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White Paper on Defined Benefit pension schemes
Government White Paper setting out its future approach for Defined Benefit (DB) pensions system.
The key highlights are:
For the small number of employers evading their funding obligations, there will be more powers for the Pensions Regulator (Regulator) so that they can protect members.
There will be clarification on expectations through a DB funding Code. This will include a requirement to appoint a Chair and to prepare a DB Chair's Statement, to be submitted with the triennial valuation to the Regulator.
There will be a consultation on a framework for consolidation of DB schemes, offering industry the opportunity to innovate but ensuring members’ benefits are protect
The Work and Pension Committee on 11 April 2018 invited comments on a number of areas. The deadline for submissions is 18 May 2018.
More powers for the Regulator
The Government plans to strengthen regulation and the Regulator's powers to enable it to punish those who put their pension scheme at risk. This will be achieved by:
introducing a criminal offence for those found guilty of behaviour that shows wilful gross recklessness in relation to a pension scheme
building on the existing process of disqualification of company directors
strengthening the existing notifiable events framework and voluntary clearance regime, to ensure employers have appropriate regard to pension schemes in a corporate transactions
improving the Regulator's existing anti-avoidance powers.
The Government notes that they will ensure these measures do not have an adverse effect on legitimate business activity. The Regulator will also be given more information-gathering powers, including:
compelling a person to take part in an interview
issuing civil sanctions for non-compliance
powers of inspection.
Revised DB funding Code
The revised DB funding Code will focus on:
how prudence is demonstrated
what factors are appropriate when considering recovery plans
ensuring a long-term view is taken.
The Code will require Trustees to appoint a Chair and that Chair will be required to provide the Regulator a DB Chair's Statement, with the scheme's triennial valuation. The DB Chair’s Statement is intended to drive improved accountability and to demonstrate collaborative decision-making between Trustee and sponsoring employer. The consultation on the funding standards will inform the content of the DB Chair’s Statement. It is expected that the DB Chair’s Statement:
Will set out the scheme’s long-term financial destination and strategic plan for reaching the Statutory Funding Objective (SFO).
Will set out the key risks to meeting the SFO (covenant, actuarial, investment and governance) and how Trustees mitigate and manage those risks.
May include information on how trustees will meet key governance standards, achieve value for money from their running costs and investment decisions.
There will be a consultation this year on:
a legislative framework and authorisation regime for DB consolidation vehicles
a new accreditation regime for such arrangements.
The Government will work with the Regulator to raise awareness of the benefits of consolidation through the Regulator's Trustees Toolkit. There will also be consideration of some minor changes to guaranteed minimum pensions conversion legislation, to support benefit simplification, which will help reduce complexities in existing benefit structures.
On 11 April 2018, the Work and Pensions Committee requested comments on certain aspects of the White Paper on the following questions:
To what extent is improving the Regulators effectiveness a matter of greater powers, better use of resources or cultural change in the organisation?
What can be done to strengthen the regime for clearing corporate transactions (like dividend payouts, selloffs, takeovers) that might weaken a pension scheme?
Will a criminal offence provide a meaningful deterrent?
What should 'prudent' and 'appropriate' scheme funding mean?
How can consolidation of the fragmented DB landscape be best achieved?
Given the difficulties facing DB schemes, is a faster legislative timetable warranted?
Submissions closed on Friday 18 May 2018.
What you need to do
The Government is proposing a phased approach to these changes. Trustees should monitor developments to ensure they can respond to changes as they come in and respond to consultations where appropriate. If you would like to discuss these matters please get in touch with your usual Crowe contact or Shona Harvie.
Important cyber security guidance for Trustees
Consider the TPR and PRAG guidance when formulating your approach to cyber risk.
Pensions: New rules for Defined Contributions schemes
New rules introduce requirements to publish further charge and transaction cost information for Defined Contribution schemes.
VAT treatment of pension fund management charges
New charges to DB schemes will be subject to VAT from January 2018. Time to discuss with your suppliers, what changes this will mean.
Going concern guidance for pension scheme accounts
PRAG has published guidance to assist Trustees and auditors when dealing with the raised profile of going concern.
Partner, Pension Funds Group
+44 (0)20 7842 7105
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