Regulator issues consultation documents

Regulator issues consultation documents
There has been a flurry of activity at the Pensions Regulator in recent weeks with the publication of a number of draft consultation documents.  In this March edition of Pensions Bulletin, we highlight the key issues covered by these draft consultation documents.  Once each of the consultation processes is complete and final versions of the various documents published, we will provide more in-depth analysis in future Bulletins.  These consultation documents relate to mortality assumptions, conflicts of interest and winding-up.  One theme common to all these areas would appear to be that greater regulatory scrutiny seems likely in the future.

• Mortality assumptions
  The Regulator has published a consultation document which refers to new guidance for Trustees on good practice when choosing funding assumptions for defined benefit pension schemes, with a special focus on mortality.  The proposals are built around the key principles of assumptions being based on all available up-to-date evidence and clarity and transparency in documentation and communication.  The Regulator refers to the emergence of evidence over recent years that past allowances for future improvements in life expectancy have been inadequate.
  
  The document also highlights that the Regulator intends to amend its current practice when regulating the funding of defined benefits to implement a new approach for looking at mortality assumptions.  The consultation document provides an indication of  the types of assumptions made by Trustees that will attract greater scrutiny from the Regulator.

• Conflicts of interest
  The Regulator's consultation document on guidance in relation to governance of conflicts of interest has been published.  A key aim cited by the Regulator in providing this guidance is to give practical assistance to trustees in improving the management of conflicts of interest.  Whilst only at consultation stage, the key themes to emerge from this document provide a strong indicator of the Regulator's stance on the issue of trustees with conflicts of interest.
  
  It is clear that the Regulator considers it vital that effective processes are in place for identifying, monitoring and managing conflicts of interest.  The Regulator acknowledges that conflicts of interest can be very difficult to manage, which is why they can pose a risk to good governance.
  
  The draft guidance is based around five key principles, namely: understanding the importance of conflicts of interest; the need for schemes to have a conflicts of interest policy; identifying conflicts of interest; evaluation, management or avoidance of conflicts;and managing adviser conflicts.  It is clear that the Regulator expects a process to be in place for identifying conflicts in advance and suggests it is good practice for trustees to have a documented policy on conflicts of interest.  Particular emphasis is placed, in the draft guidance, on the potential for conflicts when a person in a position of seniority with the sponsoring employer is also a trustee of the pension scheme.

• Winding-up
  Consultation documents have also been published by the Regulator in relation to winding-up.  The first document is a tripartite regulatory statement produced by the Regulator, Pension Protection Fund (PPF) and the Department for Work and Pension (DWP) in respect of the Financial Assistance Scheme (FAS).  The statement sets out all three organisations' unified approach to ensure that scheme wind-ups and passage through the PPF are completed in a timely manner.  This statement sets out the organisations' expectations, how they will provide support and when and how they will intervene.  The clear expectation is that, subject to certain limited exceptions, key winding-up activities should be completed within a two year period.  The statement also explains that enforcement will be through the use of existing statutory powers and that a consequence of the new approach will be increased regulatory scrutiny.
  
  The second draft consultation document takes the form of good practice guidelines from the Pensions Regulator for avoiding delays in winding-up pension schemes.  The guidance is aimed at ensuring defined benefit, defined contribution or hybrid occupational pension schemes which are in winding-up are wound up as soon as reasonably practicable and certainly within two years.

The long awaited Employer Debt Regulations have been laid before Parliament and are due to come into force on 6 April 2008 – we will be issuing a Pensions Extra bulletin on this topic shortly.

If you wish advice on any legal issues arising from these consultation documents, please contact one of the following partners:-

Andrew Holehouse
Louisa Knox
Edwin Mustard

04/04/2008