should not be paid at all where an employer is unable to support a scheme. TPR has again, highlighted the main risks they expect the trustees and sponsor to focus on, and the actions to take depending upon factors such as maturity, funding strength and strength of covenant. The information is given in tables so trustees can find the example closest to their own experience. The only different in the tables this year is the recovery plan has been updated to 6 years, highlighting the recovery plan lengths have been decreasing. The Annual Funding Statement can be found here:  TPR Annual Funding Statement 2022

TPR issues criminal proceedings – Two Trustees Jailed: 

Two trustees who assisted a fraudster in persuading hundreds of people to transfer their pension savings into scam schemes have been given jail sentences following action by TPR. Alan Barratt and Susan Dalton, assisted Julian Hanson in his plans to hoodwink individuals into transferring their pensions into 11 scam schemes operated by Friendly Pensions Ltd. This was the first time that TPR obtained a judgement that defendants had misused or misappropriated the assets of a pension scheme. TPR issued criminal proceedings and Alan Barratt was sentenced to 5 years in prison, and Susan Dalton was sentenced to 4 years and 8 months.

GMP Conversion – Bill receives Royal Assent : 

The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill has received Royal Asset and will be published as an Act of Parliament shortly. The Act will amend provisions of the Pension Schemes Act of 1993, simplifying and clarifying the conversion legislation. The Act should help schemes looking to use conversion as a means to equalise for the effects of GMP. The Act will clarify that conversion applies to survivors as well as earners and provide a power to set out detail about who must consent to the conversion.

Pension Scams – Updated letter from TPR and FCA: 

TPR has updated its letter warning members who are considering a transfer of the risks of scams. The letter is jointly signed by TPR, the FCA, and the Money and Pensions Service. The updated letter should replace the former version in transfer packs issued to members. The letter can be found here:  TPR Scams Warning Letter

Stronger Nudge – Action for Trustees of DB schemes with AVC:   

From 1^st June, trustees of schemes that offer flexible benefits (mainly ‘money purchase’) must give a ‘stronger nudge’ to members to take appropriate guidance from Pension Wise. Trustees must establish that the individual has either received guidance or opted-out of receiving guidance. Whilst mainly affecting money purchase schemes, as the new rules apply at benefit level, rather than at scheme level, DB schemes that have a DC Additional Voluntary Contribution option must also make sure that they are set to give a ‘stronger nudge’ to members before they access their DC benefits.