For a few years now, the Government has been considering ways to enhance the security and sustainability of pensions in the UK, and to protect defined benefit (“DB“) pension schemes. These considerations were documented in the Pension Schemes Bill. Due to lack of Parliamentary time (aka a little thing called Brexit and the general election), the Bill was put on hold but remained very much on everyone’s minds. The Committee Stage in Parliament began last week, so now seems like a good time to refresh our memories about the key provisions of the Pension Schemes Bill from an employer’s perspective.
- Introduction of a collective defined contribution (“CDC”) schemes framework
CDC schemes provide employers with certainty because, under a CDC scheme, employers as well as members pay a fixed contribution rate. The benefit for members is that assets are pooled which means savers share the investment and longevity risks. Members are promised a target (as opposed to guaranteed) pension on retirement. On the one hand, this pension can be reduced if investment returns are poor, and on the other hand, annual increase and revaluation rates vary according to investment returns.
The Bill will introduce a legislative framework for CDC schemes, including for their authorisation and supervision by the Pensions Regulator (“tPR“). Among other things, benefits under a CDC scheme will be classed as “money purchase benefits” and employers will not therefore be required to make good any funding shortfall.
- Introduction of pensions dashboard
The pensions dashboard is a single digital view where every member can clearly see, in one place online, ALL their pension savings. The Bill will introduce the framework for the pensions dashboard and while the primary obligation will be on trustees to provide information to qualifying pensions dashboards, from a practical perspective, we expect employers will also have a role to play. Watch this (digital) space!
- New powers and sanctions for the Pensions Regulator
The Bill introduces broad information-gathering powers for tPR and various new criminal offences such as the avoidance of an employer debt and conduct risking accrued scheme benefits.
In addition, tPR will be able to issue a civil penalty of up to £1 million in certain circumstances, including where a person knowingly or recklessly provides false information to tPR or to trustees.
- Changes to the notifiable events regime
There will be a new requirement for employers to notify tPR and submit a statement to tPR and the trustees about certain events affecting a DB scheme employer. The list of events will be set out in regulations but essentially it is expected that a statement will be required prior to any business transactions that pose a high potential risk to a DB pension scheme to show that the employer(s) have considered the impact to the affected scheme(s).
It will be interesting to see how these new initiatives and powers will play out and whether the Pension Schemes Bill will fit the bill.