pension loopholes that need closing · 2015 exams, the board has decided to allow all future...

A U G U S T 2 0 1 7

Pensionadministration outsourcing months

The rise of LDI’syounger cousin:cash driveninvesting

Pensionsdashboard and data quality

PMIn e w s

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Pension loopholes that need closingPension loopholes that need closing

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Published in the UK by The Pensions Management Institute

Available free to PMI members

ISSN 2046-760518

WWW.PENSIONS-PMI.ORG.UK PMI NEWS AUG 2017 3

FEATURE ARTICLES

10 Pension loopholes that need closing

14 Pension administration outsourcing – select a schemeadministrator and sign contractswithin three months

18 The rise of LDI’s younger cousin: cash driven investing

26 When administration is less than the sum of it's parts

30 Pensions dashboard and data quality

REGULAR ARTICLES

04 Editorial

05 Notes from the PMI

06 Qualifications

08 Events

13 Expert Insight – Financial Education

17 Investment Insight – Target Retirement Funds

22 PMI AAP

23 NEST update

24 A month in pensions

29 News from the Regions

33 Regulator update

34 Services directory

40 Appointments

10

+contents

14

O n 18 April, Theresa May made the surprisingdecision to call a General Election. Her desireto secure a significant Commons majority

was a gamble which ultimately failed to deliver thedesired result, and left a Parliamentary programmefocused on little beyond the effective management of Brexit negotiations. This has ominous implicationsfor pensions policy.After having served as Pensions Minister for just

under a year, Richard Harrington was reshuffled toParliamentary Under-Secretary of State for Industry & Energy. Such a short tenure is disappointinglyreminiscent of the ‘revolving door’ which characterisedLabour’s thirteen years in office. Guy Opperman’sappointment as his successor has already given rise toconcern. Like Harrington, Opperman has inherited adowngraded role: he is a Parliamentary Under-Secretary rather than a Minister. Additionally, the rolehas been diluted, in that Opperman’s official title isParliamentary Under-Secretary of State for Pensionsand Financial Inclusion. In an era when there has beensignificant turbulence affecting retirement provision, it would seem reasonable to suppose that pensionswould have a greater prominence in Governmentpolicy, rather than be reduced in emphasis.

A lack of commitment in addressing pensions issueswould be particularly frustrating given the range ofchallenges confronting society. The recent Green Paper– and Professor David Blake’s recent follow-up to ‘theGreatest Good for the Greatest Number’ – identifiedsome hard choices that Government will ultimatelyhave to make concerning the future of underfundeddefined benefit (DB) schemes in the UK. Currently,trustees of schemes in deficit have two options: eitherthe scheme sponsor must achieve full funding, or thescheme will ultimately fall into the Pension ProtectionFund (PPF). At first glance, some kind of compromiseoption appears attractive. Allowing trustees of stressedschemes to offer pensions which fall short of theoriginal benefit promise, but which are more generousthan that which would be offered by the PPF, seemslike a pragmatic approach. However, it is difficult to

see how unscrupulous employers could be preventedfrom ‘gaming’ the system. Any new approach wouldhave to address the complicated issues raised by therecent cases resulting from the proposed restructuringof Tata Steel and the collapse of BHS. Many areconcerned that loosening the requirements of Section67 could allow some dangerous precedents to be set.You may recall the recent survey conducted by PMI’sExternal Affairs Committee for its response to theGreen Paper. PMI members voted 70% / 30% infavour of retaining the current system, rather thanpermitting the payment of scaled-down DB benefits.This year has also seen a formal review of

automatic enrolment (AE). Whilst the originalimplementation project has been a resoundingsuccess, it is important to ensure that momentum isnot lost, and that workplace pension provisiondevelops into a system which works effectively foreveryone over the longer term. In the private sector,AE is dominated by defined contribution (DC)arrangements, and once again some bold policydecisions are needed. At June’s Pay & Benefitsexhibition, former pensions minister Baroness Altmannwarned of the impact of the Net Pay system of taxrelief on low earners. Her concern is that system doesnot offer any real tax relief for those whose earningsfall below the Basic Personal Allowance, and that theRelief at Source system should therefore be adoptedfor all DC arrangements.

Looking to the future, Government must also

consider options for increasing rates of DC

contributions to beyond the statutory minimum of 8%

of qualifying earnings, that will take effect from April

2019. A frequently-cited option for ratchetting up

contribution rates is the ‘Save More Tomorrow’

approach pioneered in the USA. Allowing part of future

salary increases to be allocated to pension contributions

can only work when employees have a realistic

expectation of regular annual increments. For far too

many, this remains an over-optimistic expectation.

Clearly, these are times which require Governmentto be proactive in taking key decisions about thefuture of pension provision. We cannot free ourselvesof the political constraints which have forcedGovernment to adopt such a narrowly focusedapproach to policy, but circumstances demand thatBrexit should not be permitted to trump all otherissues confronting society today.

4 PMI NEWS AUG 2017 WWW.PENSIONS-PMI.ORG.UK

Pensions: at the back of the queue?

[ ]n

editorialTim MiddletonPMI TechnicalConsultant

PMI members voted 70% / 30% in

favour of retaining the current

system, rather than permitting the

payment of scaled-down DB benefits

PMI


notes from the

Continuing ProfessionalDevelopment (CPD) Your completed 2016 CPD reports were dueon 31 January 2017 – if you have notcompleted your report, please do so now andsubmit it to the Membership department.

Fellows and Associates are reminded thatmeeting the PMI CPD requirement iscompulsory (except where retired/non-working). Under our CPD Scheme, PMImembers are required to record at least 25hours during the year. Please log on to thewebsite and update your CPD record.

Please be reminded that if FPMI andAPMI members do not complete thenecessary CPD for 2016, they will berequired to make up the shortfall in 2017.PMI will remove the designatory initialsFPMI and APMI for those who do notprovide evidence of CPD for twoconsecutive years. Members have been notified that

the withdrawal of the designatoryinitials FPMI and APMI is inevitablefor those who do not comply withPMI CPD requirements, and have notsubmitted any evidence of CPD forthe years 2014 through to 2016.

2017-18 SubscriptionsThe fees structure for 2017-18 is set out in thetable below:

Membership Category FeesFellow £395Associate £305Diploma £210Certificate £165Student £130Affiliate £75Retired/Non-working £75

Direct DebitFor 2017-18 subscriptions payable by Friday1 September, all members are reminded thatthey can use the Direct Debit facility to helpspread the cost of annual subscriptions.

You can pay your subscription over threemonths (1 Sept, 1 Oct, 1 Nov). Alternatively,you can pay your subscription as a single annualpayment by indicating this on the mandate.

Please ensure that your completed DirectDebit form is sent to the MembershipDepartment by Friday 11 August.

PMI Trustee GroupDon’t forget, entire Trustee Boards can alsojoin the PMI Trustee Group (at a reduced rateof £70 per trustee) and receive additionalbenefits including the ability to sign up forcollective training to be independentlyrecognised by the PMI. For details of the fullrange of benefits of joining the PMI TrusteeGroup, either as an individual or entire TrusteeBoard, see our website.

Trustee Group Members also receive freeattendance at our twice-yearly seminars, whichfocus on trustee issues, and reduced rates at ourother conferences and seminars. For furtherinformation please contact the MembershipDepartment: [email protected]

If your Board is a member of the PMITrustee Group and each member has achieved15 hours’ CPD, then you are eligible for thePMI Certificate of Achievement. Pleasecontact Membership at:[email protected] formore information.

PMI Membership Upgrade WaiverFollowing the success of the opportunity toupgrade membership category without theelection fee for recent qualifiers in the April2015 exams, the Board has decided to allow allfuture qualifiers to upgrade their membershipwithout the appropriate election fee. Theinvitation to upgrade letter will be postedtogether with your results, indicating a three-month window period in which to upgradeyour membership.

Members wishing to upgrade after the endof the waiver period will be required toundertake the usual process, which requires theupgrade fee plus the annual subscription at theappropriate rate. For further details contact theMembership Department [email protected] oron 020 7392 7410.

APPT membershipSubscription fees will remain at £185.

This is a reminder that your APPTmembership was due for renewal on 1 July2017. Renewal notices were emailed out toAPPT members during the first week of May.

Please note that you are required to submitevidence of your 2016 CPD before renewingyour APPT membership.

Please submit this to the PMI Membershipdepartment at [email protected]

Certificate MembershipCertificate membership is open to those whohave completed one of our qualifications at theCertificate Level; for more information pleasesee the PMI’s website. We are pleased toannounce that the following have been electedto Certificate Membership, and are nowentitled to use the designatory initials“CertPMI”:Veronica CartwrightMichael HadgkissRay HollisterImran Hussain

Diploma MembershipDiploma membership is open to those whohave completed one of our qualifications at theDiploma Level; for more information pleasesee the PMI’s website. We are pleased toannounce that the following have been electedto Diploma Membership, and are now entitledto use the designatory initials “DipPMI”:Magdalena Heyneke Maria Spencer

Associate MembershipAssociate membership is open to those whohave completed the Advanced Diploma inRetirement Provision qualification; for moreinformation please see the PMI’s website. Weare pleased to announce that the followinghave been elected to Associate Membership,and are now entitled to use the designatoryinitials “APMI”:Sarah BromleyAlastair CampbellLayphan Liu

PeopleWe are saddened to hear that ChristopherRobert Ivan Estridge JP MA FCIIFPMI and Dennis Frank Gilley FIA FSSAIL FPMI recently passed away.

Adekunbi JolugboKudakwashe MuzambiNina ParmarJanice Wright

Follow us @PMIPensionsDiscuss this month’s articlesusing #PMINews

David LopezJoanne Rayner


qualificationsIS THERE ANYONE IN YOURORGANISATION THATCOULD BENEFIT FROMEXPANDING THEIRPENSIONS KNOWLEDGE?The Retirement Provision Certificate(RPC) is a qualification that is ideal foremployees new to pensions, support staffand those professionals working in relatedfields. It provides a broad introduction topensions and other related benefits in theUK.

It has been designed to meet the needsof a wide range of people, not just pensionprofessionals. The qualification is assessed bya two hour multiple choice exam made upof 120 questions, designed to testknowledge across the whole syllabus.

The next sitting of the qualification isWednesday 13 September.

APRIL 2017 EXAMINATIONS The following examinations were sat in April2017. There were 562 entries in total. Theunits offered in April were:n Core Unit 1A - Understanding

Retirement Provision (UK)n Core Unit 1B – Foundation in

International Employee Benefitsn Core Unit 2 - Regulation of Retirement

Provisionn Core Unit 3 - Running a Workplace

Pension Schemen Core Unit 4 - Financing and Investing for

Retirement Provisionn Defined Benefit Arrangementsn Defined Contribution Arrangementsn Reward and Retirement Provisionn Retail Advice and Regulationn Taxation, Retail Investment and Pensionsn International 2 – Managing International

Employee Benefitsn Professionalism and Governance

The pass rates for each unit can be foundbelow:

CU1A 39%CU1B 61%CU2 70%CU3 52%CU4 67%DB 71%DC 79%

Reward 70%Retail 15%Taxation 50%Int 2 58%Prof + Governance 54%

ADVANCED DIPLOMA Congratulations to the following candidateswho have completed the Advanced Diplomain Retirement Provision qualification:

DEBRSCongratulations to the following candidateswho have completed the Diploma inEmployee Benefits and Retirement Savings(DEBRS) qualification:

DipIEBThe Module Two examination took place inApril. Congratulations to the following whocompleted the Diploma in InternationalEmployee Benefits (DipIEB) qualification:

DRPCongratulations to the following candidateswho have completed the Diploma inRetirement Provision (DRP) qualification:

APECongratulations to the following candidateswho have completed the Award in PensionsEssentials (APE) qualification:Jason Terry McColm Casey Picken

CPCCongratulations to the following candidateswho have completed Certificate in PensionCalculations (CPC) qualification:

CPECongratulations to the following candidateswho have completed Certificate in PensionEssentials (CPE) qualification:Kerrie McKee Sarah Walton

Zakir AhmedIan AndrewsDominic ArthurPaul BartonLesley-Ann BlackBryna BradySarah BromleyAlastair CampbellLee ChadwickLuke ChambersNeil CowieCornelius Hargrave

Katina HornerAnna HoweLayphan LiuDavid LopezMark MitchellJoanne RaynerMichael ReedTim RobertsPeter ShawJana SicakDavid Sloan

Dominic ArthurLaura BirtwistleJill BrignallAlastair CampbellLuke ChambersLaura CookThomas DaviesAlastair DawsonKeir FeeneyJoshua FordAnna HoweShiraz HussainKatie LambertJeremy LowAnne LynchKelsey MarrinerJennifer May

John McCawleyMark McIntyreMichael NicolaouJoanne RaynerKevin ShielMark SmithHelen SouthwellRobin TahaAllan TilburyGillian TurtonLaura WebbNicola WhiteGavin WilkinsonGareth WookeyJoanne WrightMichael WrightJoy Wyatt

Tom CarrollBertrand De BattistaEilidh GlynnYassin IsmanDavid McCreadySteven McKay

Simon MulimaAnne RailleMoritz RoeserRobin ScottJianhua Grace Wei

Shehzad AhmadLucy AspinallDavid BlackfordChristopher BlacklerStuart BrielyJohanna ClarkeDavid CoulthardMark DanceAnthony DaviesEmma DickinsonNicole FieldMark GolleyAlison HayKirk HintonHazel HollandRachel LouiseHolmesChristopher HughesNatalia Jedrzejewska

KimberleyLonghurst-HillSimon MageeDerek McCormickJane McNultyCurtis MitchellMichael NicolaouMarjo NivalaJayne PocockElla PurkissPaul RatcliffeCraig RobertsMaria SpencerAndrew TaylorGillian TurtonJamal UddinTimothy VaughanLucie White

Daniel McGovernEdward OwensAndy Hemming

John RedrupRyan DaviesYen Fung

CPACongratulations to the following candidateswho have completed Certificate in PensionsAutomatic Enrolment (CPA) qualification:Stephanie Blakey Beverley RiggSarah Scaife

DRRACongratulations to Olenka Taylor whorecently completed the Diploma in RegulatedRetirement Advice (DRRA).

VQ EXAMINATIONSThe next series of examinations will be heldbetween Monday 4 – Thursday 7September. Please note entries have nowclosed for this sitting. The next availableexaminations will be held in March 2018, andregistration details will be available in earlyNovember.

MULTI-CHOICEEXAMINATIONSMultiple choice examinations include:n Award in Pension Trusteeship (APT)n Certificate in Pensions Automatic

Enrolment (CPAE)n Certificate in DC Governance (DC Gov)n Retirement Provision Certificate (RPC)

The next exam sitting will be held onWednesday 13 September. Please note theclosing date for entry was Friday 14 July. Lateentries will not be accepted.

Revision CoursesThe following revision sessions will be held atTower 42 in London:n CPAE – Tuesday 8 Augustn DC Gov – Wednesday 9 Augustn RPC – Thursday 10 August

Booking forms are available on our website.

EXAM INVIGILATORSNEEDED

The Qualifications Team arealways looking for people tohelp invigilate ourexaminations across thecountry. If you would beinterested, please contact theteam. An honorarium andexpenses are offered.


CONTACT US

If you would like to speak toone of our events team email [email protected] or alternativelycall 020 7392 7425.

VOLUNTEERSNEEDED

We rely heavily on many volunteers to supportour range of membership, qualifications andsupport services through the many committeeswe have in place to oversee theirdevelopment, delivery and assessment.

If you are interested in volunteering, contact the Qualifications Team [email protected]

INTRODUCTION TO UK PENSIONS

We will be running our next ‘Introductionto UK Pensions’ seminars on:

n Wednesday 20 September - Londonn Wednesday 25 October - Leeds

This introductory workshop is designed for those with little or no previous pension’sknowledge. Our expert panel will talkthrough the essentials of the pensionsindustry touching on the core areas thatprofessionals starting out in the pensionsindustry need to know, as well as answer anyquestions you have about the industry.

For further details and to book see enclosedbooking form.

London event hosted by:

Leeds event hosted by:

PMI TECHNICAL SEMINAR- register your interest

Our next technical seminar will take place in Autumn in London and will focus onClimate change and the implicationsfor trustees and pension schemeadvisers.The event will:

n explain pension trustees’ legal duty tomanage climate risk

n consider the financial risks associated withclimate change where these risks arematerial to the fund’s performance

n provide direction on how to understandthe scheme’s investments to understandclimate risks within the portfolio

n offer guidance on steps that trustees cantake to limit their liability risk by notfulfilling their duty to measure and manageclimate risk

For further details and to register your interestvisit our website.

PMI TECHNICAL SEMINAR

After the sold out success of our recenttechnical seminar, ‘Protecting members -key steps to cyber security’, we arepleased to announce that we will be runningthis event again on Friday 10 November.

This seminar will help delegatesunderstand what exactly cybercrime is, whatkey issues need to be considered, as well asprovide practical steps to take to ensuremembers remain protected. Topics include:

n How is cyber security impacting thepensions industry?

n Assessing the legal implications for pensionschemes

n Identifying data risks - a checklist of initialquestions

n Determining priorities in relation tosecuring cyberspace

For further details and to book visit ourwebsite.

PMI TECHNICAL SEMINAR

We are pleased to announce that this Autumnwe will be running a half-day technicalseminar specifically focused on DC issues. This seminar entitled ‘The AC to the DC:a comprehensive look at DC pensiontrends’ will take a look at:

n The future of DCn The mastertrust vs contract conundrumn Member engagementn Legal implicationsn DC governance in detail

A panel of leading industry speakers will takeyou through current industry thinking anddiscuss examples of industry best practice. Thismorning seminar is aimed at trustees andpension scheme advisers.

Further details will be announced shortly,but to register your interest contact the EventsTeam at [email protected].

events


DIARY DATESn 20 SEPTEMBER 2017 PMI Introduction to UK Pensions

Seminar – London

n 25 OCTOBER 2017PMI Introduction to UK PensionsSeminar – Leeds

n 7 NOVEMBER 2017Eastern Group – Afternoon Seminar

n 10 NOVEMBER 2017PMI Technical Seminar – Protecting Members - Key Steps to Cyber Security

Regional Groups’ activities shown in italics

CONTACT US

Full details on all our eventscan be found on our website,along with all our bookingforms.

If you would like to speak to one of ourevents team email [email protected] oralternatively call 020 7392 7425.

Pension loopholes that need closing



N ever has opinion been so polarised as incurrent times. It seems like every day oursenses are bombarded with stories of

injustice and inequality, ranging from DonaldTrump’s latest political foray into the previouslytaboo, to Corbyn and May’s verbal sparring overBrexit and social injustice.The UK pensions landscape is a complex beast.

Born over 100 years ago (I’ll let you choose yourstarting point) we have staggered, stumbled andsometimes even sprinted along the path of pensionsevolution to the point where, I believe, we findourselves on the cusp of greatness. That said, anumber of old rules and quirks in legislation meanwe find ourselves faced with a number of loopholesthat bear no resemblance to the modern world.Recent, high profile cases like the Brewster and theWalker bringing these areas of ‘unfairness’ to lightbegs the question: isn’t it time pensions got up tospeed with the modern world? As an industry, westrive to engage people and give them theconfidence to save for a prosperous retirement – so why are we letting unfairness continue?If we choose to embrace a focus of thought and

build on our successes, we can achieve a pensionssystem that works and delivers for all. But it’s time tostop walking in our predecessor’s shoes, howeverwell-intentioned and relevant back in the annals oftime, and to make a mark that will not only benefitus, but generations to come. Whilst we all have a sense of what is right and

what is wrong, our views as individuals are formedbased upon unique factors such as our upbringing,life experiences and our hopes and fears for thefuture. As a result, some of you will no doubtdisagree with my take on matters below, whilstsome of you (hopefully the majority!) will concur.

Cessation of widow’s andwidower’s pension on remarriageMany schemes have it written into their rules thatthe payment of a widow’s or widower’s pensionceases upon remarriage. Possibly the biggest gripeout there when it comes to unfairness in pensions.

The root of this issue lies in the continuedadherence to an outdated social stereotype. Wayback when pension schemes were first established, it was common that the husband was the soleearner, and his wife raised the children and lookedafter the domestic side of family life. When ahusband died, a household would lose its solesource of income, and so pension schemes weredesigned to provide a continuation of income in theform of a widow’s pension. In the event that awoman remarried, it was taken as read that shewould have also have found a new source of incomein the form of a wage earner, and that a widow’spension was no longer required. The introduction of,and improvements to, equality laws saw the sameprinciples applied to men, and the payment ofwidower’s pensions.

As mentioned above, many see themanagement of modern-day pension schemes basedupon such an outdated notion as unfair – should theformer employer of a late spouse really have such ahold over a person’s financial and personalrelationship situation in the 21st century? Inaddition, it’s not an unreasonable view to take thatthe continued payment of a widow’s or widower’spension upon remarriage is entirely reasonable, as itreflects the cost of a spouse’s past pension schememembership.Some pension schemes have made changes to

their rules in this area, but many have not, andfurther work is required.

Phil FarrellPartnerQuantum Advisory

It’s not an unreasonable view to take that the continued

payment of a widow’s or widower’s pension upon

remarriage is entirely reasonable, as it reflects the cost

of a spouse’s past pension scheme membership

t

Pension contribution tax reliefCurrently members of registered pension schemesreceive tax relief on their contributions at theirmarginal rate of income tax. To many this is unfair,as those paying 40% and 45% income tax receive amaterially higher level of tax relief than those payingbasic rate income tax at 20%.Throw in the added complications of the Annual

Allowance (including tapering!) and the LifetimeAllowance, both widely accepted as short-term taxgrabs, and we have a taxation system that wouldhave Albert Einstein scratching his massive dome.Given that tax relief on pension contributions is

there to incentivise the population to take meaningfulresponsibility for their old age, would it not be betterto have a system that delivers a financial incentive inthe form of tax relief so that it that benefits the manyand not the few (apologies Jeremy)?Flat-rate pension contribution tax relief anyone?

Reduction to spouse’s pensions ifmore than ten years youngerYou don’t have to be a genius to understand thelogic behind the current approach, but is it fair, anddoes it still represent the social norm of 2017compared to when the scheme rule was written? We all understand that if a scheme bases its fundingcalculations using an assumption that females arethree years younger than their male partners, then amaterial deviation from this will increase costs. Buthow many pension schemes have you encounteredwhere there is a meaningful number of malemembers with spouses more than ten years younger?I haven’t encountered any data to suggest that

there has been a seismic swing in the age differentialbetween the sexes to drive change on the groundsof empirical evidence. My observation is not basedupon cold hard facts, just a question of fairness.

Conclusion So what’s the solution? Well I don’t think that there’sa simple answer. Perhaps Government interventiondriving change through legislation is the answer.Maybe we, the pensions industry, need to betterexert pressure on policymakers to initiate and helpshape change instead of playing a largely passive orreactive role? If we are to publicise pensions asadapting to the modern world and being part of adynamic financial lifestyle strategy for members oftoday, then the historical quirks and unfairness thatmake pensions seem behind the times do nothing toencourage member trust and engagement in ourindustry. For too long inactivity has been king,primarily because we place the issues that need tobe confronted in:n the too difficult pilen the too politically or socially sensitive pilen the “nothing to do with me” pile (arguably a spinon either or both of the above)

Let’s get cracking.

Flat-rate

pension

contributio

n tax relief

anyone?


[ ]n


insightexpert

T he Pension Advice Allowance (PAA) becameavailable this April to help individuals pay forthe cost of regulated financial advice for

retirement.The allowance enables individuals to withdraw

£500 from their pensions, at any age and up tothree times, but only once in a tax year. It isavailable to defined contribution (DC) pensionsavers, as well as ‘hybrid’ pension savers with a DCor cash balance element.It’s too early to say if it’s been a success, but

reports from some of the bigger schemes in the UKare stating there has been little or no uptake. Thismay be due to lack of public knowledge of theallowance, or because as previous research hasshown numerous times, people just aren’t willing topay for financial advice. This reluctance, I believe,comes from individuals not understanding whatfinancial advice is, or what it can do for them.In contrast, when we look at the results of

employees who have attended a pre-retirementeducation seminar in the workplace, around 60% goon to request further information and advice followinga session. The difference is that following financialeducation, employees will realise how complicatedpension decisions can be, and will gain anunderstanding of how financial advice can help them.In fact, financial education and guidance

delivered in an informative and meaningful way canhave a real impact during the pension accumulationstage, without the need for employees to accesstheir pensions to pay for advice. For example, one ofour clients carried out research into employeebehaviour post-education and guidance in theworkplace. The results showed that followingfinancial education, 40% of employees went on toincrease their pension savings, and 20% increasedtheir share plan contributions.

A cost issue?Although the Treasury said there wouldn’t be animpact on scheme members accessing their pensionto pay for advice, taking £500 from a pensionscheme – whether that is once, twice or three times– will no doubt have an impact on its end value. The earlier it is taken the bigger the impact, as themoney taken will no longer have the opportunity to grow in value. Indeed, higher figures than the £500 allowance

were suggested in the consultation, but the Treasurybelieved that restricting it to this amount wouldspark innovation from financial advice providers tocome up with cheaper or more automated ways ofproviding advice services for employees; in particularrobo advice.To date there are no robo services capable of

assessing the complexities and range of lifetimesavings that can be used to generate retirementincome; or take into account taxation consequencesand the risks inherent with income drawdown andother retirement strategies. I have no doubt there isa place for robo advice in making simple savingsdecisions – but not at-retirement. But what is the alternative?What many employees don’t realise is that it’s

possible to receive financial advice on ‘a try beforeyou buy’ basis without having to pay for it up-front,therefore keeping valuable savings in their pensionto grow further, and then only paying if they decideto act on what is recommended. With these models available it’s hard to see why

an employee would need to access their pension topay for advice.

Workplace engagement is keyHowever innovative the service, the key to makingsure that employees get the most of the moneythey’ve saved throughout their working lives isthrough engagement in the workplace.Supporting employees with financial education

and guidance will help them to make betterdecisions pre-retirement, without having to reducethe value of their pension savings unnecessarily. Thebenefit here is that employees save effectively andcan afford to retire, something in both the employeeand employer’s interests.This then drives the process of taking financial

advice, ensuring that employees understand theirpersonal financial situation, and are able toimplement their retirement strategy in a tax-efficient way.In conclusion, the jury is out on whether the PAA

will be a success. Anything that provides optionsdesigned to lead to better outcomes for employeesand pension scheme members is welcomed – but Ibelieve the best results will arise from workplacessupporting employees with financial education,guidance and advice.

FINANCIAL EDUCATION

Jonathan Watts-LayDirectorWEALTH at work

An allowance for advice

In fact,

financial

education

and guidance

delivered in

an informative

and

meaningful

way can have

a real impact

during the

pension

accumulation

stage, without

the need for

employees to

access their

pensions to

pay for advice

[ ]n


Pensionsadministrationoutsourcing – select a scheme administrator and sign contracts within three months


MONTH 1Establishing Trustee requirementsThe first step is to establish requirements anddocument them in an RFI which can be distributedto a shortlist of potential suppliers. The RFI should bevery prescriptive, to enable the Trustees to gather theinformation they need in a format that makesevaluation of responses more effective. It is usefulfor the Trustees to provide key Scheme documents,including a statement outlining the quality of thescheme data, and status of any GMP Reconciliation.Data quality has a significant impact on pricing andthe implementation effort required. The key sectionsinclude Contractual Terms, Service Requirements,Charging and Implementation. Starting with contractual terms, at this stage the

Trustees don’t know which supplier they are goingto contract with, therefore they should ask fordetails on basic contractual requirements, includingrealistic liability and insurance limits, to ensure thereare no show-stoppers later in the process. Inaddition they should obtain a copy of each supplier’sstandard Agreement and Schedules.Service requirements including performance

standards should be documented in a format thatwould be consistent with a contractual ServicesSchedule. That way the Trustees are clear aboutwhat they are asking to be delivered, and it enablesshortlisted suppliers to demonstrate how theiroperating model, use of technology and ‘standardsolutions’ will deliver a quality outcome for theTrustees.The RFI should include a detailed questionnaire

covering ongoing and implementation charges, sothat once completed by the supplier, the Trusteeshave a charging basis that is transparent, and clearlyidentifies future savings that can be achievedthrough effective use of technology (increased

automation, web services), streamlined activity andprocesses, and improved data quality. If all supplierscomplete the same charges questionnaire then itmakes comparing their responses more accurate.It is important for the Trustees to set out the scope

of the implementation in such a way that they canclearly establish deliverables, effort and charges whenevaluating responses. However, TPAs approachimplementation differently, and should be affordedthe opportunity to present their solution in the waythat they prefer to work. Having a detailed Servicesand Implementation Schedules in the final Agreementreduces change control during transition, whichmakes it easier to stay on track and control cost.Using this approach to the RFI not only forces the

Trustees to consider their requirements carefully, itensures the suppliers submit true pricing, and arenot tempted to submit teaser pricing, and is vital ifthe Agreement is to be signed within three monthsof starting the process.

Selecting a short ‘Shortlist of Providers’Trustees should look for providers who arecommitted to pension administration outsourcing asa core business, with a track record of successfulclient retention and acquisition, underpinned by asolid balance sheet and growth plan, and a cultureof performance improvement. Trustees will have to

Lesley DavieBraxfield ConsultingLtd

It is important for the Trustees to set out the

scope of the implementation in such a way

that they can clearly establish deliverables,

effort and charges when evaluating responses

t

Trustee Boards may consider reviewing their Third Party Administrator (TPA) because

their current contract is due for renewal, or simply because they think a replacement

supplier may be able to provide them with a better-fit solution. One of the biggest

challenges facing Trustees embarking on a market review is to establish their key

objectives in relation to supplier alignment, services, charges, liability and insurance

before approaching the market. If the Trustees go to the market with a Request for

Information (RFI) that includes a detailed set of requirements, the potential suppliers

will know exactly what they are being asked to tender for, and decide whether or not

they want to participate in the process. Prescriptive responses will make evaluation

more effective, and enable a more decisive selection process. The requirements,

evaluation and selection stages are examined in more detail below, with suggested

timescales for a three-month project.


consider whether they are prepared to includeproviders who will only provide pensionadministration services as part of a broader serviceoffering.The ‘long ‘list’ of providers, particularly for

defined benefits schemes, has been affected by thecontracting number of TPAs, resulting in fewercredible providers. It therefore makes sense to missout the step of going from a long list to a short“shortlist of providers”.This stage of the process involves taking the

Trustees through the TPA market to identify arealistic shortlist of suppliers who have the capacityto implement the contract within the Trustees’timescales, which will be influenced by client sizeand complexity.

MONTH 2Decisive selection processOnce Trustees have a shortlist of suppliers they arecomfortable with they can proceed through theselection phase efficiently and at pace.The RFI must be prescriptive as described above if

the Trustees are to gather the information they needin a format that makes evaluation of responses mosteffective. Clearly the Trustees want providers to submit

comprehensive proposals, therefore they should beprepared to invest in the process, and visit eachpotential supplier to see how they operate anddiscuss requirements before the provider makes theirsubmission. The Trustees should also take clientreferences from each potential supplier.

The evaluation document should cover theessential criteria set out by the Trustees, includingthe RFI submissions, feedback on site visits, andclient references.

MONTH 3Contracting with the preferredsupplierUsing the evaluation document will enable theTrustees to select a preferred supplier. The Trustees,their preferred supplier and their respective legaladvisers should then use this stage to carry out anyadditional due diligence required, and finalise thedraft Agreement and Schedules for final approval byboth parties.The most effective way of ensuring that

contractual negotiations remain focussed, is at theoutset of the process to book three days in thecontract negotiators’ and legal advisers’ diaries, witha clear instruction from the Trustees and thepreferred supplier’s senior sponsor to reachagreement in two days, only using the third day ascontingency.This may appear to be oversimplification of the

process, however it has been tried and tested withseveral large defined benefit schemes, and it works.

ConclusionIf Trustees approach the Third Party Administrationmarket with a prescriptive Request for Informationthat includes a detailed set of requirements,potential suppliers will tender fully and transparently,evaluation will be more effective, and it will enable amore decisive selection process. The heavy lifting willhave already been done before the Trustees selecttheir preferred supplier, making the contractnegotiation phase short and relatively sweet. It ispossible to do all of this within three months. [ ]n

Once Trustees have a shortlist of

suppliers they are comfortable with

they can proceed through the selection

phase efficiently and at pace

insightinvestment

TARGET RETIREMENT FUNDS

Alistair Byrne Head of InvestmentStrategy EuropeanDefined ContributionState Street GlobalAdvisors

F rom Brexit to Trump, 2016 was a year inwhich the unexpected became reality.Subsequent political uncertainty has

contributed to choppy markets and a complexenvironment for investors. State Street GlobalAdvisors gathered a group of industry experts todiscuss how Defined Contribution (DC) schemes areseeking to guard against volatility.

Increasing numbers of trustee boards are electingto delegate day-to-day asset allocation decisions toinvestment professionals as a way of being betterpositioned for shifts in the markets. This can takemany forms — from NEST’s in-house asset allocationmodel to outsourced investment solutions likedynamic multi-asset funds and target date funds.Pension schemes with in-house investment teamsare often able to be more nimble and dynamic thantrustee boards, which typically meet quarterly.

Of course, not every scheme has the scale andresources to support an in-house investment team.Smaller pension funds typically look to investmentmanagers and advisers to help them adjustinvestments more dynamically. Fiduciarymanagement for DC is growing in popularity, as aremulti-asset funds to help manage downside risk,and maximise returns.

Clear performance expectations should be set forany delegated governance arrangement, cautionedindependent trustee Ian Maybury: “I think the realchallenge for trustees, particularly with anoutsourced model, is to establish the value ofdynamic asset allocation, because typically we arepaying higher fees.”

DC schemes are also exploring new asset classfrontiers in a bid to diversify market risk. Multi-assetcredit and absolute return bond strategies are themain talking points. Interest in illiquid assets is alsogrowing. Laura Myers, partner and head of DCinvestment at Lane Clark and Peacock, commented:“There are some funds out there which are usingprivate equity and private debt, but you still have allthe issues you get with illiquids, so trustees need togo in with their eyes wide open.”

Smart beta strategies are also broadening theopportunity set. Mehvish Ayub, senior investmentmanager in SSGA’s Investment Solutions Groupnoted: “Smart beta can help diversify in a worldwhere markets are not easy to time. I think a well-

diversified portfolio of factors in a multi-factorapproach is a better direction.”

More sophisticated approaches to volatilitymanagement are especially important as membersapproach retirement. “Cutting out severe downsiderisk for savers is a primary research focus at SSGA”,said Kassam. “We can build protection mechanismsinto portfolios to help insulate investors from risk.Essentially we dial portfolio risk up and down withassets like cash to achieve a target level of volatility.That has been a popular strategy.”

Lifestyle funds, with their inbuilt derisking, couldbe on the way out, predicted Chris Inman,investment principal at Aon Hewitt. Drawing on hisexperience of the Australian pensions market, heexplained that derisking to a set point doesn’t makea great deal of sense when savers will be living offtheir pensions for 20, 30 or even 40 years. “It makesa little bit more sense to have diversification thewhole way through, different levels ofdiversification, but without that hardline switch intocash and fixed income.”

“It’s certainly what we sought to do with ourTimewise Target Retirement fund range. Assetallocation is designed to account for the flexibilityneeded for members to use their benefits indifferent ways — while preserving some growthassets at the target date”, added Alistair Byrne,Head of Investment Strategy European DefinedContribution SSGA.

While equity markets recovered strongly post-Brexit, ongoing geopolitical uncertainty continues toundermine market confidence. It’s a reminder of theneed for adequate investment oversight, andstrategies that are vigilant to the potential for themarket’s downside to erode member confidence andlong-term investment outcomes.

Diversification for an Uncertain World

DC schemes

are also

exploring new

asset class

frontiers in a

bid to diversify

market risk.

Multi-asset

credit and

absolute

return bond

strategies are

the main

talking points

MARKETING COMMUNICATION | FOR PROFESSIONAL CLIENT USE ONLY.State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registeredin England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, CanaryWharf, London, E14 5HJ n Telephone: 020 3395 6000 Facsimile: 020 3395 6350 n Web: www.SSGA.comInvesting involves risk including the risk of loss of principal. The information provided does not constituteinvestment advice as such term is defined under the Markets in Financial Instruments Directive (2004/39/EC)and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell anyinvestment. It does not take into account any investor's or potential investor’s particular investment objectives,strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consultyour tax and financial or other professional advisor. All material has been obtained fromsources believed to be reliable. There is no representation or warranty as to the accuracy of the informationand State Street shall have no liability for decisions based on such information.© 2017 State Street Global Advisors. All Rights Reserved. DCUK-0442 Exp. date: 11/04/2018


[ ]n

The rise of LDI’syounger cousin: cash driven investing



T he UK defined benefit pensions industry iscoming to a gradual realisation about thelimitations of mainstream liability driven

investing (LDI) strategies. As the twin forces ofrelentlessly low interest rates and increasingly negativecash flow begin to tip the balance of risks, pensionsare awake to the need to better service cashflows andimprove portfolio efficiency by incorporating a morecashflow-driven investment approach. For years, LDI has been broadly embraced by UK

pensions for hedging interest rate and inflation riskto reduce the volatility of the value of assets relativeto the value of liabilities. In practice, most LDIapproaches allocate a portion of the pensionscheme’s assets to match the sensitivity of itsliabilities. Bonds are used as the base with an overlayof interest rate and inflation swaps to get a closerliability match.With the liability hedging portfolio restricted to

government bonds and related derivatives, pensionsdoing LDI typically concentrate their risk budgetdistinctly in return-generating, higher risk assets suchas equities. Often as a result, assets not clearlydefined as having either hedging or growth/totalreturn characteristics, such as higher yielding fixedincome assets or real assets which are income-generative but carry a degree of investment risk,have been historically under utilised, falling into amissing middle ground. Meanwhile, in the persistently low interest rate

environment, and as negative cashflow is quicklybecoming a reality for more mature schemes, a fewinconvenient truths about LDI are becomingincreasingly evident. Firstly, it has become expensive to use swaps to

hedge longer-dated liabilities, so more pensions areusing gilts to match liabilities. More urgently, manyschemes have closed to new accruals and areincreasingly mature, meaning they have to tackledrawdown as they transition from accumulation todecumulation phases.Research by Mercer reported that more than half

of UK defined benefit funds are now paying outmore in pension payments than they are bringing inthrough investments and contributions. Furthermore,85% of pensions expect to be cashflow negativewithin the next decade.

Given this progression is a natural life stage for amature DB pension scheme, this transition may havebeen predictable from a long way off. However,what was perhaps less anticipated was that pensionswould still be substantially in deficit once theyreached this tipping point. As such, the challenge istrying to repair deficits while also decumulating. LDI’s emphasis on risk measured as volatility

against a liability benchmark doesn’t explicitlyconsider cashflow requirements – and LDIprogrammes generally don’t throw off any cash that can be used to manage short-term liabilities.How then can pensions best meet short-term

liabilities whilst maintaining the asset growthnecessary to meet their objectives? This conundrumhas given rise to cashflow driven investing, aninvestment framework explicitly oriented aroundcash flow needs.It’s not as simple as rebadging an income strategy,

because pensions still need to hedge againstliabilities with long duration assets. Nor is it simplyrelying on a defensive strategy of core bonds whichwould sacrifice returns - a luxury that underfundedpension schemes can ill afford. Rather, cashflowdriven investing seeks to understand and forecastpensions cash flow needs, secure the liquidity todeliver current and future payouts and keep the door open to generating returns. This investment framework is predicated on the

understanding that having to pay out cash forms adrag on repairing funding levels. Each outgorepresents a larger proportion of the assets than itdoes of the liabilities, so each cashflow does little bit more damage to funding levels. It also takes intoaccount that negative cashflow can push pensionsinto being forced seller of assets. Solving for thesechallenges involves placing the cashflows going outto beneficiaries firmly at the centre of investmentdesign strategy. In practice, a cashflow driven investment solution

can be tailored to look across short and medium-term income generating securities to match themagainst those cash flows, so that they mature in stepwith required payouts. Allocations to short durationcredit and real assets can form the foundational levelof income through ongoing yield, with corporatecredit shaped to deliver the required cashflows in

Sorca Kelly-ScholteHead of EMEAPensions Solutions & AdvisoryJ.P. Morgan AssetManagement

t

Cashflow

driven

investing can

and should

expand to

include a truly

global, multi-

asset approach


the ‘belly’ of the liability structure. Equity can beadded to bolster total return, and notionallyallocated to fund the very long end of the cashflow structure. See chart 1.Concurrently, there is still a role for gilts to hedge

longer duration risks. Cash driven investing doesn’tobviate the need for LDI, rather it works alongsideit. It also uses credit as a venue for durationhedging, lifting some of the burden of that taskfrom traditional LDI strategies and accordinglyreducing reliance on leverage to hedge duration.Indeed, we expect to see pension funds make moreuse of credit as a venue for hedging their durationprofile, making a more refined trade-off betweenliability hedging and yield /return, in the wayinsurance companies do. A number of pension funds have begun to

tentatively explore this space, principally throughdefensive domestic assets with contractual cashflowsuch as ground leases and social housing bonds, butthese will quickly run into capacity constraints.Cashflow driven investing can and should expand to

include a truly global, multi-asset approach. Notonly does this expand the available capacity, but it also offers the opportunity to build more efficient portfolios.Sectors of extended fixed income that still offer

contractual cash flow are a natural fit, includingareas like direct lending, high yield and leveragedloans. Real assets such as core real estate andinfrastructure can be incorporated as an attractivesource of yield and return, rounding out the balancebetween repairing deficits and generating gains. A global, multi-currency approach to melding theseassets under a cashflow driven investing strategywould expand the efficient frontier meaningfully. Pension funds that acknowledge the

configuration of their end-game portfolio may becloser to a mix of corporate bonds credit and realassets than to a pure gilts portfolio, and that thetask of building that portfolio starts now, are poisedto better service cashflows and greatly improveportfolio efficiency.

Chart 1

[ ]n

An illustrative Cashflow driven investment strategyEnsuring cashflows are met through asset liquidity

Source: J.P Morgan Asset Management. For illustrative purposes only.


pmi accredited adviser programme

FCA updateFCA publications which may be of relevance tomembers include:n 28 June 2017 – Asset management market study.

FCA published the final findings of the assetmanagement market study. As part of this, FCA setout a package of remedies to address the concernsidentified.

n 21 June 2017 – CP17/16: Advising on PensionTransfers. FCA are consulting on how advice shouldbe provided to consumers on pension transfers whereconsumers have safeguarded benefits, primarily fortransfers from defined benefit to definedcontribution pension schemes.

The FCA have stated that defined benefit pensions andother safeguarded pensions provide valuable benefits, somost consumers will be best advised to keep them.However, they recognise that the economic andlegislative environment has changed significantly, so FCAwant to ensure that financial advice considers thecustomer’s circumstances in full, and properly considersthe various options now available to them.

The FCA want to provide advisers with a frameworkwhich better enables them to give the right advice, sothat consumers make better-informed decisions. TheFCA has rules which govern advice given to consumerswishing to transfer safeguarded benefits. Transferringfrom such a pension to one without any safeguards is animportant decision for consumers to take, and historicallyhas been unlikely to be in their best interests.

The proposals set out in this consultation aim toreflect the current environment and the increaseddemand for pension transfer advice. Since theintroduction of the pension freedoms in April 2015,consumers have more options available to access theirpension savings. This has combined with more recentchanges to the financial environment, leading tohistorically high levels of transfer values.

Comments by Thursday 21 September 2017.PMI will also be preparing a response to this

consultation, and would welcome any feedback: NeilScott at [email protected]

Examination Standards andAppropriate QualificationsAs reported last month, in May the FCA published thefinal, updated appropriate exam standards (AES) forappropriate qualifications listed in the training andcompetence sourcebook.

PMI is now beginning a review of its qualificationsthat appear in the sourcebook. This will include mappingagainst the revised standards, and ensuring all PMIqualifications are appropriately listed in the sourcebook.

We would welcome any feedback: Neil Scott [email protected]

CPD WorkshopsWe are hoping to run another CPD Workshop inautumn 2017. As with the previous workshops we haverun this was due to include an update on severalimportant developments with the PMI AAP, and around-up of the latest developments from the FCA.

We would welcome feedback on the followingproposals for the next workshop:1. FCA’s latest Business Plan and Risk Outlook2. Themes from the Financial Advice Market Review3. Training and Competence obligations on firms,

supervisors and advisersn MiFID II and Training and Competence for the

advisers of professional clients4. Regulatory focus on culture

n Regulatory oversight of culture clustersn Conduct risk from an advice perspective

5. Implications of the Senior Managers and CertificationRegimen Existing Senior Management obligationsn The transitional period with a split regimen Enhanced Senior Management responsibilitiesn Certification of advisers and othersn Managing and supervising with skill and caren Regulatory references

If any of these topics would be of particular interest dolet us know at the address below. We will then build aworkshop programme accordingly.

As usual the Workshop would include lunch. It willbe relevant for CPD purposes (four hours in total). It ishoped that the session will provide an opportunity foractive participation from delegates, to help us develop the ongoing CPD programme.

If you are interested in attending, providing feedbackon the above topics, or looking for further information,please contact Neil Scott at [email protected]

PMI AAP FeesThe fees for 2017-18 are as follows:

Renewal of SPS – there is a fee of £45 for Affiliatemembers to renew an SPS. There is no SPS renewal fee for members with the following grades: Student,Trustee Group, Certificate, Diploma, Associate or Fellow.

Membership subscription fees will depend onmembership grade, and will be required when they fall due. For Affiliate Members the subscription will be £75. [ ]n


MIND THE GENDER GAP updateNEST

QUESTION TIME WITH NEST TRUSTEE MEMBERS

[ ]n

N EST Trustee Members Sally Bridgeland and Ron Jarman givean open and honest interview about what it’s like to be aTrustee Member for NEST.

1. Where were you before NEST, and what made you becomea Trustee Member of NEST?

Sally: Before NEST, I was the CEO of the UK pension fund at BP.We had just completed a strategic review, so I was ready for a newchallenge. NEST was new; it was a start-up organisation that wasgoing to be a major part of the future. I’ve always been passionateabout behavioural economics, so I had my eye on NEST for a while!Ron: I work part-time in the consultancy division of a procurementservices business called Proxima. I’m also Chair of Trustees for thecharity World at Play, I support the Kashmir Fellowship and have anumber of other interests. I put myself forward to be a TrusteeMember of NEST as I believed I had the commercial skills tocomplement and add something slightly different to what is anincredibly strong existing governing body.

2. How was your pensions knowledge when you joinedNEST? Did anything help improve it?

Sally: I’ve spent nearly 30 years working in pensions, so mylearning areas were more to do with the specifics of NEST. I did lotsof reading up and had a helpful induction process; I also completedThe Pensions Regulator (TPR) toolkit.Ron: I’ve worked in and around the financial services sector for anumber of years now, both in direct roles and in an advisorycapacity, so am very aware of what it means to work in a regulatedenvironment. When I joined NEST, as well as The PensionsRegulator’s (TPR) standard training and requirements, the NESTexecutive arranged a wide-ranging induction programme for me. Igot to meet lots of people within NEST to understand in much moredetail the overall strategy and purpose, which was a great help.

3. What’s the most difficult thing about being a TrusteeMember?

Sally: At NEST, the most difficult aspect for me is the potential forpolitical and policy change. The introduction of the pensionfreedoms is a good example.Ron: Sometimes it’s hard to step back and not try and do theexecutive’s role for them, but then when you see what a great jobthey’re doing it’s not so difficult!

4. What’s the most enjoyable thing about being a TrusteeMember?

Sally: The best aspect is the technical complexity and makingdecisions in the face of uncertainty. Ron: Getting to work with such a varied and strong group ofpeople both on the executive team and the other Trustee Members.It feels like I learn something new each month. Plus of course,

following auto enrolment, NEST and other successful master trustsare going to make a real difference to the retirement experience formillions of people. You can’t fail to be enthused by that.

5. What would your advice be to other Trustees or peoplenew to a Trustee role?

Sally: Don’t let complexity get you down. Hold your advisers andexecutives to account in simplifying things for you.Ron: You need to fully commit yourself and your time to it. That’sin terms of making sure you understand all the pre-reading,attending and then contributing fully in meetings. It’s certainlyworth it personally, but much more importantly that’s what yourmembers need from you.

6. How do you juggle your personal time with being aTrustee Member?

Sally: I’m an obsessive organiser and hold the executives to highrequirements on having good papers in good time. You can thenspend time on things that matter and be more effective.Ron: It’s a really good question. Planning and prioritisation is key; I have an ever-increasing to-do list, so get a great feeling ofsatisfaction as I cross things off. I also include personal activities onmy lists, for example long bike rides.

7. So what’s next for NEST over the next few years? Sally: There’ll be more challenges as we move firmly from start-upto business as usual! The scale of the assets and membership willgrow. And we’ll need to deal with pension freedoms for our targetmarket, which requires a level of engagement with members thatwas never envisaged when NEST was set up. It’s going to be fun!Ron: It’s incredible to think that staging is now pretty much intobusiness as usual. The numbers in terms of new workers, membersand funds invested each week and month are staggering, andalmost every month brings a new record. Now we have phasing onthe horizon, which will bring new challenges. We’ll need to learnfrom and react to new member behaviour. Then as more and moreof our members reach retirement there’ll be a whole new set ofchallenges.

8. Finally, would you recommend being a NEST TrusteeMember?

Sally: You bet!Ron: Oh yes! If you can commit the time then it’s a very rewardingexperience. It’s stretching and you’ll get to work with some greatpeople, all while performing a vital role to prepare and protectmillions of people for retirement.


ACTUARIAL AND INVESTMENT

Making sure members get the right advice on transfer –the FCA consultation on transfer advice

An increasing number of Defined Benefit schememembers are now considering a transfer of their benefitsto drawdown or other DC arrangements, often at orclose to retirement. Increased awareness followingPension Freedom, higher transfer values as a result of lowmarket yields, and potentially a concern about thesecurity of DB Schemes following some high profilefailures have led to a rapid increase in the amount paidin DB transfer values. Members are preferring thegreater flexibility (and, often, higher tax-free cash sum)available in a DC environment to the predictability andsecurity of their DB pension.

If a DB transfer value is more than £30,000, amember must take financial advice before transferring.Such advice is subject to rules set out by the FinancialConduct Authority (FCA) which currently frame theiradvice requirement around a financial analysis of thetransfer value (TVA) based on the benefits beingprovided from the member’s DB scheme. On 21 June,the FCA published new proposals on advice relating totransfers from DB to DC pension schemes.

The FCA proposes building on its existing frameworkby requiring transfer advice to be provided as a personalrecommendation and replacing the existing TVA with anappropriate analysis of a member’s options, including acomparison indicating the value of the benefits given up

Making sure members get the right advice on transfer – the FCA consultation on transfer advice

a month inpensionsLEGAL

Helen HanbidgeSenior PracticeDevelopment LawyerPinsent Masons LLP

Richard AkroydSenior ConsultantWillis Towers Watson

New money laundering regulations: action for schemesTrustees of occupational pension schemes are subject tonew record-keeping and disclosure duties underregulations which took effect on 26 June 2017. Manyschemes will already be meeting most of theserequirements, but should check this and record whatthey are doing to comply. They need to keep specificrecords about the scheme employer(s), trustees andbeneficiaries, and make specific disclosures whenentering into business transactions or if requested by lawenforcement authorities. Paid professional trustees alsoneed to retain certain information about a scheme forfive years after it has been wound up.

There is one potentially onerous new requirement:where trustees become liable for tax, they will need toprovide certain information in a specified form toHMRC by 31 January in the following tax year. Theextent of this new requirement and its application tooccupational pension schemes is unclear at present;hopefully HMRC will provide clarification well inadvance of the first deadline of 31 January 2018.

Pensions Regulator's new warningto companies that prioritisedividends over pension deficitsTrustees and advisers will be aware of the PensionsRegulator’s latest annual funding statement for definedbenefit schemes. In this, the Regulator warned that itexpects to see schemes treated fairly where there may bescope to increase employer contributions. The PensionsRegulator has now published data showing a "significantincrease" in dividends paid by FTSE350 employers,

without a similar increase in pension contributions. TheRegulator has described its findings, which relate toschemes with current valuation periods, as"disappointing"; it has reiterated warnings given in the2017 DB funding statement that it will intervene toensure employers strike the right balance betweenschemes' and shareholders' interests.

The Regulator says the data underlying its 2017funding statement shows that challenging marketconditions have led to rising deficits for some DBschemes. The Regulator thinks most schemes withvaluation dates between September 2016 and September2017 are supported by employers who can managedeficits. However, for over a third of these schemes, theRegulator believes current contribution levels and/orrisk strategies pose unnecessary longer-term risks. TheRegulator wants to see these schemes reviewcontributions, as these may be low relative toaffordability. An increased pace of funding now maymitigate the risks of investment underperformance orlong-term covenant weakening.

The Regulator says that if a company pays out morein dividends than in deficit reduction contributions, itwill expect to see a short recovery plan. And it willexpect that recovery plan to be underpinned by anappropriate investment strategy.

This data from the Regulator gives some usefulcontext to its recent funding statement. The Regulatorhas taken the opportunity to reiterate some of the keymessages in that statement; schemes undergoingvaluations now should keep these in mind.


CONSULTANCY AND ADMINISTRATIONSalary sacrifice – life assurance

Over time the prevalence of pension schemes operatingsalary sacrifice has burgeoned; employers are incentivisedto adopt sacrifice to achieve a substantial saving insecondary Class I National Insurance (NI) Contributions(current rate 13.8%). Employees too save on primaryNICs, and may also benefit from a share of theemployer’s NI savings.

Naturally, Governments are less enamoured with theloss of tax/NICs to the Exchequer that accompanysacrifice arrangements. For many years, these haveproliferated to provide an array of benefits in kind otherthan pension schemes. Employers have establishedflexible employee benefits scheme (Flex) schemesoffering a menu of benefits from which employees canchoose to divert part of their salary, often achieving atax/NI saving.

The Government’s concern at the profligacy ofsacrifice arrangements led to consultation on the future ofsacrifice and benefits in kind in the run up to the Autumn2016 Budget Statement. Consequently, it was announcedthat, with few exceptions, where a benefit providedthrough sacrifice or Flex resulted in tax/NI savings incircumstances which would not have arisen had theemployee paid directly for the benefit himself, thevalue/cost of the benefit would result in (a) an income taxcharge on the individual and (b) Class 1A (employer)NICs would be payable. The new measures, with sometransitional relief, came into effect from April 2017.

Fortunately, the payment of pension schemecontributions to registered pension schemes was

specifically exempted from this treatment. Employee contributions for the purpose of life

assurance are not tax-relievable. In normal circumstancesthis does not matter; the employer pays the costs of lifeassurance, and the employee is excluded from tax on itsprovision as a benefit in kind under s307 ITEPA 2003.

Prior to April 2017, where an individual sacrificedor used Flex to increase their life assurance, theemployee was not taxed on the cost of providing thatadditional cover. This applied irrespective of whether thepremiums were paid to a registered scheme or towardsan excepted life assurance policy. Excepted policies havebecome popular as a means of providing life assuranceoutside the Lifetime Allowance, and for members withenhanced or fixed protection who might otherwise losethat protection.

From 6 April 2017, with transitional provisions forpre-6 April 2017 arrangements, an employee'scontributions paid via Flex/sacrifice to a registeredscheme effectively remain relievable for income taxpurposes; however, this exemption does not extend topremiums paid to excepted life assurance policies. Theemployee will be taxed on the value of such premiumspaid via Flex/sacrifice.

HMRC’s decision to make such sacrifices subject to income tax under the Benefits Code means theemployer assumes a Class 1A NI liability on the benefitin kind, but the employee remains exempt from any NI charge.

Jon Merrick Senior AssociateMercer Limited

on a prescribed basis (the “TVC”). This is intended to bemore appropriate for members, particularly for thoseconsidering a transfer close to their retirement date. TheFCA is keen to move away from the concept of criticalyields (ie the return required to replicate the DB scheme’sbenefits), which are not relevant at retirement and oftennot well understood by members.

The FCA still considers that retaining DB benefits islikely to be in the best interests of most members butrecognises there are now more circumstances when atransfer may be suitable. The proposal therefore replacesexisting guidance that advice should assume a transferwill be unsuitable with an assessment of suitabilityappropriate for the individual’s circumstances assessed ona case-by-case basis from a neutral starting position.

The FCA propose that the process should remaincentred around an assumption a member will take anannuity, which addresses security, when in practice manywill consider other options such as income drawdown.However, their proposals should help an advisor to makea more rounded recommendation which takes intoaccount the variety of options now open to members,and their actual retirement intentions.

In most areas, the FCA proposals reinforce currentbest practice that advisers should provide personalrecommendations to members, and to consider theirwider circumstances.Hopefully the changes will meanthat members receive better support as they juggle theirretirement decisions.


When administrationis less than the sumof its parts

When administrationis less than the sumof its parts


Pensions is a numbers game but, when it comesto administration transfers, things aren’tadding up. In a new twist on an old adage,

trustees opting to transfer their administrationservices to a new provider very often find that theleap is not so much into, as out of, the unknown. This isn’t new - in our experience, in almost 100%

of cases, almost 100% of trustees are working underthe natural assumption that wherever the schemegoes, data, documents and the long complex historyof everything they ever delegated to their adminprovider will follow. When the door then slamsbehind the exiting scheme, many trustees findthemselves walking away with major gaps in theirdata while most of their scheme history stays lockedon the other side. Barnett Waddingham have been banging the

drum on this for one for years but the reality is, theindustry hasn’t taken things seriously enough andnow we’re left with an issue that needs urgentattention as the industry struggles to balance theimminent arrival of GDPR with the hard reality ofoutgoing administrators holding data and files toransom, destroying anything that gets left behindand turning a blind eye to whatever might havegotten lost in the mists of time.

Take three schemes…The main points on this have been well rehearsedbut things have deteriorated rapidly since the firsthints a few years ago that certain providers hadgone from playing ball, to playing hard ball when itcame to their exit strategies for outgoing schemes.Unless you’re inside pension administration, it can be difficult to appreciate the impact on futureadministration when past administration disappearsinto a black hole, but a few examples might help.

Scheme one – this scheme of less than 200members moved from a major provider. After initiallyagreeing to hand over all of their member files, theoutgoing provider started to dodge the issue,avoiding phone calls and ignoring emails beforestating, in a fairly brass-necked move, that theirpolicy was to routinely destroy all member files aftersix years, regardless of member status. The trusteeswere outraged – their initial certainty that their

extreme disappointment would be enough to turnthings around ran up against a hard wall of silenceand eventually exhausted itself against the realitythat the only real recourse would have beenexpensive legal action. In the event, almost none of the recorded benefits

on this scheme turned out to be accurate and almostall of the benefits calculated, recorded and paidduring that particular administrator’s tenure turnedout to be wrong.

Scheme two – this scheme of less than 2000members moved from another major provider after a less than rosy last few years in the administrationrelationship and a fairly substantial handover chargefrom the outgoing provider. The handover chargeincluded a hefty amount to cover collating andtransferring member files but, when the 25 boxesturned up, none had been indexed, no checks hadbeen done on whether every scheme member had afile and, as it turned out when random schemesstarted emerging from the boxes, no checks hadbeen done on whether the files handed over actuallybelonged to the transferring scheme. This scheme had known issues around benefit

quality and consistency but, still, the outgoingadministrator felt no responsibility to ensure that theright member files, so key in correcting benefitdiscrepancies, had been tracked down andtransferred. In the event, in this case, the threat oflegal action did magic up several hundred moremember files from the depths of a remote storagefacility, but hundreds more members were still leftwith no files, essentially making it impossible toverify their benefits.

Scheme three – in this case, which will go down in the halls of pensions fame, the outgoingadministrator initially stated that their policy was notto hand over member files at all, and then, havingfloated the tired old ‘intellectual property’ argument,offered to sift through the scheme’s files, removingall calculations etc for a fee of upwards of £20K. This was a complex scheme with a multi-tieredbenefit structure, many associated employers and along history of corporate activity. After negotiations,heavily redacted files did eventually turn up – with

We're now left

with an issue

that needs

urgent

attention

Julie WalkerAssociateBarnett Waddingham

t


all calculations stripped out and, in most cases, onlythe most recent leaver statement or retirementillustration on file. Again, no checks had been doneto ensure the recorded data handed over added up tothe recorded benefits and there was no check toensure that every member’s file had been transferred. For this particular scheme, several hundred

member files failed to appear, and what did appearwas missing almost everything that preceded themember’s last active day in service. Applicationpaperwork, AVC correspondence, nomination forms,trustee discretions, benefit queries, individualprotections, contracting out details, leaver, retirementand death calculations – all gone.

Who really ‘controls’ data?In all of these cases the trustees confidently assumedthat every piece of data or correspondence gatheredor issued by their administrators ultimately belongedto the trustees, as data controllers. In every case theadministrators equally confidently claimed that thedata actually belonged to them as it had beengenerated in the course of them carrying out theiradministration duties, and they could choose towithhold or destroy it.

Where to turnFor trustees the problem is that although manyboards might be fighting the same battle, each ofthem is fighting it alone and trusteeship itself is veryrarely the day job. As justifiably frustrated as trusteesmay feel when faced with high charges and/or poorservice, once the shock wears off, the sheer effort oftrying to force the matter through the courts meanthat, nine times out of ten, questionable tactics willgo unchallenged.

Self-perpetuating – the short-sightedness of thehard line approach from some providers is bothshocking and self-defeating. All administrationproviders regularly pass clients to each other, so everyfirm needs the others to collaborate in what isessentially a collective effort to make sure membersare paid the right benefits at the right time,regardless of the administration history of theirparticular scheme.

Can’t regulate, won’t regulate?For years now many providers have been calling for abetter and more transparent approach toadministration handovers. In the meantime, we’vehad the Regulator’s data challenge, auto-enrolment,contracting-out cessation, ‘that Budget’ and a myriadof smaller and incremental changes to deal with. Allof these eventually find their way back to themember record, the permanent repository ofeverything that affects every individual member’sbenefits from the day they join until the day they die.Precisely because these records have to last a lifetime,they are too important to be left to chance, corporateculture or regulatory uncertainty.Loath as we are as an industry to invite further

regulation, we have to acknowledge that somethingisn’t working in the state of administration handoversand stop expecting those few brave trustees who canto fight this battle for us. Whether the industry canfind a way to regulate itself or an external regulatorhas to do it for us remains to be seen but, in eithercase, ‘best practice’ needs to be more than amarketing staple – it has to be a real vision for howthe industry wants to treat its current, former andfuture clients.

We have to

acknowledge

that something

isn't working in

the state of

administration

handovers

[ ]n

EASTERN REGIONOur next event will be our afternoon seminar in Norwich on Tuesday 7November 2017. We have secured two speakers so far – David Giles, Aviva, on an actuarial topic, and Steven Ord from The People’s Pension.

We had an excellent talk in June, following our brief AGM, from Sir SteveWebb, who gave his thoughts on many topics including the DB Green Paper,auto-enrolment, tax and transfers from DB to DC. We also learnt a bit about allthe politics involved! We are still seeking new Committee members, especiallyas our Treasurer would like to step down in a year or two, and our MembershipSecretary has tendered her resignation since the AGM. We also do not have aVice Chair at present. So there are challenges ahead if we are to continue.

If you wish to be added to our distribution list, please contact SusanEldridge at [email protected].

MIDLANDS REGIONOur final free evening seminar before the summer holidays was held onThursday 13 July. Julia Yates and Nadeem Ladha of PwC provided a review ofcovenant strength across the FTSE 350. Many thanks to Julia, Nadeem and PwCfor arranging and hosting the event.

Notice for StudentsIf you are a student member who wants to take PMI exams but does not receivefinancial support from your employer please note that the committee willconsider the provision of financial support for study material and exam entry.Any student member who wants to take a PMI exam and is not supported bytheir employer to meet the costs is invited to make contact in the first instancewith the committee via the Education Secretary: [email protected] committee will review applications and use their discretion as necessary.


regionsnews from the

LONDON REGIONPMI LONDON AGMMany thanks to everyone who attended the AGM and to Vivi Friedgut, CEO ofBlackbullion ,our guest speaker. Vivi gave an interesting and enlighteningpresentation which has given us all food for thought. Many thanks also toMayer Brown for hosting the event and to those of you who joined us fordinner.

At the AGM the new committee members were ratified and following asubsequent meeting we can confirm the following committee is now in placefor 2017-18

Chair: Girish MenezesSecretary: Amanda Burden Treasurer: Nathan JonesMembership Secretary: Richard PainBusiness Committee: Matthew Demwell supported by Rosalind Connor,Simon Kew and Emma WatkinsSocial Committee: Damon Lacey supported by Laura MacPhee and MarkJenkinsEducation Secretary: Giles Bywater supported by Mark Jenkins and LauraMacPheeCommunications: Amanda Burden supported by Simon Kew

This year we saw more volunteers join the committee than there were spaces anindication of the strength of the London group, and whilst we couldn’t quitematch the 68.7% turnout of that other election on 8 June, we did manage justunder 50%, so thank you to everyone who voted and participated in theelection result. At least we didn’t need to worry about losing our majority….

With the committees now in place we will be organising our programme ofbusiness meetings and social events which will start again on the autumn.

PMI Expert PartnersOur dedicated Expert Partners offer you fast track access to the most up-to-date information available in the pensions industry today. Visit our website for the latest White Papers, research, articles and news from acknowledged pensions industry leaders in their respective fields:

Aberdeen Asset Management,PMI’s Diversified Investment OpportunitiesExpert Partner

Barnett Waddingham, PMI’sAdministration Expert Partner

BNP Paribas, PMI’s ESG and ResponsibleInvesting Expert Partner

Dalriada, PMI’s Independent TrusteeExpert Partner

Origo, PMI’s Pension Systems ExpertPartner

Sackers, PMI’s Legal Expert Partner

State Street Global Advisors,PMI’s Target Retirement Funds Expert Partner

Vanguard, PMI’s Passive Manager Expert Partner

WEALTH at Work, PMI’s FinancialEducation Expert Partner

If you have suggestions for further Expert Partners, or are interested in being a PMI Expert Partner yourself, please contact Fiona Beukesat [email protected]


Pensionsdashboard and dataquality


P ension dashboards are a good idea, becausethey give scheme members a chance to easilysee what pension savings they have from

their various employments, and importantly achance to see those savings totalled into areasonable estimate of the pension value theycould receive when they reach retirement age.Many people today struggle to find out how muchthey’ve saved, because they have thrown awayimportant papers and can’t remember who rantheir scheme, or they have forgotten to keep theiraddress up to date over the decades. Schemes haveclosed and merged, providers and systems havechanged, paper records have been lost or badlydigitised, and people who remember the history ofpension schemes have moved on. £400m is thelatest estimate of assets in UK pension schemeswhere the beneficiary is unknown. That moneycould mean the difference between poverty andgetting by for a lot of people, so we ought to dowhat we can to make it right. By spotting a gap ina dashboard summary, people might feel moreconfident about tracking down pensions they havelost sight of. Of course, dashboards will not be all things to

all people on ‘Day One’, but if we don’t grasp theopportunity to build it, we might regret it forgenerations.

The pause button?In Spring, we saw the launch of the Dashboardprototype, which was the first deliverable from theproject, and the industry was both surprised anddelighted to see that pension savings could be foundand displayed simply and clearly on a single page. Forthe first time the naysayers were silenced, because afuture with member engagement looked possible.However, a successful prototype (or even two) is

not a pensions dashboard. It does, however, helpto demonstrate what could be achieved. There is alot of hard work ahead to deliver an acceptableand workable solution by 2019. And, I wouldsuggest, a lot of compromise and common sense –and a lot of good will on all our parts.Dashboard development has suffered a delay

because of government’s attention swivelling to the

general election, the pressures of a hungparliament, Brexit and security concerns. Whiledashboard is an industry project, it was driven byTreasury, and needs government attention toensure the solution is seen as truly national. Workcontinues during this vacuum, but there is a realdanger that enthusiasm cools in the absence ofvisible progress. The industry and the public needto see something happening, and maybe we needto drive it a bit more ourselves.

Questions, questionsTrustees and administrators are asking whatdashboard will mean for them. It is plain to see thatif scheme members are to view their entire pensionvalues, including the state pension, through aseparate on-line site, those values have to be foundto be put on the dashboard. And therein lies therub. We are all suddenly exposed if our data isn’tgood enough to provide reliable information tomembers. Schemes have lots of questions on data:n how will data get from A to B?n what format will it need to take?n what happens if we don’t hold current values

for deferred members?n what if we don’t have full member names or

addresses?n how much is it going to cost?n who pays?n how do we cope with dashboard work on top

of everything else we have to do?n will our administrators do it all for us?n what happens if we’re not ready?

Data: how much is needed?We don’t have all the answers yet, but we areworking on them. Data has always been a vitalcomponent of good pension scheme governance,

Margaret Snowdon OBEChair of PASA

For the first time the naysayers were

silenced, because a future with member

engagement looked possible

t


but until recently has been seen as something thatcan wait until tomorrow or even the day after. Therehave simply been too many pressing problems fortrustees and administrators, and over the years datahas been judged a lower priority. We may now wishwe had viewed it differently.

For the first time The Pensions Regulator willrequire formal reporting on the quality of schemedata. This shows how determined the Regulator isfor schemes to get a grip on a long-ignored dataproblem. The irony is that good data is less expensiveto manage than poor data, but cleaning data in arush could lead to a poor job and a waste of moneyif not planned and managed well. Trustees need toimprove data quality, but in a constructive way.It is PASA's view that many schemes will have

enough data about enough members to makeinformation available via a dashboard. However, thedata also needs to be useful. It needs to be robustenough to identify the correct individual, but alsoprovide enough pension information to make itworthwhile for the member, and to keep themcoming back. We see a balance being struckbetween what is achievable early, and opportunitiesfor enhancement over time. Some schemes will notbe able to get there for all members in the early days,but with the pressure on to clean up data for thesake of good governance, most schemes will getthere eventually. Trustees and administrators are rightly concerned

about what they will need to do, and feel that theyhave no one to ask. The good news is that PASA isworking alongside the dashboard project group tocreate a guide for administrators which will helpthem understand what will be needed and why, andimportantly to have confidence that any work theydo to clean up data will be beneficial. It will bewritten in everyday language, and will reflect theunderlying data standards. It will also dovetail with

the regulator’s common and conditional datastandards, so that when administrators do the work,they can be sure it will not be a wild goose chase.We are looking to publish the guide in the Autumn.

What’s in it for us?More needs to be done to justify contributing to adashboard. What’s in it for the various stakeholders?We think it will be good for members, but it alsoneeds to be beneficial for schemes. Some initialmember testing was part of the original Alphaproject, but we need to do more work to establishwhat consumers will want, and what they will getthe best out of. We also need to set out thecommercial boundaries to help form a business casefor dashboard, which, if compelling enough, will getpeople energised and engaged. We also need to give some reassurance on

security and how members will be protected fromsub-standard dashboards and scams. Happily, work isalready under way to fill these knowledge gaps.

Big bang or phased? We all want everything at once. Getting the balanceright will be key, so that the dashboard deliversenough to interest members in the early days, but isnot so ambitious that it becomes impossible todeliver. Data quality assessments will help answer thefundamental question about data readiness. Schemeswhose data is not ready for dashboard will not beincluded, but perhaps some sections of a scheme willbe more ready than others, prompting partialdashboard involvement. Schemes that are not readymust prepare to deal with questions from potentiallydisappointed members. It may take compulsion to get schemes over the

line, but that will take time – time we should use toget ourselves ready. What we need is a bit ofencouragement. There are many issues to deal with,but let’s ensure that scheme data quality is not thestumbling block to dashboard and member financialwellbeing.Information on PASA’s dashboard working group

can be found on our website www.pasa-uk.com

Getting the balance right will be key, so that the

dashboard delivers enough to interest members

in the early days, but is not so ambitious that it

becomes impossible to deliver

[ ]n


L ast month we issued two compliance andenforcement bulletins showing how we haveused our powers to tackle non-compliance with

legal requirements for pension schemes to complete ascheme return and annual chair’s statement. The data shows that trustees of pension schemes

who fail in their basic duties can expect to receive apenalty from TPR.Last year we made clear we would act after data

showed compliance with basic duties had fallen18%. As a result of our focus on scheme returncompliance and enforcement efforts, over 97% ofschemes are now compliant.So the aim of our latest bulletins is to inform the

industry of TPR’s experience to date and to increasetrustees’ understanding of these duties.The majority of schemes complied with new

legislation obliging them to prepare an annualgovernance statement, signed by the chair of trustees.During 2016, 85 schemes received a mandatory finefor not preparing a chair’s statement. A largeproportion of those failing to produce a statementwere schemes with fewer than 100 members.Our second bulletin details the action taken by

TPR to achieve compliance with legal requirements toprovide TPR with a scheme return.TPR received 16,963 scheme returns, and after

starting enforcement action against trustees receiveda further 868 returns. A number of trustees failed tocomply even after receiving a warning from TPR andso we issued fines to 88 trustees.Non-compliance with basic requirements such as

completion of a chair’s statement and a schemereturn may indicate broader governance issues. Thisis important because ultimately, poor standards ofgovernance can impact the value of members’pension pots. We want all members to be saving inwell-run schemes and will take action to helpschemes get the basics right.Our 21st Century trustee work is focused on

raising the standard of trusteeship and ourenforcement action is an important part of that.We communicate regularly with trustees to

educate them on their duties and to draw attentionto our codes and guidance. Our trustee toolkitincludes a series of online learning modules anddownloadable resources developed to help trusteesmeet the minimum level of knowledge and

understanding introduced in the Pensions Act 2004.Despite this, some continue to fail to meet basic

governance requirements. Our message to them isthat ignorance is no excuse – if you breach yourduties, you will face action.

BHS: What we learnedWe have published a report into our involvementwith the BHS pension scheme that led to a £363million settlement with Sir Philip Green.Our regulatory intervention report covers key

actions in the case including our anti-avoidanceinvestigation into the potential use of our FinancialSupport Direction and Contribution Notice powers -culminating in us issuing Warning Notices against a number of respondents in November 2016.The report shows how, in parallel with our

investigation, we held extensive discussions with Sir Philip and his advisers to reach a settlement,announced in February this year.As already announced, the settlement agreement

provides funding for a new independent pensionscheme to give future pensioners the option of thesame starting pension as they were originallypromised by BHS, and higher benefits than theywould get from the Pension Protection Fund (PPF).The report looks back to our previous interactions

with the BHS pension schemes over a number ofyears, including previous scheme funding discussionsand business restructuring proposals.The report highlights the lessons we have

learned from this case about how we can regulatemore effectively.We are already acting more quickly to intervene

where we consider schemes to be underfunded, orwhere there are indications that employers may beavoiding their responsibilities. As part of our TPRFuture programme, we are reviewing our internalprocesses and ways of working to be more efficient,more outcome-focused and communicate clearly toschemes what we expect from them.In addition we are recruiting staff to increase

proactive casework, ensure early engagement withschemes and progress investigations more efficiently.

t

updateregulator

TRUSTEES MUST MEET BASIC GOVERNANCEREQUIREMENTS OR FACE FINANCIAL PENALTIES

Over 97% of

schemes are

now compliant

[ ]n

Nicola ParishExecutive Director forFrontline Regulation


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