The anticipation is over! The Pension Schemes Act 2021 received Royal Assent and became law on 11 February. The Act aims to enhance the security and sustainability of pensions in the UK, and to protect defined benefit (“DB“) pension schemes. The Act makes some significant changes to the pensions world, most of which will be brought into effect and fleshed out through Regulations and guidance from the Pensions Regulator (“tPR“). This blog briefly sets out the key provisions of the Act from an employer’s perspective.
- New powers and sanctions for tPR
The Act introduces broad information-gathering powers which will allow tPR to inspect premises and require any person likely to hold information relevant to the exercise of tPR’s powers to attend an interview to answer questions. This interview power goes beyond just the sponsoring employer and its advisers.
The Act also introduces various new criminal offences, such as the avoidance of an employer debt, conduct risking accrued scheme benefits and failure to comply with a contribution notice. While on contribution notices, it is also worth noting that the Act extends the grounds for issuing a contributions notice (the employer insolvency test and the employer resources test).
If a person is found guilty of the new criminal offence, (s)he can be imprisoned for up to seven years and/or have an unlimited fine imposed on them. This is in addition to tPR’s ability to impose a civil penalty which, under the Act, can be up to £1 million. You’ll be relieved to hear that there are defences available though which, for certain offences, include the reasonable excuse defence.
- 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 (e.g. security being granted which ranks above the pension scheme or a significant employer asset disposal) to show that the employer(s) have considered the impact to the affected scheme(s).
- Introduction of a collective money purchase/collective defined contribution schemes framework
A collective money purchase scheme/collective defined contribution scheme (“CMP scheme“) provides employers with certainty because, under a CMP 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 Act introduces the legislative framework for CMP schemes, including for their establishment, authorisation and supervision by tPR, and administration. Among other things, benefits under a CMP scheme will be, as it says on the tin, 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 Act introduces the framework for the pensions dashboard. The details will be set out in Regulations, including how the pensions dashboard will be established, administered and what information should be included. While the primary obligation will be on trustees to provide information to qualifying pensions dashboards, from a practical perspective, in the true collaborative approach that summarises pensions, we expect employers will also have a role to play.
The Act makes some significant changes to the pensions landscape although the detail is to follow in Regulations and guidance from tPR. I think, like the rest of the pensions industry, I await the Regulations and tPR’s guidance with bated breath! Watch this space….