Pensions Bulletin 2021/13

Our viewpoint

DWP consults on contribution notice and information gathering powers regulations

The DWP has launched a consultation on two sets of regulations which contain some necessary detail on the extension of the powers of the Pensions Regulator in relation to contribution notices and information gathering, provided for through the Pension Schemes Act 2021.

Employer resources test

The draft Pensions Regulator (Contribution Notices) (Amendment) Regulations 2021 are concerned with the new “employer resources test”.  Under this, if the Regulator is of the opinion that an act or failure to act reduced the value of the employer’s resources, and that reduction was material relative to the scheme’s estimated section 75 debt, the Regulator may be able to issue a Contribution Notice.

The regulations set out what constitutes employer resources and a suggested process through which its value may be determined, calculated and verified for the purposes of the test.

Four options are put forward to assess employer resources with the DWP legislating for a ‘normalised annual profit before tax’ (NAPBT) measure under which non-recurring or exceptional items are removed.  This sort of measure is used in covenant analysis.

Three steps are involved:

  • Initially, NAPBT is determined using the latest annual accounts prior to the act or failure to act (the “Pre-act NABPT”) – with the Regulator deciding on the items to remove from the profit line
  • The Regulator then determines the impact on NAPBT caused by the act or failure to act by reference to the same time period as used initially.  This impact may be determined from a number of sources, such as subsequent annual accounts or management accounting information.  From this is determined the “Adjusted NAPBT”
  • If the Regulator wishes to issue a Contribution Notice it compares the difference between the Pre-act NAPBT and the Adjusted NABPT and will put forward an argument that the reduction is material in relation to the estimated section 75 debt

These regulations will work alongside the Regulator’s Code of Practice and any other related guidance so that stakeholders are informed on how the employer resources test will be applied.

Information gathering

The draft Pensions Regulator (Information Gathering Powers and Miscellaneous Amendments) Regulations 2021:

  • Set out the information that interview notices should contain – the intention is that it should be sufficient for the interviewee to be clear as to when and where the interview will take place, why the Regulator wishes to conduct the interview, the interviewee’s rights and responsibilities, and how the information obtained by the Regulator can be used.  It also lists the sanctions that may apply in the event of non-compliance by the interviewee
  • Extend the new inspection powers set out in the Pension Schemes Act 2021 so that they potentially apply to any employer in a multi-employer scheme; and
  • Set out a £400 fixed penalty and £200 per day escalating penalty where individuals fail to comply with information gathering requests.  These are the same penalty levels as apply in respect of auto-enrolment information requests.  Where the entity is not an individual the escalating penalty is £500 for the first day on which the escalating penalty applies, £1,000 for the second day, £1,500 for the third day and so on until the 20th day when the daily rate is capped at £10,000.  This is the same scale as is used for Master Trusts.  The Pensions Regulator will reflect these changes in its updated Monetary Penalties Policy which will be published in due course

Consultation on both sets of regulations ends on 29 April 2021 and they are expected to come into force in October 2021.


The first set of proposals give, at last, some insight into how this particular new contribution notice trigger will work, but the consultation document is painfully short on how the Regulator will do its sums and the judgments that are involved, even before getting to the assessment of whether the change in employer resources is ’material’.

There will be many quite normal corporate ‘acts’ that result in employer resources reducing on a snapshot basis, but we are no further forward in understanding which ones will be of interest to the Regulator.   Hopefully, Regulator guidance to come will shed some light, but it would have been far better to have seen the Regulator’s intended stance alongside DWP’s proposed regulatory ‘mechanics’.

The second set of proposals by contrast are not unexpected.  The fines for corporate non-compliance can build up to a tidy sum, but one hopes that the Regulator will approach this and the other penalties in a proportionate manner.

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Incorporating performance fees within the charge cap – DWP consults once more

Following some signalling at the Budget (see Pensions Bulletin 2021/09) the DWP has launched a consultation on two matters relating to charge cap compliance which potentially constrain the illiquid asset classes that can be considered by occupational DC schemes.

The package of measures comprises the following:

  • The Government’s response to the performance fee section of a September 2020 consultation (see Pensions Bulletin 2020/38) with a further consultation on draft consequential regulations
  • A call for evidence on the current position on the look-through mechanism in relation to charge cap compliance, as a potential barrier to investment in alternative asset classes, particularly venture capital and growth equity

Performance fees

This part of the consultation looks to allow schemes to smooth the occurrence of performance fees over five years when testing against the charge cap, in order to encourage DC schemes to invest in illiquid assets.  Other costs would continue to be assessed (by one of two possible methods) taking a year at a time.

This third calculation option for performance fees only, which should help remove concerns by trustees that illiquid asset investment could breach the charge cap, follows on from an earlier consultation that made similar proposals and which contained draft regulations.  Some time is spent responding to this consultation and adjusted regulations are set out for further comment.

The Government says it has noted the concerns expressed that a five-year approach may add administrative complexities, especially for larger schemes with more members, but it believes “this is something that schemes will embrace and make work for them in order to try to take advantage of the investments that can potentially yield greater returns for their members”.

Look-through costs

This part of the consultation calls for views on the treatment of look-through costs.  Under look-through trustees should not just incorporate the costs of investing in a pooled vehicle but look-through this structure and consider the costs paid by the pooled vehicle manager as it invests in other funds.

It has been put to the Government that the current position on look-through costs, set out in statutory guidance, as applied to closed-end investment structures, such as venture capital investment trusts and other vehicles that make allocations to illiquid assets, reduces their attractiveness amongst DC scheme trustees.

In the call for evidence the Government wishes to establish the likely appetite for investment in venture capital and/or growth equity and offers the prospect of removing the look-through requirement for closed-end funds, amongst other possibilities of removing potential barriers for investment in such asset classes.

Consultation on both aspects closes on 16 April 2021 – less than a month after publication.  The Government aims to publish, in June 2021, a response to the consultation on the draft regulations alongside a response to the remainder of the September 2020 consultation, including final draft regulations and final statutory guidance – to come into force from October 2021.  The June 2021 response will also include a summary of responses received to the call for evidence and next steps on this issue.


Pressure is beginning to mount on the charge cap regime as different policy initiatives exert competing forces onto it – on the one hand the Government has (rightfully) for several years used the charge cap to drive down costs for members and improve value for money, but here the Government is having to add complexity to the regime to meet its desire for DC schemes to help “build back better” after the pandemic.

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The “S” of ESG investing comes under scrutiny

The DWP has launched a call for evidence on the impact that social factors are having on pension scheme investment.  This development was signalled by the DWP last month in written answers given to two Parliamentary written questions posed by Lord Alton (see Pensions Bulletin 2021/08).

The call for evidence seeks to assess how trustees of these schemes understand “social” factors and how they seek to integrate considerations of financially material social factors into their investment and stewardship activities.  It follows the results of a survey by the DWP of 40 of the largest schemes carried out in February, the results of which Guy Opperman says were mixed.

The call for evidence first sets out trustees’ legal duties when it comes to social factors, before going on to usefully examine what can be classed as social factors and their link to risk management.  Ways in which trustees can take social factors into account when investing and in their stewardship role are then considered before a final chapter looks at social factors as investment opportunities for trustees.

Consultation closes on 16 June 2021.  It is not clear what the next steps will be, but the Government has clear concerns that not enough is being done by trustees in this area.


This is an interesting development, once more demonstrating the pensions minister’s interest in pension schemes as institutional investors, but at this stage there is little news on what action the Government might be taking.

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White Paper published on restoring trust in audit and corporate governance

The Department for Business, Energy and Industrial Strategy has published a White Paper consultation on a number of reforms to the UK’s audit and corporate governance regime in the wake of some big-name company collapses including Carillion, Thomas Cook and BHS.  This follows on from earlier consultations and the results of a number of reviews which have reported some time ago.

Of interest to pension schemes and their advisers are the following:

  • A new regulator will be established – the Audit, Reporting and Governance Authority (ARGA) – backed by legislation, funded by a mandatory levy, and given much stronger powers to enforce standards.  ARGA could oversee the largest unlisted companies as well as those on the stock market.  It will also have the power to impose an operational split between the audit and non-audit functions of accountancy firms, to reduce the risk of any conflicts of interest that may affect the standard of audit they provide
  • New reporting obligations are proposed on both auditors and directors around detecting and preventing fraud, with boards required to set out what controls they have in place and auditors expected to look out for problems
  • Large businesses will need to be more transparent about the state of their finances, so they do not pay out dividends and bonuses at a time when they could be facing insolvency.  Directors will also publish annual ‘resilience statements’ that set out how their organisation is mitigating short and long-term risks, encouraging their directors to focus on the long-term success of the company and consider key issues like the impact of climate change

The White Paper also takes forward the vast majority of recommendations made by three independent reviews into auditing and corporate reporting:

  • The Independent Review of the Financial Reporting Council (FRC) led by Sir John Kingman
  • The Independent Review into the quality and effectiveness of audit, led by Sir Donald Brydon; and
  • The Competition and Markets Authority’s Statutory audit services market study

Actuarial oversight

The Government now proposes that ARGA will undertake oversight and regulation of the actuarial profession, in place of the Financial Reporting Council.  This is to be achieved through a statutory regime with ARGA being responsible for:

  • Setting legally binding technical standards, monitoring compliance with these standards and taking action if actuarial work does not meet these standards
  • Independent oversight of the Institute and Faculty of Actuaries in relation to its members; and
  • Providing an independent investigation and discipline regime for matters relating to members of the actuarial profession which raise, or appear to raise, important issues affecting the public interest

Consultation closes on 8 July 2021.


There is more than a sense of deja-vu to this White Paper with much of the content being a re-working of recommendations made as far back as 2018.  But it is an important next stage to these reforms, for which an Act of Parliament will be needed.  For those anticipating that the Government would have something solid to say about directors needing to justify dividend payments where a company’s DB pension scheme is in deficit, the White Paper appears to now be hinting at the opposite – that a reduction in dividends could harm other pension schemes as investors.

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Tax Day – not the “Big One” for pensions but a teaser about superfunds

The Government’s big raft of tax policies and consultations, widely billed as “Tax Day”, proved to be largely uninteresting from the pensions standpoint.  Despite speculation in the run-up to the publication of all these documents that this would be the occasion for the Government to have something to say about restricting pensions tax relief, nothing transpired.

Statements from the Government that it will be addressing some pension tax difficulties specifically raised by its remedies to the McCloud case (see Pensions Bulletin 2021/06) and that it has launched the next stage of its consultation on raising standards in the tax advice market (see Pensions Bulletin 2020/14) were expected.

In the tax advice consultation (closing 15 June 2021) HMRC seeks views on proposals to introduce a requirement for “tax advisers” to hold professional indemnity insurance, including minimum levels of cover, and how the policy could be enforced and implemented.  HMRC also puts forward a definition of “tax advice” for this purpose.  This is part of a range of actions it is considering.

What was not widely expected was this statement about superfunds:

Tax treatment of Superfunds – The government will be reviewing the appropriate taxation framework for Superfunds, which are consolidation vehicles for defined benefit pension schemes.  This work will proceed alongside the work under way on the development of the appropriate regulatory regime.  This is an innovative area and it should not be assumed that the tax regime that currently applies to entities and transactions in the Superfund structure or the pension schemes that have transferred to the Superfund will remain unchanged.  The government’s approach will be informed by the features of the permanent regulatory regime”.


We await with interest the Treasury’s thoughts about the tax treatment of superfunds (and also notably the schemes that transfer to them).

On the tax advice piece, the devil is in the detail including a new definition of “tax advice” and what parties and activities might ultimately be brought into (and whether it might ultimately be used for other purposes).  Key is that the measures implemented appropriately tackle the bad apples but do not disrupt the work of the very many parties essential to enabling pension schemes to comply with the complex pensions tax regime.

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Permanent solution delivered to address GMP inequalities in public sector schemes

The full indexation temporary fix to deal with sex-inequality in public sector pensions due to differences in GMPs between men and women is becoming permanent as we predicted when HM Treasury launched the latest of its consultations on this issue (see Pensions Bulletin 2020/42).

In a written statement, Steve Barclay, Chief Secretary to the Treasury, said that GMP conversion was no longer being considered a long-term solution to the public sector inequality issue and so all those reaching State Pension Age from 6 April 2021 onwards will have the GMPs earned in public service fully indexed by the public service pension scheme – a decision supported by the majority of respondents.

The consultation outcome provides further detail but disappointingly fails to answer the concerns expressed by some respondents about the impact on the wider public and private sector of not letting the temporary fix continue for a little longer.

We expect the necessary Order will be published soon in order that those reaching State Pension Age shortly after Easter can benefit from the now permanent solution.


It would appear that the Government wishes to draw a line under the issue, but it is doing so at the expense of a number of schemes whose trust deeds and rules explicitly require them to follow the indexation treatment of the public service pension schemes.

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PASA launches data management plan guidance

The Pensions Administration Standards Association has published a short guide to data management plans.  The guidance sets out, at a high level, the purpose of such a plan (for trustees to formalise their approach to managing and improving their pension scheme data) and the information which it may be expected to include (such as processing, security and data improvement).

PASA encourages all trustees to review the completeness, accuracy and appropriateness of their data and operate a data management plan as part of their wider risk management framework.


Pension scheme data quality has become a recurring theme as trustees have had to undertake various ‘non business as usual’ projects whose success depends utterly on good quality data.  They include buy-ins and buy-outs, GMP rectification and, in the near future, GMP equalisation.  The pensions dashboard may also present some challenges to data quality.  This guidance provides a useful introduction to the subject.

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Pensions Ombudsman issues guidance on facilitating independent financial advisers

The Pensions Ombudsman has published a short information and guidance note aimed at pension scheme administrators who may be asked by their trustee clients to provide information in respect of independent financial advisers, including potentially a list of IFAs for scheme members to consider and choose from when taking financial decisions regarding their pension rights.

The Ombudsman notes that there has been a reluctance by administrators, trustees and employers to recommend or facilitate access to financial advisers.

The guidance sets out some criteria for IFA selection, the nature of any factual information to members about potential IFAs and some additional steps that can be taken by the pension scheme administrator (or other person) to put themselves in a stronger position should poor advice be given by an IFA and the member looks to take a maladministration complaint to the Pensions Ombudsman.


IFA firms are increasingly being considered by trustees concerned that their members may take inappropriate decisions with their retirement savings.

This short guidance is useful, in particular in giving some pointers to trustees about what they can do to reduce the risk that they will be liable if something goes wrong, but trustees are also likely to want to seek professional advice before providing access to an IFA panel.

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MAPS rebrands its advice services

The Money and Pensions Service is to launch “MoneyHelper” this summer – a single destination providing money and pensions guidance over the phone, online and face to face.  It will replace MaPs’ three legacy brands – the Money Advice Service, the Pensions Advisory Service and Pension Wise.  However, Pension Wise, which provides guidance for people aged 50 and over about their DC pension options, will continue as a named service under the MoneyHelper umbrella.

A toolkit and guide will be produced to assist stakeholders manage their part of the changeover to MoneyHelper, scheduled to start from early June 2021, and from this point consumers will be automatically redirected from the legacy brands’ websites to MoneyHelper.


The Government has spent considerable sums marketing the Pension Wise service recently, so it is a relief that this brand is not to completely disappear.  There are a number of instances in member communications where trustees need to point members to Pension Wise.  Hopefully all that will be needed is a website address change.

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More on HMRC’s Managing Pension Schemes service

HMRC has published its latest newsletter on its Managing Pension Schemes service.  The newsletter explains recent updates to the service and explains how practitioners can interact with it.  There is an explanation of how migration from the Pension Schemes Online service will happen, although the actual migration, which needs to be undertaken by scheme administrators, will only be possible from Spring 2022 after they have undertaken some preliminary work.

Even after the migration has been completed administrators will still need to use Pension Schemes Online to submit Event Reports and Pension Scheme Returns (if required) until these features become available on the Managing Pension Schemes service.

The newsletter contains a repeat of the promise that HMRC will soon start to delete credentials of users who have not signed into Pension Schemes Online for the last three years, but it is not clear precisely when this will start to happen.


This is proving to be a slow-old roll out, with repeated delays and no firm date by when the new service will be fully operational.

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Auto-enrolment parameters for 2021/22 pass into law

The Order setting out the earnings trigger and qualifying earnings band to be used for auto-enrolment purposes for 2021/22 has now been finalised.  For 2021/22, the automatic enrolment earnings trigger remains at £10,000 and the lower limit and upper limit of the qualifying earnings band are £6,240 and £50,270 respectively – the upper limit having increased while the lower remains frozen.

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021 (SI 2021/314) comes into force on 6 April 2021.

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