Keeping on top of regulatory requirements is a growing concern for Trustees, with almost half seeing it as their biggest challenge throughout 2019.[1] The next twelve months look set to be no different.

To help you prepare, we’ve laid out 5 key regulatory updates to look out for in 2020, and what you can expect from each.
 

1. Reintroduction of the Pension Schemes Bill 2019/20

What to expect:

• Stronger powers for The Pensions Regulator (TPR) to hold all schemes to account and introduce new penalties for misconduct
• Provision for the establishment of collective money purchase schemes
• Legislation to support the creation of pensions dashboards
• Facilitation of an updated DB funding regime

When: The Pension Schemes Bill was (re)introduced in the House of Lords on 7 January.  The second reading on its journey through to Royal Assent is yet to be scheduled, but expect progress to continue during early 2020.
 

2. Consultation on TPR’s Code of Practice on Funding

What to expect:

• More direction & clarity, with a set of minimum standards for a ‘fast track’ funding framework
• The requirement to set an appropriate Long Term Objective (LTO)
• Greater focus on managed risk taking, with IRM to become standard practice
• More regulatory scrutiny, oversight of corporate transactions and stronger penalties
• The requirement for trustees to report to the Regulator in the form of a Chair's statement

When: TPR plan to undertake two formal consultations. The first, expected to launch in March, will focus on options for a clearer framework. The second, expected later in the year, will be on the draft code itself.  
 

3. Final response on the consultation on the Future of Trusteeship & Governance

What to expect:

• Clarity and guidance on what constitutes good trustee knowledge
• The requirement for trustees to enhance Board diversity
• Emphasis on the benefits of collective decision-making
• Acknowledgement that a board of non-professional trustees can govern a scheme extremely well, albeit recognising the need to regularly review whether to bring a professional on board.

When: Exact timings are unclear, however trustees should implement the proposed measures without delay in order to maximise governance effectiveness. The professional trustee accreditation process is also expected to launch this year having been pushed back from 2019.
 

4. Draft guidance on the implementation of the EU IORP II Governance regulations

What to expect:

• Emphasis on best practice risk management
• Requirement to demonstrate ‘an effective system of governance’
• Stronger direction for annual board effectiveness assessments
• Greater stress on the importance of getting the right Board composition

When: Initial consultation early in the year, with draft guidance expected later in the year. TPR has also announced plans to update and consolidate its current suite of codes into a single, shorter code this year, with initial focus on those areas linked to IORP II.
 

5. Consultation on the proposed alignment of RPI to CPIH

What to expect:

• Consequences for individuals with RPI-linked pension benefits and investors in RPI-linked assets, such as index-linked gilts.
• Wide ranging impact on funding position - some may experience a funding loss whilst others could benefit
• Extent of the impact will depend on:

1. the scheme’s existing exposure to index linked gilts and the level of compensation offered if there is a re-alignment of RPI; and
2. the reference rate for inflation in the scheme’s benefits.

When: The consultation is set to take place in January, with the results due for release in Q2 2020. In the meantime, trustees should consider the extent of the possible impact of any realignment that is introduced, and identify courses of action that could be taken to help avoid material swings in funding positions.

If you would like further information about any of these regulatory updates or how it may impact your scheme, please don’t hesitate to get in touch.

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