Pension Schemes Bill receives Royal Assent
The Pension Schemes Act 2021 is now in force, here is a reminder of the key provisions and an outline of immediate action points.
Pension Schemes Bill receives Royal Assent
The Pension Schemes Bill has received Royal Assent and is now the Pension Schemes Act 2021 (the Act). The Act introduces wide-reaching changes impacting both defined benefit (DB) and defined contribution pension schemes.
By way of reminder, the key provisions include:
- A significant strengthening of the Pensions Regulator's (the Regulator) 'moral hazard' powers including:
- a requirement for companies to notify the Regulator in a wider range of situations and at an earlier stage than currently and to provide a statement to the Regulator and the trustees outlining the impact of a transaction on a DB pension scheme;
- new grounds under which contribution notices may be imposed (which require an employer to provide financial support to a DB pension scheme);
- the introduction of two new criminal offences both of which carry a potential 7-year custodial sentence and/or an unlimited fine (avoidance of a statutory debt owed by an employer to a DB scheme and conduct that is materially detrimental to the likelihood of accrued DB scheme benefits being received);
- new civil penalties up to a maximum of £1m that can be applied in a number of circumstances including for failure to comply with the moral hazard provisions and the new offence of knowingly or recklessly providing false information to the Regulator; and
- new information gathering powers;
- Revisions to the DB scheme-specific funding regime contained within the Pensions Act 2004 including the requirement for trustees to produce a 'funding and investment strategy' aimed at ensuring that benefits can be provided over a long-term period. This long-term objective will be supported by a new Regulator DB scheme funding code of practice, the second consultation on this is expected in the second half of 2021;
- Amendments to the statutory legislation governing transfers of pension scheme benefits to help prevent pension scams;
- The introduction of pensions dashboards, a digital platform which will give individuals access to information regarding all of their pension benefits in one place;
- New powers to make secondary legislation in respect of climate change under which trustees of occupational pension schemes will be required to secure 'effective governance' of their schemes in relation to climate change and to report on the effects of climate change on the scheme; and
- The introduction of a new framework for establishing and administering 'collective money purchase schemes' which are similar to conventional defined contribution schemes but rather than having an individual 'pot' the member is entitled to a proportionate share of the collective scheme assets.
Extended moral hazard powers
Perhaps the most discussed and controversial of the new changes are the enhanced Regulator powers. Both Members of Parliament and the pensions industry have raised concerns that the new criminal offences are too wide in scope potentially leading to 'routine behaviour' of parties involved with schemes and those not directly involved such as lenders and advisers being judged criminal. Although the Pensions Minister has confirmed that the frustration of legitimate business activities conducted in good faith is not intended, proposed amendments to the Act aimed at addressing such concerns were not accepted by the Government.
The Government has since confirmed that the new criminal sanctions and information gathering powers will not be retrospective. Aside from clarity on this point, it is likely to be months before the necessary secondary legislation, Regulator codes of practice and guidance are produced, and it is not until these are available that we will obtain a clearer idea as to how the primary legislative provisions will actually be implemented.
Immediate action points
In the meantime, trustees and employers should ensure that they are familiar with the Act's provisions, in particular, the moral hazard and scheme funding provisions and undertake the following actions:
- Moral hazard: checking that there are suitable procedures in place to identify any corporate activity that may come within the remit of the Regulator's extended powers, take advice as necessary and ensure that an appropriate audit trail is maintained;
- Scheme funding: keep up to date with developments on the new DB scheme funding code to ensure compliance with the Act and the code when it becomes effective. Although valuations do not come under the new code until it is in force, there are certain concepts of the code which are already present in the Regulator's 2020 annual funding statement, for example, having a long-term objective with clear plans for how this will be achieved; and
- Transfer provisions: keep an eye out for the draft regulations which will set out the detail of the new transfer fraud provisions and which the Pensions Minister has confirmed are expected to be introduced by September or October 2021.
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