Pension Schemes Bill   

The Pension Schemes Bill was announced in the Queen’s Speech on 14 October 2019 and published on 16 October 2019. The Bill sets out legislation following on from the government’s White Paper on defined benefit pensions, published in March 2018, and various consultations. It covers the topics within the following sub-sections of this article.

The progression of the Bill has been impacted by the general election on 12 December 2019 although a corresponding Bill has been included in the new Queen’s Speech under the new government and is expected to include similar contents. There had previously appeared to be cross party support for the progression of at least some parts of the Bill, such as bringing forward legislation to deliver pension dashboards.

The main contents of the Pension Schemes Bill published in October were:

Collective money purchase schemes 
 
The Bill sets out a framework for collective money purchase schemes (CMPS), commonly referred to as Collective Defined Contribution or CDC schemes. Such a scheme has been proposed by Royal Mail and the Department for Work and Pensions (DWP) had consulted in late 2018 on the legislative and regulatory regime that would be needed to support such schemes.   

The regime for CMPS resembles the one put in place for master trusts, including:

Schemes will have to apply to The Pensions Regulator (TPR) for authorisation in order to operate. Once authorised, the scheme will be added to TPR’s list of authorised CMPS and become subject to TPR’s ongoing supervision.

Certain ‘triggering events’, such as insolvency events, are built into the legislation, to prompt TPR’s involvement and protect members’ benefits.

Actuarial valuations of CMPS will be required annually, with these used to determine whether benefit adjustments are needed.

Pension Dashboards 

The Bill paves the way for the delivery of pension dashboards, following the dashboard consultation and feasibility study carried out by the DWP in 2018.

Although much of the detail will be set out in regulations, including aspects such as when schemes will need to provide data to dashboards, the Bill includes: 

•  requirements for a pensions dashboard service to meet if it is to become a qualifying pensions dashboard service;
• requirements on the trustees of occupational pension schemes to provide information to a qualifying pensions dashboard service or any pension dashboard provided by the Money and Pensions Service (MaPS); and
• provisions to give power to TPR to compel pension schemes to provide the information to the qualifying dashboards by way of compliance and penalty notices.

MaPS is currently leading the delivery of a non-commercial dashboard with the support of an industry delivery group, made up of a steering group and working groups.

In September 2019, MaPS announced the appointment of a steering group to represent the interests of consumers and stakeholders in the project. The steering group will provide strategic direction across a range of topics to support the delivery of pensions dashboards and be supplemented by industry working groups, which will be involved in the developing and testing of the functionality and ongoing governance of the pensions dashboard.

A number of RPMI employees have put themselves forward to join an industry working group.   

New powers for TPR 

As expected, following both the White Paper and a consultation on TPR’s powers, the Bill proposes the introduction of new criminal offences for misconduct relating to defined benefit pension schemes. The provisions cover: 

•  failure to comply with a contribution notice, which is proposed to be punishable by an unlimited fine;
• avoidance of a Section 75 debt, which is proposed to be punishable by an unlimited fine and/or up to seven years in prison; and
• conduct which puts at risk accrued scheme benefits, with the proposal being that the most serious offences are punishable by up to seven years’ imprisonment and/or unlimited fines. 

The Bill also includes provisions for new civil penalties of up to £1 million as an alternative to the above penalties, as well as for knowingly or recklessly providing TPR (or a scheme’s trustees) with false or misleading information.To support the above proposals, there are also provisions within the Bill to extend TPR’s notifiable events regime and TPR’s information gathering powers. 

Changes to DB funding and investment 

Trustees will be required to produce a funding and investment strategy as a consequence of provisions in the Bill. Once the strategy is completed, a ‘statement of strategy’ must be prepared and signed by the Chair of the Trustee and submitted to TPR periodically.   

In addition to this new requirement, all actuarial valuation reports are to be sent to TPR once complete, as part of the drive to strengthen TPR’s information gathering powers.

The above proposals are linked heavily to TPR’s scheme funding code of practice and TPR is expected to consult on changes to this code to reflect and build on the proposed new statutory requirements. At the time of writing this update, we expect TPR’s consultation on changes to the scheme funding code of practice to be launched in early 2020. 

Combatting pension scams: changes to statutory transfer requirements 

Provisions are included within the Bill to place restrictions on members’ statutory transfer rights to help tackle pension scams. In particular, members would need to provide the trustees ‘with information or evidence about their employment or place of residence’ as part of a transfer.

The Bill will also allow trustees and managers to extend the time required to comply with a statutory transfer requests to enable scam prevention actions to be completed.

As with other elements of the Bill, regulations are expected to provide further information on changes to help support the combatting of pension scams.

In addition to the expected legislative changes, the Financial Conduct Authority (FCA) has been consulting on a package of measures in relation to transfers of defined benefits. The following measures were proposed by the FCA to improve the quality of advice, and to help consumers get better value from their pension:    

• A ban on contingent charging, where advisers only get paid if a transfer goes ahead.  There are some circumstances, where a transfer is likely to be in the customer’s best interests, which will be exempt from the ban. This includes individuals who have a diagnosed condition that leads to a materially shortened life expectancy or where the customer is experiencing serious financial hardship such as losing their home. 
• A strengthening of the existing requirements that advisers should consider an available workplace pension as a receiving scheme for a transfer where one is available.   
• The introduction of a short form of ‘abridged advice’ to consumers at a lower cost than the full advice. Abridged advice can only lead to a recommendation either not to transfer or proceed to full advice, based on a high-level assessment of a client’s circumstances.

The FCA also has concerns about advisers’ overall competence and the provision of information to consumers to understand the implications of a transfer, so the consultation also sought views on a package of measures to strengthen requirements in this area.