On 26 July 2018 the Pensions Regulator (TPR) published a draft policy for consultation on the future monitoring of pension trusts. This came shortly after a slightly amended draft Code of Practice 15 (the CoP15) for the authorisation of master trusts was laid before Parliament.
The key planks are the six months window from 1 October 2018 to 31 March 2019 to be authorised in order to continue to operate; followed by a risk-based supervision. These come about from the Pension Schemes Act 2017 (the 2017 Act) and Occupational Pension Schemes (Master Trusts) Regulations 2018 (the Regulations) which introduced authorisation and supervision of master trusts by TPR; and draws upon the CoP15 and the existing Code of Practice 13: Governance and administration of occupational trust-based schemes providing money purchase benefits (July 2016).
The consultation wants views on the proposed risk-based approach to supervision, the routine and additional supervisory approaches set out in the policy, and how clear enforcement action (including withdrawing authorisation) is set out.
Supervision will require routine submissions and additional information from which additional supervision may be sought should there be a perceived increased risk profile. TPR’s 5 principles for supervision are stated as: ‘engaged and responsive, proactive and forward looking, strategic and targeted, proportionate and risk-based, and consistent’.
The key areas to satisfy TPR are:
TPR will take into account strategic and operational risks for master trusts such as:
A supervisory return may be requested by TPR in addition to the regular Scheme return, Scheme report and accounts and Scheme funder accounts, and any event notifications. The requirements of the supervisory return are to be given at later date by TPR.
Specific information requests from TPR may also include trustee board minutes, investment reports, administration reports, chair statements and other documents.
There will be varying levels of supervision for each master trust. New master trusts can expect higher levels of supervision with a named supervisor and face-to-face meetings and calls.
Extract p17 of 27 TPR Master Trust Supervision and Enforcement Policy (July 2018)
Enforcement begins with voluntary dialogue and request of information under s72 of the Pension Schemes Act 2004 (the 2004 Act). Fixed penalty notices (FPN) of £500 can be issued under s17 of the (2017 Act. Where information has not been provided adequately after a statutory request an escalating penalty notice (EPN) can be issued under s18 of the 2017 Act. These escalate at £1,000 a day so that Day 10 would be a daily rate of £10,000. After that each subsequent day is £10,000.
The total amount payable is the total of the daily rate for that day and any unpaid penalties due in respect of previous days at the relevant daily rates.
For example, the total bill for Day 11 would be penalties of £65,000 being £55,000 for the combined Days 1- 10 and £10,000 for Day 11).
Extract p19 of 27 TPR Master Trust Supervision and Enforcement Policy (July 2018)
Criminal prosecution can be made if a person neglects or refuses to comply with the information request of alters, hides or destroys a document requested under s72 of the 2004 Act. (The TPR prosecution policy can be found at http://www.thepensionsregulator.gov.uk/docs/prosecution-policy.pdf).
Whistleblowing is a requirement for trustees, auditors, actuaries and others under s70 of the 2004 Act where there is a breach of law considered to be of material significance.
The 2017 Act ( http://www.legislation.gov.uk/ukpga/2017/17/contents/enacted ) extended breaches of law for master trusts and the requirement to report them to the scheme funder and scheme strategist. Section 16 of the 2017 Act states where a person such as a trustee ‘becomes aware of the fact that a significant event has occurred in relation to an authorised Master Trust scheme, the person must give notice of that fact, in writing, to the Pensions Regulator as soon as reasonably practicable. TPR give an explanation of what a significant event may be in its Code of Practice 15 #373-380 pp87-88. These include a change to the statement of investment principles.
Any breach of law should be reported per the TPR Code of Practice no. 1 and accompanying guidance ( http://www.thepensionsregulator.gov.uk/codes/code-reporting-breaches.aspx )
Additional enforcement powers, not specifically restricted to master trusts are TPR’s ability to:
Pause orders may be used by TPR during a triggering event, to safeguard member interests or while a master trust is awaiting a decision on authorisation. These pause orders can limit a master trusts range of activity for up to three months. Further extensions beyond the three months are permissible.
Directions in a pause order could be:
Reports on specific schemes and cases may be published from time to time to raise awareness of the risks to the good governance and administration of schemes.
The decision to withdraw authorisation will consider:
Withdrawal can happen where the master trust frequently fails to meet the authorisation criteria and/or the impact of any failures are a significant detriment to members. The decision to withdraw authorisation from a master trust is taken by the Determinations Panel.
There are two ways in which authorisation of a master trust can be withdrawn:
The persons directly affected by the decision would not be informed of the procedure until after the Determinations Panel makes a determination and issues a Determination Notice and Order, if appropriate. This is followed by a Compulsory Review of the determination, involving the directly affected persons. The Determinations Panel then makes a final determination in a Final Notice. The special procedure can only be used if certain statutory criteria are met. We anticipate that, in most cases, the standard procedure will apply where we seek to withdraw authorisation, though there may be some cases where the special procedure is used. Both processes allow for the decision of the Determination Panel to be appealed.
The process for challenging a determination and making a reference to the Tribunal can be found at http://www.thepensionsregulator.gov.uk/procedures .
Triggering events are created by either the Warning Notice under the standard procedure or the Determination Panel’s Determination Notice under the special procedure.
The policy is available at http://www.thepensionsregulator.gov.uk/docs/draft-master-trust-supervision-policy-july-2018.pdf
The consultation is to Tuesday 23 August 2018 12noon and can be found at http://www.thepensionsregulator.gov.uk/docs/master-trust-supervision-policy-consultation-july-2018.pdf