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Pensions in 2018

Written by Natalie Tuck
04/01/2018

The pensions diary for 2018 is already looking busy with the likes of the DB white paper, pensions dashboard, collective DC and master trusts among others taking up time. Natalie Tuck looks ahead for the year.

A white paper this winter

We’ve already seen a white winter but the pensions industry has also been promised a white paper on defined benefit schemes before the end of the season. It follows a green paper in 2017, which saw the government propose ideas such as DB pooling and changes to indexation that could allow stressed schemes to switch to CPI from RPI or put on hold increases. Cardano chief executive Kerrin Rosenburg says the government must not delay their white paper on DB security any longer. “Without a more flexible approach for stressed schemes, companies that can no longer afford their DB pension liabilities are forced to close down, destroying jobs and forcing their pension funds into the PPF.”

GDPR comes into force

From May 2018 General Data Protection Regulation (GDPR) will replace current data protection laws, and will affect how pension companies can maintain and manage member data. The regulation is the biggest shake-up in European data protection rules in two decades. Despite the UK’s decision to leave the European Union, the country is expected to implement GDPR in full. Aon partner Matthew Arends explains that the new rules have led to “significant activity to review communications, data processes and security, as well as supplier contracts”.

Collective DC back in the spotlight

Despite being dropped by the government in 2015, collective defined contribution (CDC) pensions have crept back onto the agenda. In Autumn 2017, both the Labour Party and the TUC endorsed CDC pensions and called for the government to draft the missing regulations to bring them into being. Following this, the Work and Pensions Committee announced an inquiry into CDC in November. The Committee's inquiry will consider the merits of CDCs, the role that they could play in the pensions landscape, the potential benefits to savers and the wider economy and the legislative and regulatory framework that would be required to successfully implement these schemes. Ensign Pensions/MNOPF pensions director Ivan Laws hopes there will be a “revival of interest in the merits of collective, industry wide DC schemes”.

A busy year in court

On the back of what was a very busy 2017 for court cases, this year is set to be just as busy. The first ruling of the year is likely to be the age discrimination case which involved both the judges’ and firefighters’ pension scheme. The case was heard in December and a decision is expected at the end of January. In addition, Barnardo's and others v Buckinghamshire and others is expected to be heard this year. In 2016, the Court of Appeal denied the trustees of the scheme the right to switch its index linked payments from RPI to CPI. “Expect even more scrutiny when this is heard by the Supreme Court in June 2018. More broadly, many in the pensions industry will be hoping for some clear and practical guidance from the Supreme Court on whether trustees have scope to change the scheme's measure of inflation,” Gowling WLG partner Peter Shave says.

Master trust regulation gets serious

With the publication of the master draft regulations in December 2017, The Pensions Regulator is to publish its code of practice this year, before applications open in October. The aims of the new authorisation and supervision regime are to ensure members of master trust schemes have equivalent protections to members in other types of pension schemes As a result of the new regime, Willis Towers Watson Lifesight head of proposition development David Bird says we can expect consolidation in the market. “This will spell good news for members and prospective employees, as the remaining master trust providers will be able to achieve the scale which they can then leverage to improve their offering to members”.

A crack down on pension scams

Towards the end of 2017, the government faced criticism from the industry over its slow approach to introducing a cold-calling ban to crack down on pension scams, with it promising a ban by 2020.

“The pernicious effect of cold-calling will continue to be a hot topic as the New Year gets under ways,” says Barnett Waddingham senior consultant Malcolm McLean. He notes that it will be interesting to see how and when the government responds to the pressure to introduce the ban more quickly than they seem to want to do at the moment. In December, the Work and Pensions Committee demanded the ban be in place by June 2018.

The countdown to IORP II

European Union member states were given two years to implement IORP II with a deadline of early 2019, and although the UK is leaving the Union, it is likely the country will adopt the directive, at least during any transitional period after March 2019, according to Royal London director of policy Steve Webb. “One important change under the new rules will be a duty on schemes to communicate with all of their scheme members on a regular basis. Many schemes do not regularly contact their deferred members and will be expected to do so in future. IORP II is also expected to lead to a greater focus on ‘environmental, social and governance’ (ESG) issues when it comes to pension scheme investing.”

Renewed focus on LGPS pooling

Local Government Pension Schemes are tasked with meeting the April deadline for creating investment pools. Robeco UK head Peter Walsh says that the focus on LGPS pooling to date has largely been about forming the pools and the requisite infrastructure. “During the course of 2018 we will see a renewed focus on the investment components of these pools with some important developments and subsequent impacts,” he says. “The most pronounced impact on will be on fees. The larger allocations that will follow pooling will necessarily require scalable investment strategies and lower fees. Both of these drivers will lead to a much more prominent role for systematic or quantitative strategies.”

The next steps for auto-enrolment

Published in the final week before Christmas was the auto-enrolment review, which Barnett Waddingham senior consultant Malcolm McLean thinks will “doubtless lead to further ongoing debate during 2018”. He also points at that there will be “special interest” in how the first rise in contribution levels in April 2018 will be received and whether these will lead to a material increase in opt-outs. “It is likely that any decision to increase contribution levels beyond the combined 8 per cent figure, due to come into effect in April 2019, will not be made before 2020 at the earliest,” McLean says.

Pension dashboard developments

The government’s target launch date for the pension dashboard isn’t until 2019 but the Department for Work and Pensions is set to produce a feasibility report by March this year. Royal London director of policy Steve Webb says that it is expected that this will give a green light for the dashboard concept with a goal of having some form of dashboard up and running by late 2019. “A key question is whether schemes will be obliged by law to supply data to the dashboard. For many schemes this will simply be an extra cost and they will be unlikely to supply data to a central dashboard unless they are forced to do so. For this reason I think it is likely that compulsion will come sooner or later and schemes should plan on the basis that at some point they will be expected to provide data on request and at scale to a new centralised pensions dashboard.”

The 2018 Autumn Budget

Pensions were left largely unscathed during the double Budget year of 2017 but Barnett Waddingham senior consultant Malcolm McLean believes it “inevitable” that a “cash-strapped Chancellor” will be looking to make greater savings towards his budget deficit the next time round and may well turn to pension tax-reliefs and allowances to achieve this. “The impact of Brexit may also be a contributing factor in support of this approach. All in all we can look forward to another interesting year for pensions, largely picking up on where we left off in 2017 and moving forward on policies and practices previously defined.”