In the March edition of our Taylor Wessing Pensions Bulletin, we give a snapshot of some recent pensions developments, which include:
Virgin Media - DWP update
In previous bulletins we have reported on the significant issues, due to the Virgin Media case, for certain schemes that were contracted out on a final salary basis. Three industry bodies (the APL, SPP and ACA), have been involved with discussions with the Government about possibly mitigating the effects of this decision through legislation, and we understand from an update before Christmas that talks are ongoing. There is also a case currently being heard (Verity Trustees Limited v Wood) which may impact the position and we will be monitoring its outcome closely. In the meantime, the Pensions Minister Torsten Bell answered questions in Parliament about any proposed action by the Government to address the issue. He said that:
- the Government had heard from schemes and industry about the impacts of the decision for pension schemes, their members and employers and recognised that potential impacts are likely to be different for individual schemes. He also recognised that where schemes do not have a way to show that historic benefit changes met the reference scheme test, it could lead to uncertainty and additional costs
- no final decisions had been made but that the Government was 'actively considering' its next steps (re-confirmed on 25 March) and would provide an update in due course.
Needless to say, given the significant issues the decision presents, any easements that the Government can introduce will no doubt be welcomed.
The Pensions Regulator's role in resolving scheme funding negotiations – MGN Pension Scheme
The Pensions Regulator (TPR) has published a brief report describing how it helped to resolve funding negotiations between the trustees and the employer in relation to the MGN Pension scheme. Broadly, schemes must notify TPR of a failure to agree a scheme's triennial valuation no later than 15 months after the due date, and where there is such a failure, TPR has powers to intervene and ultimately use enforcement powers. On intervention, the report says that TPR 'will work with trustees and employers to reach the best outcome for savers, keeping in mind [TPR's] duty to consider the sustainable growth of the employer'.
In this case, TPR acted to resolve the issue but said it would have used its enforcement powers if an agreement had not been reached. The final agreement included making 'significant' improvements in the deficit recovery schedule with the financial support of the wider group, and improving an existing dividend sharing agreement whereby amounts above a certain percentage increase in dividend distributions would lead to an additional sum being paid to the scheme. Overall, working with the employer and trustees meant provision was made for an additional £5.1 million per year from the company to the scheme backdated to the start of 2023, paid every year until the end of January 2028. The scheme is expected to be fully funded on its prudent technical provisions basis by January 2028.
Although there are no specific details of the nature of the negotiations before this solution was reached it is helpful to know that TPR has been able to provide a constructive resolution where this might otherwise have been difficult, and without using its enforcement powers.
Government pensions policy - an update from the Pensions Minister
In a speech delivered at the PLSA Investment Conference, the Pensions Minister, Torsten Bell, outlined some key themes around the Government's pension policy as follows:
- The aim for fewer, bigger, better pension schemes, with larger schemes being better placed to invest in more productive asset classes and scale also helping to reduce costs and increase bargaining power. He also said that scale matters for the nature of ownership because, in his view, only large pension schemes can provide active engaged ownership which can press management not only on short term returns but also long term delivery.
- A focus on value and a 'shift' to investing in a wider range of assets – encouraging rather than instigating, and promoting the delivery of investible propositions.
- The Government's Investment Review (see previous editions of the Pensions Bulletin here) will be finalised in the coming weeks and the aim is to introduce the Pensions Bill before the Summer recess.
- The Government is committed to legislating for a permanent regime for superfunds. There was also a reference to surplus flexibilities allowing more well-funded schemes to release resources 'back to business and members ' where it is safe to do so' and where the trustees agree, with them being best placed, in consultation with the employer, to determine the appropriate use of any surplus. As an aside that may include examining pension increases for any benefits accrued pre-97 which do not attract increases otherwise. More details are to be provided 'in the Spring' in the Government's response to the consultation on options for DB pension schemes.
- The Government is considering proposals to allow the Pension Protection Fund (PFF) greater flexibility to reduce the PPF levy (see also our previous pensions bulletin on this).
All in all it continues to be a packed agenda and of particular note are the expected developments in relation to DB pension schemes and also that the Pensions Bill is likely to arrive in the near future.
Though there was nothing of any significance on pensions in the Spring Statement of 26 March, it is clear that there are plenty of developments in the pipeline in any event.
Reforming regulation - The Pensions Regulator pledges
The Pensions Regulator (TPR) has announced certain measures as part of the Government's new approach to ensuring regulators and regulation support growth. In the Government's policy paper on this, it says that the current regulatory landscape is not operating as efficiently as it should, and now too often holds back on growth and inhibits private sector investment. The Government has said it will overhaul the regulatory system so that it supports growth, is targeted and proportionate, is transparent and predictable and adapts to keep pace with innovation.
As part of that framework, TPR has pledged that it will
- review the amount of capital reserves master trusts are required to hold, with a view to 'safely' freeing up millions for schemes by the end of 25/26
- develop an innovation framework and launch a hub to test innovation in the market by autumn 2025
- reduce unnecessary regulatory burdens and improved data and data-sharing by
(i) monitoring, over 25/26 its regulatory engagements with schemes and employers aiming to reduce unnecessary regulatory burdens and maintain high compliance levels and will do that by making sure new regulatory interventions are not only linked to better saver outcomes but are also efficient and effective in delivery and
(ii) conducting a review of its scheme return and supervisory return data collection requirements by the end of March 2026 to identify options to reduce unnecessary burdens on schemes. Subject to that, the Government will consider how and what TPR captures and any legislative amendments as required.
- encourage consolidation and consideration of investment in productive assets. The Value for Money framework will require disclosure of long-term risk adjusted net returns 'to help drive competition, growth and enhanced member outcomes' In advance of that TPR will drive consolidation in savers' interests and encourage voluntary disclosure of asset allocation data to highlight the relationship between asset allocation and net performance.
Pension Schemes should note these likely changes in interactions and approaches by TPR and any legal changes that may emerge from this review.
The Pensions Regulator Data Strategy and AI Working Party
The Pensions Regulator (TPR) has published its data strategy which forms part of its overarching digital, data and technology strategy- a five year plan to drive adoption of the latest standards for technology and data, which it hopes will drive innovation and benefit savers. It also highlights that AI is expected to reshape financial markets and pensions, introducing new areas of opportunity and risk.
The strategy has three key areas of focus :
- Building strong foundations by establishing data principles, developing forward-thinking data professionals and advocating for open standards for data to collect, analyse, and interpret high-quality data for better decision-making.
- Taking a wider data approach and reducing regulatory burden by creating an internal data marketplace that links to the government’s National Data Library and the wider external data ecosystem.
- Focusing on adding value by ensuring all the data TPR itself collects is directly related to good saver outcomes and supports efficient and effective regulation, competition and industry innovation.
On new technology, TPR is to create a working group to help the pensions industry to improve the use of data tools and technology in savers' best interests and is also looking to bring together a group of experts to consider designing a framework for responsible innovation in pensions. The strategy also calls upon schemes to safely adopt new technologies, including AI, aligning with the Government's AI Opportunities Action Plan about outcome driven and inclusive AI adoption in the sector to improve efficiency and saver outcomes.
In short, the strategy says TPR wants 'the pensions industry to adopt good data practice, embrace the modern data ecosystem, understand the wider benefits of sharing data effectively, and collaborate to help define how this can work for schemes, employers, and savers.' It will be changing the way it collects and handles data itself, which will impact how it interacts with pension schemes.
The data strategy is a reminder of the importance of pension scheme data and the need for trustees to keep on top of the rapidly evolving nature of technologies being used to process it; liaising with scheme administrators who are no doubt also engaging with these technologies will also be key.
