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Coronavirus: Pensions Regulator eases up on compliance

At long last the Pensions Regulator has announced some further easements – relaxations that it will apply at least until 30 June 2020 in trustees’ reporting duties to The Pensions Regulator where they are in breach of some of their statutory obligations because of the COVID-19 situation, and also over what enforcement action it takes. 

These are fairly modest and reflect what you'd expect a regulator with limited resources and time to adopt anyway. That said, is pleasing finally to see a joined up response between the Pensions Regulator and the Pensions Ombudsman, as the Pensions Ombudsman will also take into account this guidance when dealing with member complaints about delays caused by COVID-19.

Defined benefit schemes

For most trustees of Defined Benefit schemes, the most relevant easement is that surrounding the payment of cash equivalent transfer values. The Pensions Regulator will be issuing guidance on transfers from DC schemes and hybrid schemes the week commencing 20 April 2020. This should be interesting and very relevant to many schemes, as is the DB scheme transfer guidance, but why has the Pensions Regulator only issued this so late in the day? Surely, these are some of the most relevant interventions that the Pensions Regulator can make, as they are likely to have a major impact on many pension savers. It demonstrates just how reluctant the Pensions Regulator is to actually intervene in how schemes are run even when there is COVID-19 to consider.

No need to report every short term breach

If a breach is going to be rectified within a short timeframe (not more than three months) and it does not have a negative impact on savers, trustees don’t need to report it to the Pensions Regulator. However trustees should keep records of their decisions and actions so there is a paper trail. All sensible given the current situation many employers, trustees and providers now find themselves in but it does require a judgment call.

Enforcement – looking at matters on a case by case basis

The Pensions Regulator has decided to adopt a flexible approach when considering enforcement, but hasn’t it always? The “new” approach is to look at matters on a case by case basis in deciding whether to take regulatory action in respect of breaches of administrative and compliance requirements. This includes granting longer periods to comply and taking COVID-19 into account.

Other areas where there are easements or no easements 

These are still evolving but this list is of more practical help to trustees. 

Failure to issue annual benefit statements – a three month easement applies on the failure to issue an annual benefit statement as long as this is rectified within three months and does not have a negative impact on savers. Enforcement action may still be taken if the failures are not clearly attributable to the COVID-19 situation. This is helpful.

Chair’s statements – disappointingly but not unexpectedly, the Pensions Regulator has no choice but to continue to impose fines on schemes that don't comply, due to how the legislation is drafted. However, no penalty notices will be issued before 30 June 2020, regardless as to whether a statement hasn't been completed, or if it is not compliant. Interestingly, the Pensions Regulator will not review any chair's statements it receives, from any source, before 30 June 2020. They will just be returned but this does not mean that the statement is compliant – it just hasn’t been reviewed.

Charge controls – charge caps continue to apply. If they have been exceeded temporarily due to COVID-19, this should be reported to the Pensions Regulator unless it is not a material breach. However, the Pensions Regulator will take a proportionate approach to enforcement. For this, it is looking at whether the trustees have taken all reasonable steps to bring the charges down to the level of the cap as quickly as possible. The cap applies to some deductions from member funds (including investment management fees, payments to providers of professional services, costs of member communication services and administrative costs).

DB transfer values – trustees are again reminded of the importance of trying to reduce the risk of vulnerable members being scammed or taken advantage of by unscrupulous financial advisers. Helpfully, the Pensions Regulator emphasises it is possible for trustees of DB schemes to decide to suspend cash equivalent transfer value (CETV) quotations and payments to give themselves time to review CETV terms and/or to assess the administrative impact of any increase in demand for CETV quotes. This approach extends to the implementation of requests for payments of transfers which were made before the impact of COVID-19. However for these, trustees should consider carefully whether they pose the same risk or whether they should be treated separately. Trustees then need to decide how to communicate their approach to members and how to deal with requests for quotes and payments that are currently being processed. Trustees can decide to continue to provide transfers as normal but they should consider the position.

Employer consultation - the very helpful relaxation on this has already been announced in the context of furloughing employees and reducing employer contribution rates to DC schemes.

Employer related investment – no relaxation is envisaged here in applying the criminal sanctions for a breach, or in reporting any possible breach to the Pensions Regulator. This is because it potentially negatively impacts on members’ benefits.

Investment governance – the Pensions Regulator does not anticipate taking action against trustees who have been unable to complete a review of the scheme’s statement of investment principles, or a statement in relation to any default arrangement for COVID-19-related reasons, as long as the delay is not later than 30 June 2020.

Late accounts - Failing to produce audited accounts need only be reported where the breach is likely to be of material significance. In most cases, failure to complete a set of accounts is unlikely to be of significant detriment to members and so the general extension until 30 June 2020 will apply.

Late payments of contributions – this has been updated separately. Read late payment reporting: COVID-19 information for providers.

Notifiable events – as these are potential indicators of serious issues that affect savers, (i.e. the Regulator’s early warning system), the current reporting requirements continue to apply, so no relaxation here. Once the event has been notified, as usual, the Regulator can decide whether to investigate further.

Master trusts – as these are significant pension schemes for large numbers of savers, the Pensions Regulator must be notified of all events that trigger reporting and other significant events in accordance with the legislation. However this can be done through the Regulator’s informal reporting channels initially, with a formal report then being made as soon as reasonably practicable. Master trusts are still required to file accounts, but no regulatory action will be taken if the delay in filing does not go beyond 30 June 2020.

Named Supervisor schemes - schemes that have a named supervisor (essentially the larger schemes) will be contacted by their named supervisor, with the focus on near-term risks that reflect their actual position, risks and issues, rather than the standard activities in the supervisory cycle. This this is to better understand their position as well as the risks and issues that have arisen. Schemes with immediate concerns arising from COVID-19 should discuss them with their named supervisor. For other schemes (i.e. all the rest), the Pensions Regulator continues to take a risk-based approach, reviewing and assessing new requests against a range of risk indicators.

Need help?

Please contact our pensions expert, Penny Cogher if you need help. 

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