consultancy services. TPR continues drive to .... in the form of a short telephone call with the transferring member. Th
TPR continues drive to improve governance TPR is striving to improve standards of governance across all pension schemes. Trustees must ensure they are equipped to deal with the challenges they face.
The Pensions Regulator (“TPR”) launched a campaign in September to drive up standards of governance across pension schemes. This follows consistent messaging from TPR over the last year on the subject of governance. In December 2016, TPR published a response to their discussion paper on 21st Century Trusteeship and Governance. Throughout 2017, further bulletins have been published, with TPR highlighting cases where enforcement action has been taken and its powers have been used. Then, in early September TPR published research which it felt highlighted poor standards of stewardship and risk, particularly in small and medium-sized schemes (defined by TPR as having less than 1,000 members). We commented in our June and July InTouch publications that going forwards we expected a more interventionist regulator, backed up by extra funding and additional staff. Therefore this drive to improve governance should come as no surprise. One criticism of TPR that has been levelled is that, in the past, it has generally focused on the biggest schemes, with less emphasis on the thousands of schemes who could themselves benefit (financially and otherwise) from a change of approach. It will be interesting to see whether TPR can come up with a solution that works for schemes across the board.
OCTOBER 2017 In this issue... TPR continues drive to improve governance | Improved Member Awareness and avoiding scams | FCA makes Market Investigation Reference for investment consultancy services Making Sense of Pensions
TPR has mentioned that it believes that over the long term, there is a good case for consolidation of schemes where standards are not being met. Reading between the lines this may well be the first step in that direction. The DWP is due to release a White Paper on the security and sustainability of DB schemes in the autumn, and one of the key themes in the preceding Green paper was whether consolidation (compulsory or otherwise) should be an option. Every situation is different and schemes need to work out for themselves how to put in place effective governance to manage time and resources. This is an absolutely critical area to consider as it underpins everything else the trustees do. While consolidation may be one potential way to improve governance for some schemes, it should not be seen as the only one.
Improved Member Awareness and avoiding scams Friday 15 September was Pension Awareness Day 2017, the culmination of a week of activities around the country designed to get people thinking about their retirement and, importantly, how they are going to pay for it.
Transfer values remain at historic highs, for some members as high as the value of their home.
Retirement planning should be easier for members of DB pension schemes, but this crucially depends on the communication they receive. We regularly hear in the news such schemes being referred to as ‘gold plated’, but many DB members have often failed to appreciate just how valuable they are. To help demonstrate the value of DB pensions and how they can vary, we produce the Xafinity Transfer Value Index. This index tracks the transfer value that would be provided by an example DB scheme to a member aged 64 who is entitled to a pension of £10,000 each year starting at age 65. The pension is assumed to increase each year in line with inflation.
At the end of September, the value of the Index was £230,000. As can be seen in the graph, the Index has been volatile, but values remain at historic highs, mainly due to low gilt yields. At these levels, it is clear that defined benefit pensions may be the second largest single asset individuals will ever own after their house. In fact for some people their pension will be worth more than their house. Understanding the value is vital for members to make the right retirement choices. One group that fully appreciates how valuable a DB pension is are the growing number of pension scammers operating across the UK. The introduction of Freedom & Choice in 2015 (as covered in July’s InTouch) has only increased their opportunities to defraud pension scheme members out of their retirement savings. Unfortunately, the scammers have been succeeding. In May of this year the Serious Fraud Office announced an investigation into a pension scam that is estimated to have stolen £120m from pension scheme members over the period 2011 to 2017.
The Pensions Regulator, along with other government bodies, has continued to work hard to raise awareness of the problem of pension scams with its leadership of Project Bloom; a multi-agency taskforce which is working with government, the pensions industry, law enforcement agencies and other regulators to combat pension scams. Project Bloom has been instrumental in encouraging the government to consult on a range of measures intended to tackle pension scams, including banning pensions cold calling, restricting the ability to transfer to scam schemes and changes to how certain schemes are regulated.
In fact, over the summer, the DWP published its response to its consultation on banning pensions cold-calling to reduce the threat of scams. There was overwhelming support from the industry for such a ban, and as a consequence the government has proposed to proceed with it “when parliamentary time allows”. This is clearly welcome news in the fight against pension scams, however with the government being engaged on many different fronts, one can’t help but wonder when such parliamentary time will become available. But will banning cold calling alone wipe out pension scams? The answer we are afraid is ‘no’. Xafinity’s Pension Scam Identification Service released its annual bulletin last month with the headline statistic that 1 in 12 of pension transfers showed evidence of scam activity. Of these only 1 in 10 of these cases were identified as scams because of cold-calling. Pension scheme administrators are well aware of the tell-tale signs of scam activity on transfer paperwork, but unfortunately so too are the scammers themselves. So a scammer will offer to complete all the paperwork on behalf of the member, ensuring that it contains no tell-tale signs. Members will often accept this offer of help as, after all, none of us like having to fill out long and complicated paperwork The Pension Scam Identification Service adds an extra layer of scrutiny to a transfer in the form of a short telephone call with the transferring member. This call allows us to understand from the member the background for the transfer, allowing us to bypass any scammers, and hence pick up any tell-tale signs of scam activity that may be present and that would not have been visible in the completed transfer paperwork. It has consistently identified scam activity in cases which have passed the paperwork review. So although a cold-calling ban is an important step in reducing pension scams, clearly more needs to be done.
Trustees must decide on the best way to combat the threat of pension scammers, who continue to operate in spite of increased scrutiny.
FCA makes Market Investigation Reference for investment consultancy services The CMA investigation should be hugely beneficial to pension schemes and trustees.
On 14 September, the Financial Conduct Authority (FCA) confirmed its final decision to make a Market Investigation Reference (MIR) to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services. This follows its ‘Final Report into the Asset Management Market Study’ which was released in June. As we set out in July’s InTouch, Xafinity fully supported the findings and the FCA’s proposed approach. All industry participants must shape its future, rather than a handful that already dominate the market. This should be hugely beneficial to pension schemes and trustees in ensuring the industry and investment markets work effectively, and in the best interests of schemes and their members. Xafinity will be fully contributing to the CMA investigation and looks forward to the outcome, hoping that it leads to an industry far more focused on helping schemes meet the promises they’ve made to their members. This requires clear recommendations about how investment consultants can ensure conflicts of interest are avoided, for example in the provision of fiduciary management services.
Xafinity is a market leading actuarial, pensions and employee benefit consultancy providing a full range of consulting and administration services to over 500 clients. We combine expertise, insight and technology to address the needs of both trustees and companies, specialising in pension de-risking solutions. Xafinity Consulting Limited. Registered Office: Phoenix House, 1 Station Hill, Reading, RG1 1NB. Registered in England and Wales under Company No. 2459442. Xafinity Consulting Limited is authorised and regulated by the Financial Conduct Authority. 914XC (10/17) Xafinity Consulting Limited is a wholly owned subsidiary of Xafinity plc, a company listed on the Main Market of the London Stock Exchange and registered in England and Wales under Company No.08279139
