Pension Connections Season's greetings - MHM Pensions
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Issue: 13 December, 2020
Pension
Connections
Season’s greetings
Wishing readers a Merry Christ- on some pension scheme ser-
mas feels somewhat different vices. Investments will continue
this year. With last minute to be a hot topic for all schemes
changes to the Christmas bub- as we consider further the im-
ble and travel restrictions hav- pact of ESG and climate change
ing been announced over the and many schemes will need to
weekend, many of us will now prepare implementation state-
be re-thinking our plans for the ments for the first time.
holiday period and hoping for
much better prospects in 2021. There is a familiar feel to these
issues but, with the roll-out of
So, what does next year hold for vaccinations having started al-
UK pension schemes? The new ready, the coronavirus cloud
Pensions Bill should be in force, will not hang over us to the
equalisation of GMPs will be an same extent.
even bigger headache for most
defined benefit schemes and Best wishes for the season to
Brexit may yet have an impact our readers. In this issue:
Season’s greetings
CMA Certification due by 7 Jan 2021
Good news from the PPF…for some
Does bigger mean better for DC
pensions?
CMA Certification due by 7 Jan 2021
T
Investment section
he deadline for certification for CMA Investment Consultancy and
Fiduciary Management Market Investigation Order 2019 is 7 Jan-
uary and it should be done before Christmas if possible. The order
came into force on 10 December 2019 and requires pension schemes to
set strategic objectives for their investment consultants and/or fiduciary
managers. It was assumed the order would be replaced by regulations
during 2020, but that did not happen, meaning the requirement to certi-
fy compliance still applies if you have taken investment advice this year.
Speak to your investment consultant or contact MHM for further details.
Pension Connections December, 20
Good news from the PPF…
for some
This year’s annual levy invoice was the last to be
generated from the Experian insolvency assess-
ments, with Dun & Bradstreet (D&B) having taken
over in April this year.
The D&B insolvency scoring model will be used in
calculating the 2021-22 levy and, while the basis
of the model is essentially unchanged, D&B’s ap-
proach is predicted to result in higher levies for
larger employers and lower levies for small and
not-for-profit businesses.
Recognising the financial pressures on many
businesses this year, the PPF offered extended
payment terms of 90 days instead of 28 days, for aim to reduce the overall collection by £100m to £520m next
employers who are “genuinely struggling”. year – a reduction for around 90% of schemes.
More changes ahead In addition, the balance is shifted towards larger schemes, rec-
ognising that they have tended to pay a smaller amount as a
A consultation on changes to the levy basis for proportion of their liabilities. The levy cap, being the maximum
2021-22 closed last month and the final rules will any scheme pays, will be reduced from 0.5% to 0.25% of liabil-
be announced in January. While the outcome ities, and schemes with less than £20m in liabilities could see a
may differ from that proposed, further good reduction of up to 50% of their levy, with a phased reduction for
news could be on the way for smaller schemes. those with liabilities between £20m and £50m.
The consultation took place at the height of the But a word of caution. The levy rules will be assessed annual-
pandemic but the PPF was in a “strong financial ly in future, so monitoring announcements from the PPF each
position” at the start of the year, so the proposals year becomes vital.
Time to get started on equalising
Guaranteed Minimum Pensions (GMPs)
UK pension schemes took action to equalise normal retirement ages between men
and women some 25-30 years ago, and a High Court judgement handed down in
November, following on from the 2018 Lloyds Bank cases, means additional work
is now required.
The latest judgement from Mr Justice Morgan considered whether the requirement
to equalise scheme benefits for the inherently unequal effect of GMPs, which ac-
crued at different rates for men and women, should include former members who
previously transferred out. His decision was that it should, bringing former members
with pensionable service between 17 May 1990 and 5 April 1997 into scope for
this project.
This does not make the task any easier and, as a first step, trustees should contact
their administrators to identify any transfers paid out since May 1990.
Pensio Conectis Decmbr, 20
Does bigger mean
better for DC pensions?
• If trustees do not believe that their scheme is providing
Ways to improve member outcomes in defined contribu- adequate value then The Pensions Regulator will expect
tion (DC) pension schemes have been a consideration for improvement within a reasonable period (which we inter-
the government for a number of years, especially since pret as 12 months) or that the trustees commence winding
the introduction of auto-enrolment. The latest propos- up and transfer to a larger arrangement, such as a master
al from the Department for Work and Pensions (DWP) trust.
makes clear it believes that smaller schemes are a prob- • The government expects the required legislation to be ef-
lem. fective from 5 October 2021.
The DWP’s proposed solution is for small schemes to im- How feasible are these proposals?
prove or consider winding up and transferring to a larger
scheme. But what constitutes a “small” scheme and how The increasing levels of governance and transparency in DC
should trustees assess the value their scheme provides to are making it more challenging for smaller schemes to contin-
its members? In this article, we are grateful for the insight ue effectively. The DWP’s proposals are deliberately ambitious
of Alan Greenlees, Head of DC Investment at XPS Pen- and a clear message that smaller schemes must improve their
sions Group, who explains the key aspects of the DWP governance and prove that they offer good value for members
proposal and actions that may be required from trustees or face the consequences.
and scheme sponsors in future.
For some schemes, this binary choice of govern or consolidate
The proposal at a glance will force a potentially difficult conversation with stakeholders
about the future of the scheme and what constitutes good value
Under the draft guidance, all relevant schemes (which for members.
broadly equates to all occupational DC schemes) will
have increased reporting requirements via their annual The threshold of £100m of assets and proposed timescale of 5
scheme return and the Chair’s Statement. October 2021 are contentious and will draw comments once
the consultation responses are analysed. It also remains to be
Furthermore, it is proposed that DC schemes with less than seen if the master trust market, which will be a natural home for
£100m in assets and that have been in operation for at many small schemes looking to consolidate, has the capacity
least three years, must undertake annual “value for mem- for so many transfers in a tight timescale.
bers” assessments. The assessments must demonstrate
against three comparators that the current arrangement is Next Steps
providing sufficient value. If not, then trustees must confirm
whether they intend to wind up the scheme and, if not, The DWP’s proposals to improve member outcomes are ambi-
why not. tious and will have an impact on a large number of DC schemes
if they go ahead. Stakeholders of such arrangements should:
While the DWP’s focus is on trust-based schemes under
£100m, all DC schemes, no matter how small and includ- • Review whether your arrangements provide value for
ing group personal pension plans, should always consid- members, and
er their approach to governance and ways of improving • If insufficient value is provided, consider whether improve-
member outcomes. ments can be achieved, or
• Consider transferring to a larger scheme to provide better
The finer details member outcomes.
• All relevant DC schemes will be required to report in- These proposals could be part of day-to-day DC governance
vestment returns net of fees, for all investment options as soon as October 2021, meaning that trustees and other
used by members, within the Chair’s Statement. main stakeholders have limited time to act.
• Schemes with less than £100m in assets will need to
submit an annual “value for members” assessment, To discuss any of the issues covered in this article, please
comparing charges and performance. contact
• The assessment considers qualitative matters such as david.hodgson@mhmpensions.co.uk or
trustee knowledge, investment governance, mem- alan.greenlees@xpsgroup.com
ber communications, record keeping, core financial
transactions and the default investment strategy.
Pensio Conectis Decmbr, 20
Investm section
If we had to sum up the investment markets in 2020 in a single word, “volatile” would be as good a word as any. The year
started with much optimism on the back of pretty decent investment performance for most equity markets during 2019. The UK
market, in particular, was reacting to the prospect of strong leadership under Boris Johnson as the Conservative Party won
a large majority in the general election, potentially diminishing political uncertainty as the UK prepared to leave the EU and
begin negotiations over a trade deal. What else was there to worry about?
Another election has dominated the headlines in recent months and, while perhaps not quite the landslide victory enjoyed by
Boris Johnson last year, Joe Biden’s victory in the US presidential election and his early policy statements will have a major
influence on global markets and prospects for the UK economy as we move into 2021.
The figures in the table, below, show performance to 30 September 2020.
Figures supplied by Barker Tatham Investment Consultants: BIG THINKING for small schemes
Aggregate deficits for UK defined benefit schemes fell from £174.8 billion to £166.1 billion over the third quarter. Gilt yields
picked up a little over the quarter, which should have improved funding levels slightly, but this will still be a difficult year for
schemes currently undergoing an actuarial valuation unless interest rates were fully hedged ahead of the effective date.
Members of defined contribution pension schemes probably saw quite flat returns over the third quarter, depending on whether
they were in the process of de-risking in the lead up to retirement and the degree of exposure their funds have to UK equities.
Those relying on default investment funds can take comfort from knowing that the trustees will be keeping a close eye on invest-
ment matters and it is probably as well to leave them to it in the short term.
Overall, some defined contribution members will look back on 2020 as a positive year for their pension - or, at least, not as
bad as it could have been. However, at the time of writing, the outlook for the UK economy is not encouraging, with the Chan-
cellor Rishi Sunak beginning to hint at measures to recover some of the costs incurred during 2020. On the positive side, the
roll-out of one or more approved COVID-19 vaccines should improve the mood of the nation leading into the holiday period
and could also be the kick-start needed to get the global economy moving forwards again in 2021.
MHM Pension Services Ltd
Windsor House, info@mhmpensions.co.uk
01423 229029
Cornwall Road, www.mhmpensions.co.uk
Harrogate HG1 2PW
MHM Pension Services Ltd is authorised and regulated by the Financial Conduct Authority. The articles and information included in Pension Connections are
intended for information only and should not be construed as advice on any particular course of action for your company or pension scheme.
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