Although the past year has been incredibly busy for the pensions industry, there seems to be little chance of any break on the horizon, with a full agenda ready and waiting for the New Year.

Indeed, speaking to Pensions Age, Sackers senior partner, David Saunders, said that “2023 will bring a stream of legislative and regulatory developments”, with new funding and investment strategy requirements for defined benefit (DB) schemes likely to be finalised and a revised funding code of practice also expected come to fruition.

Momentum on pensions dashboards is also expected to continue, as Saunders suggests that dash-boards "will remain a key agenda item, with the Pensions Dashboards Programme (PDP), the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) all currently carrying out dashboard-related consultations which close in February 2023”.

“With dashboards developments gathering pace, larger schemes are already racing towards the first staging date finishing lines," Saunders added. "Schemes in-scope which are yet to start their prepara-tions will need to get out of the starting blocks quickly to avoid an uphill sprint.”

This is echoed by Squire Patton Boggs pensions practice partner, Catherine McKenna, who outlines some initial steps trustees should be taking, including keeping an audit trail of steps that are being tak-en to achieve dashboards compliance.

“TPR is clear that where there are compliance failures it will look at that the efforts that have been made when deciding whether or not to issue penalties,” she added. “Trustees also need to be familiar with Dashboards Standards – which are not light reading!

Pinsent Masons pensions partner Tom Barton, agreed that there is “plenty for schemes to do to pre-pare”, highlighting an action plan with target dates that tie in with the scheme’s connection deadline as particularly “essential”.

He continued: “Schemes not already working to improve data quality or thinking about their data matching policy (how they will match their own records with dashboard ‘find requests’) need to priori-tise this.

“Even if connection is some way off, getting ahead is worthwhile. Schemes can then prepare for an increased workload when dashboards go live. Dashboard users may raise queries or complaints if they are not matched with the schemes they expect or don’t understand the data they see."

Barton also suggested that the introduction of dashboards will likely bring an increase in transfer re-quests, explaining that members may want to consolidate their savings upon seeing their pensions in one place for the first time

"Schemes will need up-to-date processes and well-trained staff to handle more queries and process more transfers whilst also protecting members from scams," he stressed.

A new code on the horizon

In addition to dashboards concerns, Saunders points out that TPR’s new single code is also currently tipped for an appearance in early 2023, bringing with it requirements for an effective system of gov-ernance and own risk assessments.

In particular, Pinsent Masons pensions lawyer, Helen Hanbidge, says that the biggest change for many schemes will be the need to operate an effective system of governance (ESOG) meeting TPR’s criteria.

She explained: “Schemes must review the ESOG’s effectiveness every year in a new Own Risk As-sessment (ORA).

“TPR stresses that this is largely a consolidation exercise, but compliance will involve time and effort, even for well-run schemes. TPR envisages that many will not have all the internal controls they need, for instance, and the ORA may be “a significant piece of work”.

“The single code encourages schemes to take governance more seriously, focusing on risks, internal controls, policies and processes in a way they may not have done before.

“Where elements of the code are not compulsory for some schemes, TPR believes they model best practice and are a starting point for “a thorough review of the processes and procedures of any scheme”.

“This is certainly timely – the recent LDI crisis and rising inflation, for example, highlight the need for schemes to review investment decision-making processes and their ability to respond to economic turbulence – but it’s also a challenge.”

However, Arc managing partner, Rosalind Connor, pointed out that "we don’t have the final version yet".

"Until we do, trustees do need to be cautious about carrying out too much in depth analysis based on a consultation draft," she said. "That said, they would be advised to be ready to focus on the final form as soon as it comes out."

Despite this, McKenna says that many clients have already made “excellent progress with revising poli-cies, practices and procedures and are well on the route towards compliance”.

For those who have opted to wait for the final code, McKenna suggests tackling the work ahead in bite-sized chunks, also encouraging scheme trustees to take legal advice at the outset to determine what a proportionate approach could look like for the scheme, in turn saving time and effort in the long run.

Delays ahead

Whilst TPR's single code is awaited any day in the New Year, other work has not made as much pro-gress, as Saunders points out that the new notifiable events regulations are yet to come on tap, sug-gesting that this is “perhaps a reflection of the difficulty in matching the underlying policy aim with the ebbs and flows of corporate activity”.

Indeed, Connor also suggested that “with an amended set of regulations on notifiable events still not in sight, increasingly this doesn’t look like an imminent change to the law”.

“That said,” she clarified, “the notifications and discussions with trustees represent a best practice that is observed by many employers.

"Over recent times, information sharing agreements have become a way for trustees and employers to privately contract to do what the legislation will require, and trustees who don’t have such an agreement – or have an old one that is lighter touch – would be well advised to raise this with the em-ployer, particularly in these uncertain times when covenant changes can come about very quickly."

A busy agenda

Climate issues could also be in the spotlight in the New Year, as Saunders points out that trustees of occupational pension schemes with relevant assets of between £1bn and £5bn are now subject to the climate change governance and reporting requirements, alongside larger schemes.

He explained: “Many schemes in scope will be publishing their first reports during 2023, requiring trus-tees to get up to speed quickly with new jargon and technical concepts.

"As these requirements bed in, we can expect more focus too on the bigger picture, such as how cli-mate change intersects with trustees’ fiduciary duties and the possibility of making a “net zero” in-vestment commitment.”

Diversity and inclusion is also expected to receive renewed attention, as Pinsent Masons pensions partner, Christina Bowyer, argued that it’s not just governance processes on TPR’s radar, arguing that ”trustee boards are under scrutiny too”.

She stated: “In 2023, we can expect TPR to set diversity expectations, encouraging recruitment of more diverse trustee bodies and a more inclusive scheme culture.

“This will be a new focus for most schemes – and that’s largely the point. TPR reveals few schemes have been collecting trustee diversity data and even fewer plan to do anything with that information.

"TPR wants greater diversity to reduce the risks of knowledge gaps, entrenched ideas and poor deci-sion-making. We have no details yet, but schemes should look to the new single code and separate guidance for support.”

And there are many other areas where further work is still awaited, as McKenna argues that a review of the statutory transfer regulations should be seen as "something of a priority".

She explained: “Trustees are having particular struggles where amber flags are raised because the re-ceiving scheme has overseas investments or red flags where the receiving scheme offers small incen-tives.

"These flags delay the transfer process and cause admin headaches, often where no scam is likely.”

LDI issues are also expected to continue, with McKenna predicting a continued evolution of liability driven investment in the wake of this years’ experience, whether involving improved governance or variation in investment strategy.

“Let’s not forget that we have a new Pensions Ombudsman in 2023,” she added. “Dominic Harris’s first determinations involving statutory transfers, and how the 2021 regulations are interpreted, will be interesting.”

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