Beyond April 2015: action list for pension scheme trustees www.allenovery.com
Beyond April 2015 action list for pension scheme trustees Beyond April 2015: action list for pension scheme trustees Flexible access options Update rules to reflect flexibility options offered by scheme (unless already completed) Comply with disclosure obligations in relation to any material changes to basic scheme information Disclosure is required before/as soon as practicable after (and within three months of) change taking effect Update member booklet/scheme website etc to reflect new options and information requirements Changes are required to basic scheme information including: information about taking flexible benefits; additional factors which may affect the value of pension income from DC savings; and (where relevant) a statement that DB members may be required to take independent advice before being able to transfer those rights Keep access options under review over time as members needs evolve/new products come to the market Investment issues Default fund charge cap: establish monitoring process to ensure that the cap is not exceeded for any member, for example in relation to delayed rebates for leavers Review DWP charge cap guidance on methods for assessing compliance DC default option: keep membership profile/risk appetite and access preferences under review Required for periodic default strategy review and DC Code compliance Review the default strategy and net performance of underlying funds at least every three years This is a new governance requirement from 6 April 2015; also required by DC Code Include details of review and any resulting changes, or date of last review, in the chair s statement Required in annual reports for any part of a scheme year falling on/after 6 April 2015 * Update SIP if appropriate, for example to reflect changes in investment strategy Consult with employer on changes to SIP Plan for annual assessment of value for money in relation to investment fund costs and charges This is a new governance requirement from 6 April 2015 Disclose information on costs and charges Required as part of the chair s statement in annual reports for any part of a scheme year falling on/after 6 April 2015* Publish the default fund SIP Required in annual reports published on/after 6 April 2015 Allen & Overy LLP 2015
Member communications Ensure processes are in place to provide: information about accessing benefits to members with flexible benefits who are approaching/have reached normal minimum pension age ; and information about Pension Wise and the right to request further information to these members and any who meet the ill-health condition, on request; and generic risk warnings as appropriate. Update all template communications See Regulator s guidance on communicating with members about pension flexibilities Ensure all individuals acting on behalf of trustees are aware of information requirements when communicating with members at/around normal minimum pension age about flexible access, for example on walk-in/phone queries A script or prepared leaflets will help ensure compliance with the requirement to provide information about Pension Wise and the right to request information about access options. This information is either given verbally or provided in writing within 20 days of the communication Issue regular reminders to members to review investment choices and contribution levels in line with wider communications strategy See DC Code and guidance Issue regular reminders and copies of the Regulator s Scorpion materials to members to help them stay alert to the warning signs of pension scams As scammers tactics evolve, it may get more difficult for members (and trustees) to detect potential scam activity, so it s important to keep up to date with the latest Scorpion materials from the Regulator. See also the Code on Combating Pension Scams Administration Pension liberation: ensure robust processes are in place to assess receiving schemes, in line with Code of Good Practice on Combating Pension Scams The Code applies to transfers but schemes are also asked to be vigilant where members take cash payments (for example by providing risk warnings and Scorpion materials) Monitor information in relation to core financial transactions and include information on how the requirement to process these transactions promptly and accurately has been met as part of the chair s statement Required in relation to any part of a scheme year falling on/after 6 April 2015* Update administration/service level agreements as appropriate in light of new processes Legal review may be required to ensure that, for example, indemnity provisions remain appropriate Governance/trusteeship Explain how the trustees combined knowledge and understanding, together with the advice available to them, enables them to properly exercise their functions as trustees of the scheme, as part of the chair s statement Required in annual reports published after 6 April 2015 Provide details of how trustee knowledge and understanding requirements have been met in the past scheme year Required as part of the chair s statement in annual reports for any part of a scheme year falling on or after 6 April 2015* Include a comply or explain statement in relation to the DC Code in scheme accounts (including for AVC element of otherwise DB schemes) See Regulator s template statement, issued alongside the DC Code Include chair s statement on governance standards in scheme accounts published on/after 6 April 2015 Content will vary in first year depending on date on which current scheme year ends Assess material changes in risk and review/update the risk register with agreed mitigation See Code of Practice on internal controls * An exception applies where a scheme year ends within three months after 6 April 2015: the statement covering this period can be rolled forward and included in the following year s annual report. This may be lower than age 55 for members with a protected pension age relating to pre-a-day rights.
DB-specific issues DB/DC transfers and conversions where a member s DB rights are worth more than GBP30,000: information and checking process required to ensure that the member obtains appropriate advice. Ensure process complies with regulations and Regulator guidance Note process set out in guidance, and requirement to maintain audit trail; be alert to risk of fraudulent adviser confirmations Review member communications in light of Regulator s guidance on DB/DC transfers and conversions information should be fair, clear, unbiased and straightforward Note requirement for employer to pay for cost of member advice in relation to transfers over GBP30,000 where communications encourage, persuade or induce a member to request a transfer. If information is sent or transfer value figure is included at employer s request, consider underlying reason and take advice on whether requirement for employer to pay for member advice is triggered. Note also Code of Good Practice on Incentive Exercises in relation to one off commutation exercises Monitor trends in relation to transfers/commutation requests/exchange of DB rights for lump sum Adjust assumptions/commutation factors/tv basis if required Review the impact of any increase in transfers out Does the scheme have sufficient liquidity for the required level of transfer payments? Do you need to make any changes to any current liability-matching investments in response to a changed scheme liability profile? Review SFP/SIP as appropriate Employer agreement required if updating SFP; employer consultation required if updating SIP Contracted-out DB schemes: liaise with employer in relation to whether changes to member contributions and/or accrual rate are proposed to offset increased employer costs following the abolition of DB contracting-out from April 2016 Member consultation required if changes are to be made either under override power or scheme amendment power. For more detail, see our guide to the abolition of DB contracting-out DB schemes which are or have been contracted-out: obtain GMP data from HMRC and consider scope of reconciliation exercise required Deadline to register with Scheme Reconciliation Service is April 2016; HMRC scheme support services to resolve data issues are due to end in December 2018 April 2015 www.allenovery.com
Beyond April 2015 action list for pension scheme trustees KEY CONTACTS Maria Stimpson Partner Corporate Pensions Däna Burstow Partner Corporate Pensions Neil Bowden Partner Corporate Pensions Helen Powell PSL Counsel Corporate Pensions Tel +44 20 3088 3665 maria.stimpson@allenovery.com Tel +44 20 3088 3644 dana.burstow@allenovery.com Tel +44 20 3088 3431 neil.bowden@allenovery.com Tel +44 20 3088 4827 helen.powell@allenovery.com Allen & Overy LLP 2015
For more information, please contact: London Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom Tel +44 20 3088 0000 Fax +44 20 3088 0088 GLOBAL PRESENCE Allen & Overy is an international legal practice with approximately 5,000 people, including some 525 partners, working in 46 offices worldwide. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi Casablanca London Rome Amsterdam Doha Luxembourg São Paulo Antwerp Dubai Madrid Shanghai Athens (representative office) Düsseldorf Mannheim Singapore Bangkok Frankfurt Milan Sydney Barcelona Hamburg Moscow Tokyo Beijing Hanoi Munich Toronto Belfast Ho Chi Minh City New York Warsaw Bratislava Hong Kong Paris Washington, D.C. Brussels Istanbul Perth Yangon Bucharest (associated office) Jakarta (associated office) Prague Budapest Johannesburg Riyadh (associated office) Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy LLP 2015 CS1504_CDD-41912_ADD-51578 www.allenovery.com