Pension Regulation
Pension regulation. Until the 1990s, the degree of pension regulation was relatively light. There were very few restrictions on who could be a trustee. The Pension’s Act 1995 placed restrictions on who could or could not be a pension trustee and provided rights to members to nominate at least one-third of trustees.As of 2004, trustees have obligations in relation to training and competence.
Actuaries have traditionally been involved with pension schemes advising on the assumptions and methods to be used to value the schemes and, in particular, the funding rates required to meet scheme premises in defined benefit cases. There is no legal requirement to take appropriate actuarial advice on the part of the trustees in relation to valuation and adoption of funding statements.
Since 1995, each occupational trustee of an occupational pension scheme must appoint an actuary who must be a named individual even if working in a firm. The actuary has specific functions largely applicable to defined benefit schemes.
The requirement for a scheme actuary is not applicable to schemes with fewer than two members or registered schemes with fewer than 100 members. Statutory schemes with a crown or schemes with a crown guarantee, schemes with 212 members where all members are trustees or decisions must be made unanimously.
Schemes with more than [ ] members where all members are directors of a company which is the sole member, and decisions are made unanimously by agreement of all directors who are scheme members.
Actuaries must have a minimum qualification and experience as described. There are procedural requirements applicable to the appointment and removal of a scheme actuary. In particular, in relation to resignations, the actuary must certify what the resignation circumstances are likely to affect members. Actuaries are subject to actuarial professional standards.
The actuary has whistleblowing obligations. They must inform the trustee where they become aware of any significant matter relating to contractual or other professional responsibility which may impact upon scheme functions. Where they consider advice may be required from the scheme actuary or another advisor, they need not do so if they believe another person such as the trustees or legal advisor has been appropriately informed and will inform the trustees.
Where the scheme actuary has material concerns that a course of action is not appropriate, that the trustees have failed to carry out an appropriate action, or that the trustees are unaware of a duty or responsibility or development in legislation, the actuary should communicate these matters to the trustees or report to the regulator may be required.
Trustees of an occupational pension scheme and stakeholder’s schemes are required to appoint an auditor. Similar requirements as applied to companies are applicable. There are limited exceptions to those applicable in the case of actuaries.
Similar rules apply to the appointment and removal of auditors. In the normal course, an auditor must express a view on whether the accounts show the underlying scheme transactions and assets and liabilities, other than those relating to the payment of pension and benefits.
Investment managers may be appointed by the trustees. Trustees must exercise their powers of investments in a manner calculated to ensure the security, quality, liquidity, and profitability of the portfolio. Certain restrictions on investment and borrowing apply.
Investment trustees will generally appoint investment advisors. Investment advisors will generally be subject to regulation as financial services firms. An investment management agreement must contain prescribed information, particularly dealing with conflicts of interest which may arise.
Trustees must appoint a fund manager if the scheme has investments as the funding. There are a number of exemptions for smaller schemes, schemes with fewer than 12 members where decisions are made by the majority of the trustees.
The pension scheme services of HMRC deal with revenue matters related to pensions. They receive taxation aspects of pensions, they publish registered pension scheme manuals by way of guidance.
The national insurance services pension industry is a directive of HMRC national insurance contributions office. It ensures pension rights of employees contracted out of the state second pension or maintained and safeguarded. They deal with termination of contracted out employment, communications with scheme authorities, and general enquiries regarding contracted out arrangements.
The pensions regulator was established in 2004 to succeed the previous occupational pensions regulatory authority. Its purpose is to protect the benefits of scheme members under occupational schemes, personal pension schemes, benefits, reduce the risk of situations which may lead to compensation from the pension protection fund, and promote and improve the understanding and good administration of work-based pension schemes.
The regulator is to establish a non-executive committee and determinations panel. The non-executive committee monitors, assesses, and reports on functions carried out by the regulator, including monitoring and reviewing and preparing reports in respect of its discharge of its functions.
The determinations panel exercises reserve directory functions on behalf of the regulator, including the issue of trustee prohibition and suspension notices, winding of directions imposing civil sanctions, authorizing scheme modifications, issuing and extending freezing orders, issuing contribution notices and financial support directions, issuing restoration orders.
The regulator may issue practical guidance in relation to its functions under pension legislation and in relation to standards of conduct and practice in relation to the exercise of its functions. It must issue codes in relation to key matters, including whistleblowing requirements, compliance with scheme-specific funding requirements, knowledge, member and nominated trustee requirements, knowledge and understanding requirements, requirements to report failures to contribute, etc. Although the code is not of itself legally binding, it is admissible in evidence in legal proceedings.
There is a legal duty on trustees, employers, advisors, and persons involved in the administration of the scheme to report breaches of the law to the regulator which are likely to be of material significance.
This requirement applies to trustees of trustee-based pension schemes, managers of non-pension-based schemes, other persons involved in administration, employers participating in an occupational pension scheme, advisors including actuaries, legal advisors, fund managers, custodians, auditors, and other advisors.
The requirement to report breaches applies when a duty is imposed by any rule or law which applies to the scheme and is not being complied with. There must be a breach which is likely to be of material significance to the regulator. A code of practice has been issued on reporting breaches.
Certain notifiable trustees and employers of schemes subject to the pension protection fund must notify certain events to the regulator.
Notifications must be in writing, preferably using a standard form. They may be sent by post, email, or fax.
Employers must notify events that may result in death, contributions not being paid due to their actions, a decision to cease carrying out business in the UK, receipt by the employer of advice that it is trading wrongfully, or a director or former director knows that there is no reasonable prospect that the company will avoid going into insolvent liquidation.
A breach of a banking covenant by the employer other than where the bank agrees not to enforce a decision of a controlling company to relinquish control of the employer company.
Conviction of an individual for an offence involving dishonesty where the offence is committed while the individual is a director or partner of the employer.
Trustees must notify decisions by trustees and managers which will result in the debt due to the scheme not being paid unless certain conditions are fulfilled. Namely, the scheme must be at least at PPF level by its most recent statutory valuation. Trustees have no obligation to report in the previous 12 months failures of non-payments of contributions if the debt collected is less than 0.5 percent of the scheme assets.
The following are also notifiable decisions: to make or accept the transfer of value from another scheme the value of which is more than 5 percent of scheme assets or 1.5 million unless two of the A and B of the above A, B, and C conditions are satisfied:
A decision to grant benefits in more favorable terms than those provided under the schemes without either seeking advice from the actuary or securing additional funding where so advised.
A decision to grant benefits or a right to a member where the cost of which is more than the lower of 5 percent or 1.5 million unless conditions A and B apply. A is at least PPF value, B is no need to report failure of non-payment of schedule of conditions in the last 12 months. C is the debt is less than 0.5 percent.
Trustees are to take reasonable steps to comply. Employers must comply with notifiable events requirements unless there is a reasonable excuse for not doing so.
The regulator maintains a register of occupation and pension schemes. Registrable information is recorded together with notifications of winding up or transferring to the PPS.
Registrable information includes the name and address of the scheme, the name and address of each trustee or manager, the status of the scheme (excluding new members and/or benefits occurring), categories of benefits, the name and address of each relevant employer, and the number of members. Additional information is required.
The regulator may issue notices. However, where a registrable scheme is established or becomes registrable, there is an obligation on the trustees or managers to make the relevant return.
Appeals may be taken from decisions of the pensions regulated to the Pensions Regulator Tribunal. Its functions were transferred to the tax and chancery of the Tax and Chancery Chamber of the Upper Tribunal under the Tribunal Courts and Enforcement Act 2007.
An appeal is generally made within 28 days of the regulated decision or notice. References may be made to the Upper Tribunal subject to conditions and with consent.
The tribunal must remit the matter to the regulator with the appropriate direction on the termination where required. This may include directions to vary or overwrite the original determination or substitute a different determination. Provision is made for the making of the levy and its payment.