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Speaker
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Transcript
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Chris Brown, Director, Burges Salmon
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Hi everyone and welcome to the first episode of season four of the Burges Salmon Pensions Pod. It's great to be back for season four isn't it Helen?
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Helen Cracknell, Associate, Burges Salmon
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Yes, I can't believe we've made it four seasons.
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Chris
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Yes absolutely, and this season is kicking off because there's been lots of news stories, lots of things moving in pensions over the last few months so I'm really pleased that we're going to be joined by Beatrice, Hayden Georgia, Henry and Luke who are all sitting in our pension team and we're going to have a news update with five different news stories that caught our eye from recent news updates, so welcome everyone to the podcast.
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Helen
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So, Beatrice, if you could tell us what the first topic of the podcast will be today.
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Beatrice Breaden, Apprentice Solicitor, Burges Salmon
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Of course, thanks Helen. I'll be talking about the Economic Crime and Corporate Transparency Act 2023. The bill received Royal Ascent on the 26th of October and is now law. This is a significant Act which will bring various changes to the role of Company's House.
The aim is that Company's House will have more of a regulatory function as opposed to the administrator it's previously been. The Act aims to tackle economic crime and preventing abuse of the register whilst supporting economic growth and ease of doing business in the UK. The Act will bring about the most significant changes to Company's House since it was established.
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Helen
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So that's some really good background there, but how do you think this will affect the pensions industry?
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Beatrice
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The Act aims to increase corporate transparency, and this will be relevant to all corporate trustees of occupational pension schemes, whether appointed as the sole corporate trustee or as a corporate director of a trustee board.
The key reforms which pension schemes should be aware of is that identity verification will be necessary for company directors, people with significant control and those who file on behalf of companies. It looks like this will be enacted via secondary legislation. The primary way to verify identity will be for the person undergoing the verification to take a photograph of their face and their identity document which will then be compared by Company's House.
Further to this a company will only be permitted to retain or appoint a corporate director if all of the corporate directors, owned directors, are natural persons and they have been through the identity verification process. The provisions of the Act will be brought in in stages with the earliest coming into force in early 2024. We'll keep you posted on the implementation of the Act over the coming months. For now, please be aware of the changes that the Economic Crime and Corporate Transparency Act 2023 could have on your scheme and keep an eye out for updates regarding further changes.
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Chris
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Can I just add one question, which is, so this is obviously relevant to our trustees who are incorporated, it's not just pension trustees is it, this is relevant to all corporate entities, so if you happen to be listening to this because you're an employer of a pension scheme and you've not heard of these changes but you operate as a company, then you need to be very aware of these changes as well, that's right isn't it?
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Beatrice
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Yes, of course definitely.
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Chris
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Okay Helen, what's next?
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Helen
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So, Georgia we're coming to you next about the PPF public consolidator blog, could you tell our listeners some more about that?
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Georgia Hanson, Trainee Solicitor, Burges Salmon
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Hi Helen, yes of course, so I'm going to be talking about the PPF's recent blog post which outlines how it could become a public consolidator. So as some people might be aware of by now, on the 11th of July 2023 the DWP issued a call for evidence on how private sector DB schemes could provide capital growth for businesses and ultimately support the UK economy, and this is part of the Mansion House speech, which amongst other things look to reform the UK pension industry.
So, the PPF has been quick to respond to this call for evidence and on the 25th of October published a blog post outlining how it might become the vehicle to onboard schemes as a public consolidator.
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Chris
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Georgia, that's in addition to its formal call for evidence isn't it, so it's done the blog post recently and it submitted a call for response to the call for evidence as well, didn't it?
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Georgia
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Yes, that's exactly right, Chris.
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Helen
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And Georgia you mentioned there the Mansion House reforms, so our listeners can look out for a future episode where we're going to be discussing those in more detail and also covering the recent clara deal, but could you tell us a bit more about what the blog post exactly says?
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Georgia
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Yes sure, so the blog post is looking into how they would actually be able to achieve this. So, the PPF is essentially showcasing how it has the prerequisite capabilities and experience to assume this new role as a public sector consolidator, so this is supported by the results of the independent review on the PPF which was undertaken in December 2022 and this highlighted the maturity of the PPF model and its overall expertise.
It wouldn't come without challenge though; some external commentators have identified the difficulties in efficiently onboarding a large number of schemes into a public consolidator and one such body is the Tony Blair Institute for Global Change which envisaged a figure of 4,500 schemes. The blog post was keen to set out the giving these small schemes the option to consolidate them doesn't mean that they'd actually or choose the transfer though.
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Helen
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So does the PPF's blog actually say how they can overcome these difficulties?
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Georgia
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Yes it does, so the PPF references its slick assessment period process for the transfer schemes, as evidence of how well placed it is to both innovate and scale-up already existing processes. The blog suggests that change could include the transfer of assets first which would be followed by administration of member benefits at a later date.
So taking on an investing scheme asset swiftly would be a fundamental part of realising the government's productive finance aims as outlined in the Mansion House speech, in contrast to the PPF role of transferring schemes from insolvent employers, the fact that the sponsoring employ in these types of circumstances will still exist can further support process efficiencies.
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Chris
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You definitely think it would be quicker if the sponsor is still around, you would hope that that will help a more efficient and speedy process, definitely.
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Georgia
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Yes definitely.
So then pending confirmation of whether the PPF will act as public consolidator, it would see the creation of a new legal entity and this would give the opportunity to create new processes which are simple and streamlined, given the consolidator would be established by new legislation.
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Chris
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Yes, really interesting concept and perhaps the PPF and in new entity under the PPF as a public sector consolidator will be a solution to enable investment in productive finance in the UK and all sorts, but as Helen says, the detail of those sorts of things will be something we'll be covering on a future podcast, so thank you Georgia for that update.
And next over to Hayden, and Hayden I think you've got an important news story for people who share data with other people in America?
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Hayden Searle, Trainee Solicitor, Burges Salmon
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Yes, that's right Chris. Regulations came into force last month that formally established the UK/US data bridge. Under UK GDPR, one way that personal data can be transferred overseas is where regulations specify that there is an adequate level of protection. Without this data bridge and for organisations that still aren't covered by it, this transfer of data can be much less efficient.
Perhaps most significantly, the bridge exempts organisations from needing to carry out transfer impact assessments or put in place appropriate safeguards, such as the international data transfer agreement put out by the Information Commissioner's Office. Exempt firms will consequently be able to save time, energy and ultimately money.
The bridge is ultimately an extension to the EU/US data privacy framework. The new regulations accordingly provide that there will be an adequate level of protection where data is transferred to certain US entities that are included on the publically available list, that's going to be the data privacy framework list, and subject to the EU/US data privacy framework principles. It should be noted that privacy policies and GDPR policies might need to be updated if schemes or administrators wish to rely on these provisions. The government's also published a fact sheet and explainer giving more information on how data can be transferred under these new arrangements.
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Chris
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There's a bit in that fact sheet about sensitive data isn't there, which I think some of that will relate to the type of information that pension trustees might hold. So yes, that government fact sheet, very relevant to people in the pensions industry thinking about sharing data with the US.
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Hayden
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Yes, that's right.
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Helen
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But what implications do you think there are for the people whose data is actually being sent across this bridge?
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Hayden
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Yes, there is some redress available if it has been accessed unlawfully, so the US's corresponding decisions are important to understand this.
The US attorney general gave the UK qualifying state status under an executive order in September, and that means that anybody whose data has been transferred to the US and who believes that their data has been unlawfully accessed for national security reasons by US authorities, will be able to use a new US redress mechanism.
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Helen
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So that sounds like a really good step forward for businesses trying to conduct international business effectively, do you think this is all a positive news story or are there some downsides to this bridge?
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Hayden
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Well, it certainly will make business and conducting that internationally a lot more efficient but there are some challenges. The data bridge does lack parity of some of the major rights set out in UK GDPR, in particular those rights to be forgotten, to withdraw consent to hold data and to have automated decisions reviewed by human, those aren't featured in the bridge and so it might be hard to ensure that data is treated fairly once it's been transferred. As such, schemes ought to consider whether any of their data is likely to be transferred to the US. It's particularly likely to be the case if a scheme has a US sponsor or US division of service providers. If that does seem likely then schemes might want to consider how the changes with that data bridge might affect how they wish to share that data.
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Chris
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Yes, so schemes should know already if they are transferring data to the US, either as you say through their employer or by service providers and because this is enforced already, Hayden, isn't it, I think it's effective now as of I think about a month ago, 12th of October.
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Hayden
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That's right yes.
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Chris
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So if you're a pension trustee and you've got a US-based sponsor you might want to speak to them about how you share data with them, or equally if you know your service providers are outsourcing things to the States, you might want to speak with your service providers about how you're doing that and of course sharing data with the US has been done under systems that have changed over time. So we had the safe harbour arrangement and then we have the privacy shield and then now we have this data bridge, so worth keeping on top of all countries but particularly with the States about how you're sharing data over there.
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Hayden
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Yes exactly.
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Helen
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Worth checking if your data protection documents are all up to date and reflect this as well.
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Chris
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Yes, that's absolutely right.
Brilliant thank you, Hayden, that's great. So that takes us then to Luke and the Mansion's House Summit speech. Luke what are you talking to us about, please.
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Luke Parry-Billings, Trainee Solicitor, Burges Salmon
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Hi Chris. Yes, as you mentioned I'll be discussing the recent speech by Nausicaa Delfas, the chief executive at The Pensions Regulator, delivered at the Mansion's House Pensions Summit last Wednesday 25th of October and specifically I'll be talking about how the speech contains several significant statements concerning both TPR's changing regulatory approach, as well as their perspective on the future shape of the pensions industry.
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Chris
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Yes absolutely, it definitely had the Regulator's vision for the future of the pensions market didn't it so, yes that'd be really helpful thank you Luke, go on.
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Luke
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So in terms of the key takeaways of the speech, firstly, TPR really made clear that not only do they support the government's pensions and growth agenda, but further that they see driving change in the market as a key part of their role in improving member outcomes and in this respect TPR announced that their regulatory approach will be evolving to help shape the market and specifically they stressed or emphasised that they intend to do that by encouraging fewer, larger well-run schemes capable of investing in a more diverse range of assets.
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Helen
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So could you tell us more about how this might impact pension schemes and their investments specifically?
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Luke
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Yes of course, so the speech really highlighted that TPR intend to adopt a more assertive regulatory stance, so in terms of things that people should be looking out for, with this shift in particular, it's worth noting that smaller schemes really should be anticipating at the moment height and scrutiny from the Regulator, both regarding compliance and enforcement, and then in addition to this, the speech reinforce that message by emphasising that TPR expects small schemes that lack the necessary, and I quote here, scale expertise or appetite to deliver outcomes for members to begin moving or at least actively thinking about moving their savers into a scheme that can.
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Chris
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So, clear messaging again about consolidation and the benefits of consolidation and size and scale. Which we'll definitely be discussing further in a future podcast episode as well, Chris.
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Helen
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Which we'll definitely be discussing further in a future podcast episode as well, Chris.
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Chris
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Yes absolutely.
So Luke, one of the Regulator's objectives is about focus on value for money isn't it, can you tell us a bit about that?
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Luke
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Yes sure so this was really framed as TPR wanting to redirect trustee focus from one on cost, to one on value for money, so again you could say this was echoing perhaps the Chancellor's Mansion House proposals and it was really emphasised the importance of trustees striking the right balance between risk and reward through again that diversified investment portfolio and it's really TPR's view that this is the right approach towards ensuring better outcomes for members.
So again I suppose taking all of that into account it's really worth emphasising that both TPR and the government really agree that value for savers can best be achieved through driving the consolidation of schemes, as you mentioned Chris, and that larger schemes in particular are a much better place to begin to invest in that more diverse range of assets that they're looking for.
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Helen
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So it's definitely a hot topic at the moment, Luke, but do you think there going to be more developments in the coming months that our listeners should be looking out for?
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Luke
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Yes, definitely, I suppose in terms of more practical things for our clients and trustees and employers to be looking out for, TPR announced firstly that they're going to publish new guidance on investing private markets by the end of this year, they also plan to update the existing investment guidance for DB and DC schemes and then thirdly it was also announced, as many in the industry have perhaps anticipated for a while now, that the DB funding code will be updated to, and again I quote here, clarify that there are no limitations on what constitutes suitable invest assets in which to invest for pension schemes.
So yes just as a final point, I suppose more widely moving forward with with TPR and the government very much aligned on many key aspects of the mansion house proposals, it's going to be interesting to see how quickly the Chancellor intends to drive forward that reforms package and also within that where the TPR will be granted additional powers to help achieve that.
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Helen
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That's really clear Luke, thanks for that, definitely one to keep a closer eye out for the future developments and we can also cover those in the podcast as and when they come out.
So, Henry, you've got the last topic on the podcast, can you let our listeners know what what you're going to be talking about today?
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Henry Dalton, Trainee Solicitor, Burges Salmon
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Absolutely. I'll be discussing the recent Ombudsman determination on the 29th of August of this year. Here the trustee of the water company's pension scheme, Bristol Water PLC section, recently encountered a scheme surplus of roughly £12 million. Surpluses require careful handling and the following of robust decision-making processes by trustees.
A large question that may arise is, when both the schemes members and the sponsoring employer want the surplus returned to them, who should the trustees give it to? The answer in this case was the sponsoring employer, Bristol Water PLC.
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Chris
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Yes, Henry, this is a really interesting Ombudsman determination that we wanted to include on the podcast because there's a lot of discussion about at the moment about surplus, about running schemes on to generate surplus and about proper use of that surplus, so yes this was a relevant Ombudsman determination over summer, and can you tell us a bit more about the facts?
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Henry
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So the Pensions Ombudsman received a complaint from Mr S who was a scheme member, he argued that refunding the surplus to Bristol Water PLC was, and I quote, morally indefensible, he felt that the profit made on the investments, the membership contributions and aspects of the benefit structure all contributed to the surplus. Bristol Waters PLC's contributions over the years were, he argued, not a convincing enough reason to return the surplus to it.
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Helen
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So I think this is quite a common thing, I've definitely had on other clients where we do get members complaining when the trustees announced that they might be returning the surplus to the employer and obviously running the statutory consultation that comes along with that, so Henry could you let us know why the Ombudsman decided to dismiss this complaint?
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Henry
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Absolutely. In making his determination, the Ombudsman underlined the importance that the trustee followed the correct process when reaching the trustees decision, in particular the trustee must interpret and follow the scheme rules, take relevant factors into account when reaching its decision and crucially come to a reasonable decision, or in other words a decision that was not so unreasonable that no reasonable person acting reasonably could have made it.
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Helen
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So did the Ombudsman think that they didn't? That was what was followed in this case, sorry.
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Henry
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Yes, the Ombudsman did feel that way he found that the trustee had acted properly and made a reasonable decision in returning the surplus to Bristol Water. In effect, the scheme rules permitted the trustee to either return the surplus or augment member benefits. The Ombudsman considered that the trustee followed the requirements of the scheme rules, interpreted the scheme rules correctly, and took appropriate factors into account, therefore the Ombudsman concluded the trustees decision to return the surplus to Bristol Water was reasonable and one which could have been reached by any other reasonable decision maker. The member's complaint was dismissed in this case.
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Helen
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So that's quite clear there, but are there any key takeaways that our listeners can reach from this decision?
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Henry
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This complaint highlights that making decisions regarding scheme surpluses is not easy. Trustees and employers must be aware of the importance of reaching correct decisions with robust decision-making processes. It also demonstrates the possibility of adverse reactions from members which can often garner adverse publicity. If trustees are to take anything away from this decision, it's that their decision making processes should be as robust as possible, that they only act within the scope of their powers under the rules and that they consider all relevant factors.
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Chris
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Yes thanks Henry, I think that's really helpful and a really a good reminder of how trustees should approach decision-making around use of surplus. This is an Ombudsman determination, of course. There was a recent case, I think it was September, from the inner house of the court of session up in Scotland, relating to Aberdeen Pension Trustee Company Limited, where uses of surplus and questions of surplus were discussed and I think there it was slightly different because there were resulting trusts discussed rather than the power that was in the rules in this Ombudsman determination, but it's obviously things that the courts, the Ombudsman and our clients are considering at the moment, so that clear decision making is very important that trustees approach and their decision-making very, very clearly.
So Helen, it was great to have that conversation for series one and I think thanks to Luke, Beatrice, Henry, Georgia and Hayden.
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Helen
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Do you mean series four Chris?
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Chris
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Did I say series 4, I meant episode one, I meant episode one of series 4! And it just remains to say thanks everyone for coming on the podcast.
Thanks everyone for listening to the Burges Salmon Pensions Pod if you'd like to know more about our team and how our experts can help you then do get in touch with with me, Helen or any of our team on our website. And you'll find all of our episodes, whether from series one, series four, and two and three, available on Apple, Spotify or wherever you listen to your podcasts. Don't forget to subscribe and thanks for listening.
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Helen
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Thanks everyone.
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