What’s on the pensions agenda for trustees and employers in 2023 transcript

Speaker	Transcript
Chris Brown, Director, Burges Salmon	Hello everyone. For those who don't know me my name is Chris Brown and I'm a director in the Burges Salmon Pensions team and happy New Year and welcome to the first episode of season three of the Burges Salmon Pensions Pod.
Helen Cracknell, Associated, Burges Salmon	Hi everyone, I'm Helen Cracknell an associate in Burges Salmon's Pensions team and in today's episode we're going to be discussing some key hot topics for pensions in 2023, with a particular focus on pensions dashboards.
Chris	So, our guest today is Rebecca Peake, a senior consultant at Aon who supports trustee actuarial clients and is also part of the Aon Member Options Specialist Team, Rebecca hi and welcome to the podcast.
Rebecca Peake, Senior Consultant, Aon	Hi, thanks so much for having me here.
Chris	Lovely to have you with us. And this episode is all about what's on the agenda for this year, so we're going to run through a list of things that are high level just to give our listeners a heads-up about the sorts of things trustees and employers might want to have on their to-do lists for the year ahead. So, Helen, do you want to kick us off?
Helen	Yes thanks Chris. So, firstly I think something that was a real hot topic last year and is going to be carrying over is the cost of living crisis, and also how trustees and employers can best support members with this. So, Chris and Rebecca I'm sure you'll have had the same experience, but I've certainly had a number of trustee clients who are really concerned about this and really wanting to think how they can support the members including whether they can award discretionary increases to assist with this. Rebecca, have you had that kind of experience with your clients?
Rebecca	Yes definitely, I think it's always been on the agenda to ask but this year there's much more onus behind it and putting a real argument for it to the companies just because trustees feel it's their duty for members to add that additional levels of support at this stage.
Chris	Yes absolutely and I suppose another area that trustees will want to consider in the new year is LDI and the Regulator issued guidance to DB pension scheme trustees and advisors, this was on the 30th of November, on maintaining LDI investment resilience and the guidance contained actions in light of the events in Autumn in the guild markets and it contained practical steps for trustees to ensure that they're able to react quickly in response to stresses in the market.
Helen	Also on the 13th of December last year the Bank of England issued their financial stability report and that called for more regulatory reaction from the Regulator to ensure increased resilience in LDI, and the Regulator responded to say there'll be more guidance coming out this year, so really one to keep on the agenda.
Chris	Yes that's right I think there's more to come on this and on the whole trustees are still taking stock and assessing where their investments are now. I think we are beginning to see some trustees asking about loss they've suffered and how this has happened and really whether anyone is responsible, so I suppose it may be that there are LDI-based claims in due course. But one thought is even if trustees aren't minded to bring claims because there aren't grounds for one or whatever, looking into how precisely how investment contracts work and whether everything operated as it should, that could be something trustees might want to consider even if just from a good governance point of view to make sure they've got a good handle over how these contracts work. And I suppose the LDI crisis, one impact it had was it changed funding positions in schemes and in many schemes they ended up with a much better funding position. So one thing to mention is surplus and trustees, particularly employers, might want to take advice on how to make sure that there is no trapped surplus in a scheme, or if there is how to release it and there are possible ways to do that from a legal perspective some in the legislation, some from legal principles, even if your rules don't allow it.
Helen	Chris I've definitely seen that. There's a lot of buy-ins and buyouts that I've been doing, there's always a conversation around surplus now and how that can be released.
Chris	Yes that would be precisely the sort of time when you'd want to be considering it. And I suppose as you say Helen, mentioning buy-ins, schemes might be in a better position to get buy-in and buyout ready so, we've said before there could be an uptick in de-risking transactions and we've said before schemes can take steps in advance to ensure they're ready to transact when the timing's right in the future. Right Helen, what's next on our list?
Helen	So another key focus would be the DB scheme funding regulations once these have been finalised. So our listeners will know that the DWP published its consultation on the draft regulations back in July last year, however if you check the online portal they're still analysing the feedback they've received and we haven't yet had an outcome to the consultation, even though it closed in October last year.
Chris	Yes that's absolutely right and of course the Regulator published their second consultation on the new funding code just before Christmas, it was an early Christmas present, so we now know the key messages from that, so around employer covenant analysis being key and the Regulator's not been overly prescriptive on what will be a low dependency funding basis, so I think that should be good news and received well. There's also references to proportionality throughout which will be helpful and there's a reference to trustees being able to consider reasonable alternative uses of employer-free cash flow when they consider reasonable affordability for the employer when they're setting recovery plan lengths, so what's reasonable alternative use of employer-free cash flow, that would be an interesting thing for trustees to turn their minds to as well. But we want to consider that in our next podcast episode, so to our listeners stay tuned for more information on the funding code later this month.
Helen	Another thing for our listeners to consider which will definitely have also been a hot topic last year is environmental social governance, so ESG. So many larger schemes this year will be producing their TCFD reports, but even schemes that aren't yet caught by the formal reporting requirements will want to be aware of the guidance and of their own investment aims around this. And another thing to hold out for this year is the single code of practice. So we're still waiting for this again to come into force this year, but two key changes are ESOG and ORA so we've done two separate podcasts on single code, so our listeners should look back at those for more information on these.
Chris	Yes absolutely. Right, we're working down our list and Rebecca we'll be bringing you in shortly to talk about dashboards, but before we do just a few more things. Notifiable events so there are changes and expansions coming to what and when employers will need to notify the Regulator and the trustees around business transactions and we are still waiting for regulations on those and the timings are uncertain and we hope they'll come in 2023, and again if anybody would like more information on that then we have a pensions summary guide on notifiable events on our website, which is probably the best thing to check out in the first instance.
Helen	So another topic is also GMP Equalisation, still carrying on, lots of projects ongoing and lots still kicking off this year but there was some legislation last year clarifying conversion legislation in some respects, so for example confirming some of the aspects of the conversion calculation around DC benefits and it also provided a power for new regulations to set up who must consent and removing the requirement to notify HMRC. So hopefully those regulations to clarify this legislation will be coming shortly this year.
Chris	Yes absolutely, so something else to look forward to. Transfer checks, so the Government committed to doing a review of the transfer check requirements, so these are the red and amber flags, they're committed to doing that within 18 months of when the first regulations came into force on the 30th of November 2021. So that's expected this year, and finally, before we turn to Rebecca, it's worth saying that all of the above is on the DB side, but there's lots on the DC side too. Helen perhaps we can incorporate that into another episode as I know we want to get onto the dashboards and speaking with Rebecca.
Helen	Yes definitely.
Chris	So the main focus of today's episode is pensions dashboards and looking forward to Rebecca hearing your comments on the member experience. The pensions dashboards regulations were made on the 21st of November 2022 and they came into force on the 12th of December.
Helen	Yes and the pensions dashboard program has also published an updated suite of standards which cover the technical and operational detail that underpinned the dashboards legislation, so as well as setting out the data formatting requirements these standards detail security service and reporting duties for connecting and operating in the dashboards ecosystem. Generally in practice it will fall to the administrators and other third-party providers, such as AVC providers, to implement the standards, however as trustees are ultimately responsible for meeting their dashboard duties it's really important for them to understand what's required.
Chris	Yes absolutely and I suppose another particular reason why it's important for them to understand what's required is the consequences of not doing it right, so on 24th of November the Regulator launched its consultation on the draft policy for dashboards compliance and enforcement and that sets out the Regulator's expectations for what trustees need to do, as well as providing clarity I suppose on the Regulator's approach to enforcing breaches of legislation. So that consultation closes in February and the Regulator is aiming to publish the final policy in Spring 2023.
Helen	It's just worth our listeners noting that Burges Salmon are producing a checklist for trustees to help clarify their dashboard duties, so keep an eye out on that.
Chris	Rebecca, we're delighted to have you with us. Those high-level comments there were from the trustees perspective, but you with your work are a strong advocate for member support to tackle the complication of pensions. How will the pensions dashboard make a difference to members?
Rebecca	Well that's the golden question isn't it that we'd love to see. But I think it's actually going to be very scheme-dependent on how it makes a difference to members, so dashboards are hopefully going to be an opportunity to get members thinking about their pensions and having somewhere to start their journey of looking into them, and I would say a bit like you touched on earlier Chris, the angle I'm coming at here is very DB focused, I'd be having a completely different discussion if it was DC. But if we look at it through the DB angle, dashboards are an opportunity to start members thinking about their DB pension. DB pensions are very complicated and what's being shown in the dashboards is quite limited and from the example ones I've seen there's been a lot of onus on "this is the starting point, contact your scheme for more information", so I think from a member experience/member support point of view, it's considering dashboards as the way in to start a conversation with the scheme, how that conversation goes depends on how your scheme's set up, what your member communication and support journey looks like and that's going to determine how successful it is in getting members to understand their pension, and hopefully get the best options for them.
Chris	Yes, so you're saying there'll be member engagement with the dashboard itself, that interface, but that will drive member engagement with the underlying scheme as well?
Rebecca	Exactly and some schemes are really well set up for that, it's going to fit in nicely, obviously they have to look at that communication and make sure the dashboard and what it says fits in with it. There's other schemes that are maybe a bit behind the trend on that, and maybe have some more thinking to do on actually if a member comes at 58 when normally they only get something six months before their retirement, what does that response look like to "I want to know more about my pension" and I think if that's going to become a more common question, trustees need to start thinking about how they're going to respond to that.
Helen	I guess it's always such a key focus for trustees to get members to engage in their pensions, so even if it prompts discussion that would be a benefit.
Rebecca	Exactly and I think it's twofold as well, is hopefully the dashboards it being publicised and people becoming aware of it means members will start talking to the schemes but schemes can use it as an opportunity to do it the other way as well and say this dashboard is out here, talk to us about your pensions, look at all of the ones that you have and kind of come at it from two different angles.
Chris	So what are you seeing schemes doing currently?
Rebecca	I mean to be perfectly honest in 2022 it's in line with what you've just covered, which is it's an admin task, there's a lot to do behind the scenes to get ready purely for the data that needs to go in and the automation behind that, but towards the end of the year I started seeing a shift in trustees recognising that actually yes there's a lot to do in that side, but it's going to have a wide impact, kind of how I touched on just then in terms of communication and member experience, and I think we're in the early stages but I think trustees are starting to look at that and certainly should be considering it more in 2023 is that yes you've got a big administrative project to do but you need to think about it more widely and whilst you're looking at that, look at how it fits in with your member journey and support and we're starting to see trustees recognise that. We did a breakfast discussion on it in November and it was a really interactive discussion and people were actually starting to recognise that this is a topic to discuss, I mean trustees were very busy with their agendas in 2022 so it's understandable it wasn't at the forefront but I think actually there's going to start to be more recognition that there's lots that can be done about here and doing it at the same time as you work through the admin side of things can be beneficial.
Chris	Yes absolutely I'm sure that breakfast discussion would have been really useful and Aon will be holding similar discussions and things this year I'm sure. We have a, well it's about to be published, a checklist for things for trustees to do, so if that's useful to anyone then please do get in touch with either me or Helen.
Helen	Lots of detail and lots for trustees to be thinking about, but Rebecca do you have any key core takeaways for our listeners?
Rebecca	Yes so I think there's three key things that I think trustees will be looking at in terms of dashboards. The first one is obviously the data side. There's a lot of work for that getting ready, and as part of that you can think about automations that you're doing in the scheme and whether that opens up any other doors for improving the member experience on the administration side to create efficiencies while you're doing it at the same time. The second key takeaway is the communication so whatever your current communications look like they're going to be impacted by dashboards. You want to make sure that they fit in. We've got regulations on what you have to say in the dashboards, you want to make sure that that lines up with what you're saying in your own communications and whether there's an opportunity to enhance that or use that to get members to engage. And then my final takeaway and again this is my passion project, but is considering is using dashboards as an opportunity to consider that whole member support journey, the run-up to retirement, are dashboards going to make everyone suddenly pick up the phone and find about their pensions? Probably not, but people over 55, older non-pensioners, they're your target audience that you want to get them to engage and the dashboard is one opportunity to get them in and then you want to keep that communication going, you want to keep them thinking about their pensions in the run-up to it and what that looks like, I think is a good opportunity for trustees to start brainstorming that alongside the dashboards work.
Helen	Really keeping the momentum going is the key message. Thank you so much for coming on the podcast Rebecca and sharing your expertise with us, I'm sure that was really interesting for our trustee listeners, thank you.
Rebecca	No problem, thank you very much for having me.
Chris	So, we'll wrap up there, there's lots we haven't covered that might be on agendas for 2023, so for example what pensions legislation might be following what some people term the Brexit bonfire, the age for automatic enrolment is lowering to age 18, and there's changes to solvency 2 requirements so they're the requirements that impose capital requirements on insurers so that could make buyout more affordable and we'll try to pick out some of these topics in future episodes. Thank you for listening to the Burges Salmon Pensions Pod and in particular thanks to you Rebecca for joining us, and to our listeners. If you would like to know more about our pensions team and how our experts can work with you, then do contact myself, Helen or any of the team via our website. Our next episode is going to be looking at the second consultation on the new funding code. All of our episodes are available on Apple, Spotify or wherever you listen to your podcasts. So don't forget to subscribe, and thanks for listening.