As part of its response to COVID-19 and the challenges faced by pension schemes and sponsors, the Pensions Regulator has published two updates on its approach to reporting and enforcement at this time:
- Late payment reporting: COVID-19 information for providers
- COVID-19: an update on reporting duties and enforcement activity
Reporting late payments
The Regulator issued an update for trustees and pension providers, to say it will be extending the time for notifying late payments from 90 days (as set out in Code of Practice 5 for occupational pension schemes and Code 6 for personal pension schemes) to 150 days.
The extension is aimed to encourage trustees and providers to work with employers to bring payments up to date within this extended timeframe, whilst extending the period to report to scheme members and the Regulator. It is not clear how long this easement will last although most easements that have been granted in response to the current crisis are in place until at least 30 June 2020.
Reporting duties and enforcement activity
In light of COVID-19, the Regulator has announced easements in its approach to reporting and enforcement action in a number of areas that it considers appropriate given the current circumstances.
In addition, the Pensions Ombudsman has confirmed it will take into account the Regulator’s latest guidance on COVID-19 issues if it receives complaints about maladministration that may be linked to the impact of COVID-19.
The Regulator has confirmed that its general approach to breaches of administrative and governance requirements by schemes at the current time will be based on the following two principles:
- Reporting – The Regulator has said that schemes are not required to report a breach, if the breach will be rectified in no more than three months, and does not have a negative impact on savers. The Regulator suggests schemes should nevertheless maintain records of any decisions and actions taken during this time.
- Enforcement – The Regulator will be adopting a case-by-case, flexible approach as to whether to take regulatory action regarding breaches of administrative and compliance requirements.
Approach in specific areas
The guidance provides a non-exhaustive list of specific areas that are not covered by these two guiding principles, and outlines the Regulator’s approach in respect of these:
- Annual benefit statements – The Regulator will be adopting its overarching approach on breaches to issue an annual benefit statement and will not be taking enforcement action if the breach is rectified within no more than three months, does not have a negative impact on savers and is attributable to COVID-19.
- Chair’s statements – The Regulator will continue to impose fines if schemes do not comply with the requirement to prepare a Chair’s statement. However, no penalty notices will be issued before 30 June 2020. Draft Chair’s statements sent to the Regulator for review before this date will be sent back without being reviewed. This should not be taken as an indication that they are compliant.
- Charge controls – If a cap on charges is exceeded because costs have increased temporarily due to COVID-19, the Regulator has advised schemes to report this – unless it is not a material breach. The Regulator has also said it will take a proportionate approach to enforcement, where it is clear trustees have taken reasonable steps to bring charges back within the charge cap as quickly as possible.
- DB transfer values – As outlined in its guidance for trustees of DB schemes, in light of the heightened risk of members being targeted by scammers and unscrupulous financial advisers at this time, the Regulator has said that trustees of DB schemes can suspend cash equivalent transfer value (CETV) quotations and payments if they want to, in order to give themselves time to review CETV terms and/or to assess the administrative impact of any increase in demand for CETV quotes. We understand that this easement does not currently extend to DC schemes, although the Regulator is keeping this under review.
- Employer consultation – Employers are advised to read the Regulator’s COVID-19 guidance for employers.
- Employer related investment – Because breaches of the employer related investment (ERI) restrictions can impact members’ benefits, and as the legislation envisages criminal sanctions for certain breaches, the Regulator will not granting extending any easements in this area.
- Investment governance – The Regulator does not anticipate taking regulatory action if trustees fail to review their schemes’ statement of investment principles or a statement in relation to any default arrangement for COVID-19-related reasons, so long as the review is not delayed beyond 30 June 2020.
- Late accounts – Failing to produce audited accounts need only be reported where the breach is likely to be of material significance. However, in most instances, failure to complete a set of accounts is unlikely to be of significant detriment to members and so the general extension until 30 June 2020 will apply. The Regulator will also not be taking regulatory action if master trusts fail to file accounts on time, as long as the filing does not go beyond 30 June 2020.
- Late payments of contributions – The guidance notes that the Regulator will take a proportionate and risk-based approach to any decisions to take regulatory action in respect of late payments. However, trustees should bear in mind that it is very important that contributions to DC schemes should be invested promptly. The Regulator also expects employers to make all possible efforts to ensure that any contributions deducted from pay are paid into the scheme on time.
- Master trusts – Notifications for all triggering events and significant events will continue to be required, in accordance with legislation. However, the Regulator will accept informal reporting to scheme supervisors in the first instance and a formal report should be made as soon as is reasonably practicable.
- Notifiable events – The Regulator is not granting any easements in relation to the notifiable events framework given the potential detriment to members.
- Recovery plan not agreed – The Regulator’s approach is outlined in its funding guidance to trustees of DB schemes. The Regulator will not take regulatory action if the delay in agreeing a valuation and recovery plan for valuations that should have been completed at around this time is less than three months after the 15 month statutory deadline. If a valuation cannot be submitted in the extended timeframe, schemes are expected to explain the delay, and provide an outline of the remaining issues and when they’ll be resolved.
Finally, for schemes in relationship-managed supervision the Regulator has said it is refocusing our relationship-managed supervisory activity, focusing more on near-term risks rather than the standard activities in its supervisory cycle and they will be speaking to relationship-managed schemes to better understand their position and the risks and issues that have arisen.
To keep up to date with the latest COVID-19 pensions-related guidance click here.
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