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UPDATES TO CONTENT

This Update revises content at this site www.gpt-online.com and updated pages are automatically sent to subscribers to the hardcopy Guide for Pension Trustees. To help you locate the most recent changes, see the table: Summary of Main Revisions from this Update at the bottom of this page.

On this occasion there seems to be quite a measure of detailed information needing to be added to the Guide. No apology for this. It has recently been a season for guidance and consultation.

Revised internal controls guidance

In December 2009, the Pensions Regulator published its revised internal controls guidance for consultation. This focused on seven key risk areas where the Regulator expects to see improvements: (i) lack of adequate knowledge and understanding by Trustees, (ii) managing conflicts of interest, (iii) ineffective relations with advisers, (iv) poor record keeping, (v) deterioration in employer covenant, (vi) managing investment risk and (vii) ineffective retirement processes. The guidance may well be published towards the end of 2010. Subscribers will be kept up to date on the detail and steps to be taken to strengthen controls.

Note: A failure to keep adequate records could, in itself, be seen as a failure to maintain adequate internal controls [see 5.2.6 (Note)]. This may raise the question: do we have any unwitting failure to maintain adequate internal controls? An appropriate audit might assist the answer [see 8.4.7].

Record Keeping: measuring member data – Consultation

The Pensions Regulator has issued a consultation paper: Record Keeping: measuring member data outlining its plans for regulating standards of member data based on findings from research carried out. Some of the findings indicated:

(i) there is no evidence of a 'marked improvement' in administrative practices since the Regulator published its Guidance: Record Keeping: good practice in measuring member data [see 10.1.6 (Note)].
(ii) none of the third-party administrators or insurers (providers) reported any significant additional demand from trustees or employers, and
(iii) some respondents felt that compulsion was needed to overcome 'inertia or resistance'.

The Guide will be following closely the outcome of this particular round of consultation.

One failure identified by the Pensions Regulator: 'simply measuring the presence (or absence) of data does not provide any evidence that data is accurate. The accuracy of data held should be checked regularly.'

Data security – guidance on data protection from ICO and FSA

The Information Commissioner's Office (ICO) has published statutory guidance confirming how it proposes to exercise its new powers, due to come into force from 6 April 2010. Under the new powers the ICO will be able to order organisations to pay up to �500,000 as a penalty for serious breaches of the Data Protection Act 1998. Section 10.10.5(3) (Note) contains examples of good practice in managing security aspects of third parties published by the Financial Services Authority (FSA) – Data Security in Financial Services [the Introduction to Section 10.0 refers].

Key indicators of good governance

In its 2009 fourth annual survey of occupational pension scheme governance: A report on the 2009 scheme governance survey, the Pensions Regulator identified and grouped a number of key indicators of good governance under three main headings:

(a) the performance of the board of trustees, based on a self-assessment of performance,
(b) trustee knowledge and understanding, identifying knowledge and learning activities, and
(c) the professionalism of the board of trustees, identifying frequency of meetings, board operations and record keeping.

This survey produced an excellent checklist for testing trustees' training agendas. 8.4.8 contains the detail.

Amendments to schemes – HMRC consent no longer needed

Where a scheme's documentation states that amendments made under the rules have to be approved by HMRC, such approval is no longer required and may be disregarded [2.2.11 confirms].

On the subject of making amendments…

In one particular recent case (involving the IMG Pension Plan) the court decided that it was not possible to remove a restriction in the amendment power of a scheme's rules and then make a change in a way that would have been prevented by that power; otherwise, in the opinion of the court, that would 'allow, by an indirect route, amendments that were expressly prohibited'. An Amendments checklist has been inserted into the Guide [see new 16.7.1].

As an alternative to using the scheme's own power of amendment, employers may consider making changes to pension rights through contracts of employment. However, there is a fundamental requirement: employees have to be given all the information necessary for them to make a considered decision, including an explanation of what will happen if they do not agree. 'Passive' or 'uninformed' consent [see 16.7.1(iii)] will be insufficient, particularly when the change proposed is one that cannot be made through the scheme's amendment power [16.7.6(iii) and (Note) confirms].

National Pension Scheme – compulsory pension provision

The term 'Personal Accounts' (created under the Pensions Act 2007) (and associated with the Personal Accounts delivery Authority (PADA), [see 2.8.1]) has been replaced by a new national scheme known as 'NEST' (National Employment Savings Trust) [see 2.10.1]. After April 2012, employers will be required to automatically enrol 'jobholders' [see 2.10.4] into a qualifying 'work-place' pension saving arrangement and, in the absence of such an arrangement, into NEST. NEST is a simple, low-cost pensions saving vehicle aimed at those currently not in a workplace pension scheme but who have qualifying earnings [see 2.10.1 (Note)].

Reduced obligation

Jobholders whom employers do not have to enrol automatically (e.g. individuals without qualifying earnings) will have the right to require their employer to auto-enrol them into a qualifying scheme, though employer contributions need not be paid into the scheme in respect of jobholders who do not have 'qualifying earnings' [see 2.10.4].

Existing qualifying schemes

The automatic enrolment requirements may be relaxed if the employer's qualifying scheme meets certain standards:

(i) Defined Contribution schemes – where an employer contribution of at least 6% of qualifying earnings is being paid and total contributions in respect of the jobholder amount to at least 11% of qualifying earnings
(ii) Defined Benefit schemes – any qualifying scheme [see 2.10.3 and 2.10.7].

Agency workers

Employers are not obligated by regulations to offer agency workers membership of an occupational pension scheme. However, the requirements of automatic enrolment for jobholders [see 2.10.4] will apply to agency workers.

Duty to account

This sounds like an accountant's paradise! Instead, it is the description of the 'fundamental obligation owed by any trustee to beneficiaries'. It involves trustees keeping adequate records about their management of the trust and also informing beneficiaries of their interests [new 5.1.6 (Note) explains].

Balancing scheme running costs – Defined Contribution schemes

In contract-based schemes (normally 'insured' schemes), management charges are expressed as a percentage of assets under management and as such are generally borne directly by members. In comparison, trust-based Defined Contribution schemes can appear to involve higher running costs, mainly because individual items of expenditure are costed separately (i.e. are 'unbundled') and may not be borne by members. For example: administration costs will be reported separately from investment costs, which are reported separately from legal costs, and so on. In times of financial rigour it is perhaps worth confirming that, subject to scheme rules, there is nothing to stop a Defined Contribution, trust-based scheme from expressing its overall charges as a combined percentage of assets under management and agreeing to all or part of those costs being borne by members [1.15.1 (Note) confirms].

Informing contracted-out Defined Contribution members

This item affects Defined Contribution contracted-out arrangements. From 6 April 2012 at the earliest, the expectation is that all contracting-out certificates for contracted-out money purchase schemes (COMPS), appropriate personal pension schemes (APPs) and Stakeholder schemes set up as APPs will be automatically cancelled: members will be contracted back into the State Second Pension Scheme (S2P) and a contracting-out rebate will no longer be available. With this change in mind, the suggestion is that all future money purchase illustrations of benefits issued should inform members about the abolition of money purchase contracting out after 2012 and advise them of changes to age-related rebates [see 1.8.1 (Note)] reflecting changes to the accrual of the State Second Pension [see 1.1.7 and 1.2.5 (Note)].

Website subscribers – new model documents

As part of this Update, we are adding the following to the range of model documents available to subscribers using the online version of The Guide for Pension Trustees:

●  Model job description – Chairman of Trustee Board
●  Model job description – individual trustee
●  Model job description – Independent Trustee
●  Model Trustees' Business Plan
●  Model Trustees' conflicts of interest policy
●  Model trustee's declaration of eligibility

As always, more to follow…

SUMMARY OF MAIN REVISIONS FROM THIS UPDATE

The Guide's regular Updates help keep it up to date with important and topical new items, but changes to pages can also include new technical terms, changes to organisations' names, new cross-references and a variety of minor revisions, as well as description of legislative, technical and other material, and useful tips or simply interesting additions. Here is a summary of the main changes made by this Update.

This update loaded 18 May 2010

Previous 'What's New' Items.