Despite emerging slowly from pandemic restrictions, we continue to face uncertainty and change in our day-to-day lives and expectations, so it is reassuring to know that some things have remained constant. What hasn’t changed is TPR’s commitment to putting savers first.
Keeping savers at the heart of all we do has meant TPR itself has had to respond clearly, quickly and decisively to change; striving to ensure workplace savings continue to work for all.
Delivering on the Pension Schemes Act, fighting to keep savers safe from scams and helping trustees to respond to the climate change risk – all examples of how we are working to ensure people who manage pension schemes have the guidance and information they need to govern effectively and make good decisions.
We want to ensure that those in the pensions industry have the opportunities they need to engage with us so their priorities and concerns are reflected. With so much new policy in the pipeline, that inevitably means we are reaching out on a larger scale to the industry for its view - but engaging is the right thing to do so we can all get behind our ability to better protect savers.
Code of Practice 12 consultation
We recently consulted on changes to our Code of Practice 12 following the introduction, by the Pensions Schemes Act 2021 of two of new tests in relation to our Contribution Notice (CN) power. The new legislation amends our CN power to introduce two new ways in which we can assess the impact of an act: the employer insolvency test, and the employer resources test. The new tests are in addition to the existing main purpose and material detriment tests.
We are updating our Code to explain the circumstances in which we will consider issuing a CN on the basis of the new tests.
We know from our casework that there are certain acts that affect an employer’s ability to deliver the retirement outcomes savers expect. The existing tests for the use of our CN power do not focus solely on the effect of a specific act on the employer.
The new employer insolvency and employer resources tests build on the current legislation to capture situations in which an act affects an employer covenant in a sufficiently material way. They look at the impact of the act on the employer at the time the act takes place, like a snapshot.
A CN will not be automatically issued if one of these tests is met. The legislation sets out a number of tests which must be met, including that it is reasonable to issue a CN.
While we don’t expect the new tests to significantly shift our current approach for assessing potential Contribution Notice cases, it’s important that we consult with the industry and give some examples of the circumstances in which the new tests could apply.
Our new powers are expected to take effect from this autumn and, as already confirmed by the Government, will not be applicable to acts taking place before then.
Trustees: be alert and act quickly
We also recently published our Annual Funding Statement (AFS)¹ which calls on pension schemes to remain alert to the risk of weakening
employer covenants and act quickly where needed to protect savers.
We know many employers and trustees have worked together to maintain their funding commitments however there is still uncertainty in the market due to pressures including the COVID-19 pandemic and Brexit. This means trustees should remain vigilant and take swift action where necessary.
When carrying out actuarial valuations, trustees should review how their covenant may have changed in the past year and then continue to monitor it. We expect trustees to remain engaged with employers who, in many cases, are emerging from a difficult business period.
The AFS, which is particularly useful for schemes with valuation dates between September 2020 to September 2021, shows that this tranche has remained buoyant despite difficult market conditions for sponsoring employers.
Many businesses will have benefited from extended government support and while it is too early to tell if we will see a rise in company insolvencies, uncertainty remains. If there is a prospect of insolvency or a restructure of scheme employers, we want trustees to probe the covenant even further, taking professional advice if needed to gain a fresh view on covenant strength to ensure their scheme is being treated fairly.
TPR’s Corporate Plan
To support trustees, employers and savers navigate the economic uncertainty caused by the pandemic, we also recently published our Corporate Plan² which sets out our key priorities for the year ahead.
The priorities, which are grounded in putting the saver at the heart of what we do, include implementing the Pension Schemes Act, combatting scams and developing a framework for measuring value for money.
The plan shows how we will deliver against all five strategic priorities, as outlined in our long-term Corporate Strategy³ which sets out our blueprint for the future of pension regulation, and build on the work we have done in recent years to be a clear, quick and tough regulator.
The landscape ahead is both exciting and challenging and we are determined to embrace the changes to come. These include the ongoing shift to defined contribution (DC) saving and market consolidation, the emergence of new technologies, and the impact of climate change on trustee and employer decision making.
The plan also sets out how our work will be measured. For the year ahead, we have set ourselves 15 key performance indicators that are a mixture of quantitative, milestone and progress-based measures.
I have provided a snap shot of the work TPR has been doing: from signalling the direction of travel over the years to come, to alerting trustees to risks ahead and what they should to do, to asking the industry to feed into our detailed codes. All of our work seeks to ensure workplace saving works for all savers, so that savers can look forward to the retirement they are planning for.
This article was featured in Pensions Aspects magazine July/Aug edition.
Last update: 20 July 2021