New Pensions Schemes Act: significant pensions changes announced in Queen’s Speech
The new Pension Schemes Act is shaping up to be one of the most significant pieces of pensions legislation since pensions A-day in 2006. Announced in the Queen’s Speech, the bill, once it becomes law, will significantly broaden the regulatory framework around pensions in the UK, as well as establishing a legal basis for Collective Defined Contribution (“CDC”) pension schemes. Broadly, the Act has two objectives at its heart:
- To support pensions by strengthening protection for savers and providing more savings options through the introduction of CDC schemes; and
- To promote member knowledge and understanding around pensions through the introduction of “dashboards” – this will allow individuals to access all of their information on their pension schemes in one place for the first time.
What effect will more enforcement powers for the Pensions Regulator have?
The first main pillar of the Act will be the enhanced enforcement powers given to the Pensions Regulator (“tPR”). With the aim of assisting tPR in its stated ambition to be “clearer, quicker and tougher”, these new powers will include:
- A civil penalty of up to £1 million for serious breaches which result in actual harm to the pension scheme;
- A new criminal offence of “wilful or reckless behaviour” in relation to a pension scheme, which will be punishable by up to seven years’ jail and/or an unlimited fine; and
- A new criminal offence of failure to comply with a contribution notice.
TPR will also be given powers to obtain information about schemes and sponsoring employers “in a timely manner, ensuring it is able to gain redress for pension schemes and members when things go wrong”. This is clearly in response to public criticism of tPR around a few high profile pensions cases and will be well received by members and schemes alike. However, it will be interesting to see how and in what context tPR can actually deploy these powers in practice, given the disparate spread of pension schemes and also tPR’s own limited resources.
What is the framework for Collective Defined Contribution pensions scheme?
The next element of the bill is the establishment of a framework for the operation and regulation of CDC pensions. CDC pensions may offer savers a new, viable middle ground between traditional defined benefit (DB) schemes and defined contribution savings vehicles such as group pension arrangements. CDC schemes provide targeted benefits at retirement but unlike the traditional DB scheme, have two defining features – defined contribution rates payable by employer and employee in advance, but with collective risk sharing between members rather than individually. Following the launch of a CDC scheme by Royal Mail in 2018, industry talk has been that CDC arrangements may offer an alternative model for employers who wish to provide generous, meaningful pensions at retirement to staff, but without the financial exposure and risks which come with DB pension provision.
What improvements will be made to access information on pensions savings?
Access to information on pensions saving for members will also improve. A legal framework will be put in place to support pensions “dashboards” which will hold all pensions savings information for an individual in one place. This will be supported by new powers for tPR to ensure that pension schemes provide accurate information to consumers. Pension trustees will be required to provide a new statement to members on their funding strategy, and new regulations will also set out the circumstances in which a scheme member will have the right to transfer their savings to another vehicle.
Finally, a few important pieces of the pensions puzzle are notable by their absence from the bill – not least the lack of any further increase to auto-enrolment contributions. Given the political desire to encourage pensions saving for retirement, it is challenging to see how this can be achieved in any material way other than by increasing the minimum contributions due from jobholders and their employers. The bill was also silent on pension consolidation – the concept of aggregating small defined benefit pension schemes into larger superfunds which offer members greater security and economies of scale, and which is gaining traction in the pensions world. It is understood that the government is engaged in discussions around the regulation of superfunds and the related solvency requirements, and given the level of noise this is generating across the industry it surely will not be too long before this appears on the legislative agenda as well.
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