Part 2 - Automatic Enrolment Flashcards
What guidance does tPR issue to assist trustees, employers and others in running pension arrangements
🤍 Codes of practice intended to give practical guidance on how to comply with the legal requirements of pensions legislation
🩶 Regulatory guidance intended to explain how various aspects of pension provision are regulated, and
🤍 a dedicated area of the TPR website covering auto-enrolment.
(Historic Code of Practice)
- Reporting Breaches of the Law
🤍 Guidance for trustees, managers, and advisers on identifying, recording, and reporting breaches of pension law to TPR.
• Ensures compliance with legal obligations to report significant issues affecting pension schemes.
(Historic Code of Practice)
- Notifiable Events
🤍 Requires automatic notification to TPR of certain events that could indicate financial instability in a pension scheme.
• Aims to provide early warnings of potential claims on the Pension Protection Fund (PPF)
(Historic Code of Practice)
- Funding Defined Benefits
🤍 Guidance for both trustees and employers on complying with scheme funding requirements under the Pensions Act 2004.
• Ensures defined benefit pension schemes are adequately funded and sustainable.
(Historic Code of Practice)
- Early Leavers
🤍 Guidance for trustees managing schemes where members with between 3 months and 2 years of service do not automatically gain vested rights
(Historic Code of Practice)
- Reporting Late Payment of Contributions to Occupational Pension Schemes
• Explains how trustees of defined contribution (DC) occupational pension schemes should monitor contribution payments.
• Sets out when and how material payment failures should be reported to TPR.
(Historic Code of Practice)
- Reporting Late Payment of Contributions to Personal Pension Schemes
🤍 Similar to Code 5 but applies to personal pension schemes, where scheme managers oversee compliance
(Historical Code of Practice)
- Trustee Knowledge and Understanding (TKU)
🤍 Outlines legal requirements on the knowledge and skills trustees must have to govern a scheme effectively.
• Trustees must be familiar with pensions law, scheme rules, and funding principles.
(Historical Code of Practice)
- Member-Nominated Trustees (MNT) and Member-Nominated Directors (MND)
🤍 Guidance on the legal requirement that at least one-third of trustees should be member-nominated.
• Covers processes for selecting and appointing MNTs and MNDs.
(Historical Code of Practice)
- Internal Controls
🤍 Sets out expectations for trustees and managers in meeting legal requirements for internal controls.
• Ensures pension schemes have adequate risk management and governance frameworks in place.
(Historic Code of Practice)
- Modification of Subsisting Rights
🤍 Provides guidance on legal restrictions when modifying members’ existing pension rights.
• Ensures changes comply with statutory protections
(Historic Code of Practice)
- Dispute Resolution – Reasonable Periods
🤍 Defines reasonable timescales for handling member disputes under internal dispute resolution procedures (IDRP)
(Historic Code of Practice)
- Material Detriment Test
🤍 Explains situations where TPR may issue a contribution notice if an employer’s actions materially reduce the security of scheme benefits.
(Historic Code of Practice)
- Governance and Administration of DC Trust-Based Schemes
🤍 Sets out governance and administration standards for trustees of DC occupational pension schemes.
• Covers investment strategies, member communications, and risk management.
(Historic Code of Practice)
- Governance and Administration of Public Service Pension Schemes
🤍 Provides specific guidance on the management of public sector pension schemes, ensuring compliance with statutory governance and administration requirements
Codes That Are NOT Included in the General Code
The following five codes remain separate from the General Code:
🤍 Notifiable Events (Code 2) – TPR must still be informed of significant events
🤍 Funding Defined Benefits (Code 3) – Rules specific to DB scheme funding
🤍 Modification of Subsisting Rights (Code 10) – Rules around changing benefits
🤍 Material Detriment Test (Code 12) – When TPR can issue contribution notices.
🤍 Master Trust Authorisation (Code 15) – Authorisation and supervision of master trusts.
When did the Single Code of practice from?
March 2024
What is ESOG and what should it be proportionate to?
Effective System of Governance
Proportionate to the size, nature and complexity of the scheme
What does ORA stand for
Own Risk Assessment
What the ORA Must Cover
1️⃣ Effectiveness of Policies & Procedures
2️⃣ Governing Body’s Policies
3️⃣ Risk Management Processes
4️⃣ Investment Governance
5️⃣ Administration
What did the General Code of Practice introduce?
🤍 Establish and maintain an effective system of governance (ESOG)
🤍 Provide the Trustees with oversight of the day-to-day operations of the scheme
🤍 Assurances that it is operating correctly and in accordance with the law
🤍 Processes and procedures relating to:
- Trustee policies on meetings and decision making
- Remuneration
- Knowledge and Understanding
- Conflicts of interest
- Continuity planning
- Appointment of advisers and service providers
🤍 Investment Governance
🤍 Administration
🤍 Communication and disclosure to members
Who does an ORA apply to?
Trustees of schemes with more than 100 members
What does an ORA require?
Carry our and document an Own Risk Assessment of:
🤍 How well the Effective System of Governance (ESOG) is working
🤍 The way in which risks are managed
When is the earliest schemes will have to begin producing and ORA from
2026
Although they can produce one earlier
How often must ORAs be reviewed?
Every three years
What must the ORA need
To be in writing
Signed by the Chair
Must be provided to tPR on request
What does the ORA need to cover?
🤍 How the trustees assessed the effectiveness of their policies and procedures, and the outcome
🤍 The governing body’s policies
(Historic Code of Practice)
- Authorisation and Supervision of Master Trusts
🤍 Explains the authorisation process for master trusts, ensuring they meet standards for financial sustainability, governance, and member security
Other new requirement introduced by the General Code
🤍 Remuneration policy
🩶 Policy on appointment of advisers and service providers
🩶 ESG and climate change
🤍 Stewardship
🩶 Data and IT
🤍 Knowledge and understanding
When was the DC Code of Practice 13 brought into effect
November 2013
What did the original set out?
31 quality features that were expected to be present within schemes providing DC benefits, in order to achieve good member outcomes
When did the Charges and Governance regulations come into force
April 2015
What did the Charges and Governance regulations originally set out
🤍 New Legal requirement for Trustees to provide and annual Chairs statement
🩶 Value for members
🤍 Trustee Knowledge and understanding
🩶 Default investment option
When did the new DC Code of practice come into force
28 July 2016
What were the 31 quality features replaced with?
6 x How to Guides
What did the new DC Code of practice distinguish between
🤍 Distinguished between legal requirement and the regulators expectations
What are the 6 Guides in the DC Code of practice
🤍 Trustee board
🩶 Scheme management skills
🤍 Administration
🩶 Investment Governance
🤍 Value for members
🩶 Communication and reporting
What schemes do the 6 areas of guidance in the DC Chair NOT apply to
🤍 DB benefits only
🤍 DB benefits in hybrid
🤍 Work based personal pensions, stakeholder schemes, or contract based schemes
What changes came into force for the DC Chair Statement after 31 December 2021
Requirement that schemes with assets of less than £100 million must complete a formal member valuation
What should the <£100m DC Chair assessment consider?
🤍 Reported costs and charges
🩶 Fund performance
🤍 Scheme governance and administration measures
What should the costs, charges and performance review be undertaken against?
- 3x comparison schemes
- assets >£100m
- at least one of which the Trustee should have held discussions with to take on the assets
What must a scheme with <£100m need to do to pass the comparison assessment
🤍 Charges in line or lower than comparison schemes
🤍 Performance in line or better than comparison schemes
What is tPR’s view if the <£100m assessment does not pass the requirements
🤍 If improvements are needed, they should be MINOR as their clear preference is to wind up
What is the legalisation that governs auto enrolment
Pensions Act 2008
What (generally) must a scheme meet to qualify for auto enrolment
It must not contain any provisions that;
🤍 prevent the employer from making the required arrangement to automatically enrol, opt in or re enrol a job holder
🤍 require the job holder to express a choice in relation to any matter, or to provide any information, in order to remain and active member of the pension scheme
What defines a qualifying defined benefit (DB) scheme before 6 April 2016?
A DB scheme was considered qualifying if it was either:
🤍 Contracted out on a Reference Scheme Test (RST) basis, or
🤍 It provided benefits broadly equivalent to a test scheme when looking at the relevant membership as a whole.
What is a test scheme in the context of qualifying DB schemes?
A test scheme is a model pension scheme that provides:
🤍 a pension of 1/120th of final qualifying earnings (averaged over the final 3 years of pensionable service
🩶 for each year of service
🤍 payable from state pension age (or 65)
What were the phases of qualifying criteria for DB schemes under the Pensions Act 2008 before April 2016?
for a DB scheme to qualify, it had to pass:
🤍 the Reference Scheme Test (RST) or
🩶 Provide benefits broadly equivalent to a test scheme using pensionable earnings.
What change was introduced on 1 April 2015 for DB schemes under automatic enrolment
Two new alternative routes for DB schemes to meet auto-enrolment criteria were introduced:
- Cost of Accrual Test (CoAT): Based on the cost of benefit accrual.
- Shared Risk Test: Based on minimum contributions for a qualifying DC scheme
What was the transitional cost of accrual test and when was it valid
🤍 The transitional cost of accrual test applied to DB schemes contracted out on 5 April 2016.
🩶 It was available to job holders who were contracted out before 5 April 2016 and allowed for a cost-of-accruals test to qualify for auto-enrolment.
🤍 It was valid until 5 April 2019.
What happens if a contracted-in DB scheme meets the test scheme standard or Shared Risk Test
🤍 the employer can self-certify that the scheme meets the qualifying requirements.
🩶 If not, a scheme actuary must certify the benefits
How long must employers keep records related to DB schemes for compliance
Employers must keep records related to DB schemes and their qualifying status for 6 years to demonstrate compliance with automatic enrolment duties
What was the purpose of the Pensions Act 2008 in relation to DB schemes?
The Pensions Act 2008 set out the legal framework for automatic enrolment, ensuring that eligible employees were enrolled in qualifying pension schemes, including DB schemes, and had access to minimum pension standards and protections
What are the key criteria for an occupational DC pension scheme to qualify under automatic enrolment?
🤍 Must be an employer contribution
🩶 Overall contributions paid must be equivalent to at least 8% of qualifying earnings in the pay reference period
🤍 The employer must contribute an equivalent of 3% of qualifying earnings in the pay reference period
🩶 there must be a default investment fund and the charge for this may be no greater than the equivalent of 0.75% of the value of the fund per annum
What are the key criteria for a contract based DC pension scheme to qualify under automatic enrolment?
(in addition to the occupational DC scheme criteria)
🤍 UK schemes must be subject to regulation by the FCA
🩶 Operations for UK schemes must be carried out by a person authorised under Section 19 of the Financial Services Market Act 2000
🤍 Legally binding obligation on the employer to pay minimum contributions in respect of the job holder to the provider
🩶 Direct payment arrangements must exist for the employer to collect and pay over contributions to the provider
What is NEST
A large multi-employer occupational DC pension scheme
List the qualities of NEST
🤍 Employers participate but do not actively appoint or remove trustees
🩶 Provider operates a trust corporation and appoints third parties for admin and investment
🤍 Simple, low cost pension scheme
🩶 Available for all employers whether or not they have suitable alternative pension arrangements
🤍 Individuals will be able to keep their account as they change jobs
🩶 Compliment rather than compete
As at 31 March 2023 how many members were there and Assets Under Management (AUM)
🤍 1.1m Employers
🩶 12m Members
🤍 Annual cont £6.5bn
🩶 £29.6bn AUM
What was NEST previously known as
Personal Accounts Delivery Authority (PADA)
What was NEST established to do
Ensure smaller employers and low to moderate earners have access to quality pension provision
What legislation established NEST?
🤍 Section 67 Pensions Act 2008
🩶 National Employment Savings Trust Order 2010
Who is responsible for running NEST
NEST corporation
reports to DWP
List the main features of a Master Trust
🤍 Collection, recollection and central functions
🩶 Administration of member accounts
🤍 Investment and Fund management
🩶 Accessing pensions savings
What duties are Master Trusts required to comply with?
Duties set out in the Pensions Schemes Act 2017
When was the date from which Master Trusts had to apply for authorisation from tPR
1 October 2018
What happened to Master Trusts that either did not apply or obtain approval
Required to exit the market
Going forward what do all Master Trusts have to do?
Apply for and obtain authorisation before they can operate
