It has spanned three calendar years in Parliament, two terms of office and enjoyed a long gestation before that, but the Pension Schemes Bill finally received Royal Assent on 11 February 2021. Despite the range of topics the Act covers, it passed through Parliament with few substantive changes and with its core measures intact.
The Act’s provisions will stretch deep into the daily operations of pension schemes. The introduction of long-term funding objectives should bring a clarity of purpose for defined benefit (DB) schemes, the new powers for the Pensions Regulator (TPR) strive to remove the sound of stable doors being slammed after the horses have bolted, the creation of dashboards promises a more holistic vision of people’s retirement saving and the framework for collective money purchase (CMP) schemes offers a new design that seeks to balance lower risks for employers with better potential retirement outcomes for members.
The Act sets the framework for DB schemes to document a strategy for ensuring that benefits can be provided in the long term. Schemes will need to specify the intended funding level at specific future dates and the investments that trustees intend to hold. The document will need to be signed by the Chair of Trustees and cover specific steps and actions in relation to the objective.
The detail will be set out in a new funding Code of Practice from TPR that will introduce a “twin-track” (fast-track and bespoke) approach. TPR indicated in January that it expects to issue its second consultation on these proposals in the second half of 2021 – with the new Code being unlikely to be in force in time for valuations with effective dates before the end of the first quarter of 2022.
In the final session in the House of Lords, Baroness Steadman Scott for the Government reassured peers that the Government “fully intend that the defined benefit funding regime … will continue to apply flexibility to take account of individual scheme circumstances”. The Baroness also emphasised that open schemes would not be forced to invest in the same way as closed schemes, provided they have an appropriate integrated risk management strategy.
The Act gives TPR new powers to hand out criminal sanctions, including a seven-year jail term or an unlimited fine, to persons found guilty of “avoidance of an employer debt” or “conduct risking scheme benefits”. There is also a new criminal offence of failing to comply with a Contribution Notice (where TPR requires payments into a scheme). The notifiable events regime is also extended, with penalties for failing to notify TPR risking a fine of up to £1 million. TPR will also gain new information-gathering powers with enhanced fining powers for failing to comply or for providing false or misleading information.
While the Pensions Minister has recently clarified that none of these provisions will be retrospective, their proposed use will be set out in more detail in guidance from TPR. It is perhaps reassuring to note that in debates the Minister stated “the burden [of proof] will be on the regulator to prove that [an] excuse was not reasonable” and that the Government did not intend to interfere with routine business activities.
The Act brings in new measures to require trustees to ensure effective governance of the scheme with respect to the risks associated with climate change. This includes publishing information relating to the effects of climate change on the scheme. In August 2020, the Government consulted on the principles to be covered in regulations and launched a consultation on the detail of those regulations and statutory guidance on 27 January 2021.
The Act contains a framework for pensions dashboard services to provide individuals with a consolidated view of their State and private pension information. Regulations will compel trustees and providers to send information to dashboard services. The Pensions Dashboard Programme is working up the details of how this will operate and is targeting voluntary participation from next year, with schemes and providers being compelled to connect from 2023.
The Act sets a framework of requirements for CMP schemes including those relating to the fitness and propriety of trustees, scheme design and processes, financial sustainability and communications with members. Schemes will be required to draw up a ‘viability report’ and a ‘continuity strategy’. The Act also stipulates, for example, how benefits can be adjusted. The framework will be expanded in regulations.
And finally, the latest step to prevent people being scammed is a new measure to tighten the conditions that must be met for individuals to affect a statutory transfer. This will enable trustees to block a transfer unless prescribed conditions are satisfied. It may come as little surprise that the detail will be set out in regulations that are expected to come into force in autumn 2021.
