‘Ground-breaking’ Pension Schemes Act ‘just the first step’

Industry experts have described the Pension Schemes Act, which received Royal Assent yesterday, as “ground-breaking”, but noted that this was just the first step in changing regulations and legislation.

After over a year since its introduction, the act navigated the final hurdle to becoming law, but many of the details still need to be ironed out before many of the changes come into force.

“This is a ground-breaking piece of legislation making pensions safer, better and greener,” commented Aegon head of pensions, Kate Smith.

“This is just the beginning as we’ll now see a raft of regulations over the next few months setting out the detail of how schemes will have to comply with the new rules.”

Hymans Robertson partner, Laura McLaren added: “Although the new Pension Schemes Act lays the foundations for changes to many areas of pensions legislation, it is really just the first step. 

“Whilst the act establishes a lot of important primary legislation, much of the underlying detail is left to secondary regulations and guidance that will now need to be drafted, consulted on and implemented over the coming months.” 

AJ Bell senior analyst, Tom Selby, noted that the act will have a “profound impact” on the UK retirement landscape, with members, trustees and sponsoring employers all likely to be affected.

However, he warned that the act’s attempt to address pension scams through controls on transfers was likely to have a “limited” impact as most scams focus on people aged 55 and over, rather than those transferring.

The Pension Schemes Act sets out the framework for the introduction of pensions dashboards and collective defined contribution (CDC) schemes, expands The Pensions Regulator’s (TPR) powers, and requires schemes to adopt and report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

“Sitting alongside familiar defined benefit (DB) and DC benefit designs, CDC can now offer something different and welcome, so we are approaching an exciting time,” said Aon partner and head of UK retirement policy, Matthew Arends.

“This new legislation opens up the opportunity to enable single employer CDC plans. But it shouldn’t stop there – the path should now be open for government and the Department for Work and Pensions to move ahead at pace with the second phase of enabling legislation. This would provide wider-reaching options, making CDC accessible in a variety of ways – potentially including CDC master trusts, decumulation-only CDC platforms, and industry-wide or multi-employer CDC plans.”

Hymans Robertson partner Paul Waters, added that the act should be a “catalyst” for the development of dashboards.

He continued: “So far, however, progress on the pensions dashboard has been way too slow and we are unlikely to be anywhere near the Open Banking position by the end of this year.

“The dashboards can, and should, make a disruptive change. But despite the progress made through 2020, we are still measuring the dashboard programme through internal industry activity and milestones. 

“We need to move quickly to a place where we are measuring progress by the tangible benefits being delivered to the millions of UK savers who need help in planning for their retirement. It needs to move even faster, and with the pensions bill in place, it would be great to see industry commitment to make that happen.”

Herbert Smith Freehills regional head of employment, pensions and incentives, Samantha Brown, said that the new criminal offences and regulatory sanctions outlined in the act will serve as a “wake-up call” for directors of companies with DB schemes, as well as lenders and investors in those companies.

“Although the new sanctions have a noble aim – to protect the interests of DB scheme members – they could make it harder to restructure distressed sponsors of DB schemes, by limiting the scope for creative solutions to be found. In many ways, this could not come at a worse time,” she added.

“The new funding requirements will fundamentally change the way the scheme funding process works. Going forward, trustees and sponsors will need to agree a legally-binding long-term objective for their scheme and work backwards to put in place a funding plan enabling this target to be achieved.”

Pinsent Masons head of pensions and long-term savings, Carolyn Saunders, commented: “Now is the time to take stock and prepare. The act tells us something of the government’s intentions, but there is much still to come through regulations and guidance. There are some fundamental changes to the pension landscape and trustees and sponsoring employers need to be ready to respond  
 
“Although the new act is wide-ranging, a key focus area is climate and, here, the government has been quick out of the starting gate with draft regulations. The headline obligations are about disclosure, but at their heart is the requirement for trustees to adopt effective governance systems so that they can properly assess and understand what climate change means for their particular scheme.

“We will see the largest schemes required to comply first and they will play a critical role in using their market power to drive best practice from asset managers and advisers.”

Now Pensions director of policy, Adrian Boulding, called for a second pensions bill.

“While the dashboards are important, further legislation is needed to change the framework of auto-enrolment,” he said.

“The workforce is increasingly dynamic meaning that people are accumulating numerous pensions pots as they move jobs. Many workers now work flexibly, hold multiple jobs, or work part-time and are often blocked from being automatically enrolled because of the £10,000 earnings trigger or are disproportionately disadvantaged by the lower earnings limit. For auto enrolment to continue to be a success, the framework must be altered to best serve a changing workforce.”

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