Pension Schemes Bill update
The Government confirmed its position on several proposed amendments to the Pension Schemes Bill (the Bill) during the House of Commons committee stage which concluded on 5 November 2020. A number of further amendments were subsequently put forward by MPs ahead of the remaining Commons stages scheduled for 16 November 2020. The Bill will then return to the House of Lords.
In summary, during the committee stage, no changes were made to the extended Pensions Regulator (the Regulator) moral hazard powers despite calls for clarity on their scope. In addition, further changes to the statutory transfer value restrictions and a proposed amendment aimed at improving take-up of members seeking guidance from Pension Wise before accessing defined contribution (DC) benefits were withdrawn. The Government's proposed reversal of the House of Lords’ amendments on collective defined contribution (CDC) schemes, pension dashboards and a requirement for future scheme funding regulations to consider differences between open and closed schemes was accepted.
The further amendments which have been tabled relate to pensions dashboards, pension transfers, member guidance on DB benefit access, superfunds and climate change.
Further details are provided below.
Extended Regulator powers and sanctions
The extended powers and sanctions of the Regulator have perhaps been the most discussed and controversial of the provisions in the Bill.
The clauses introducing the new employer insolvency and employer resource tests under which the Regulator can issue contribution notices were approved as were those introducing the new reasonableness test for the issue of contribution notices, determination of the sum payable and sanctions for failing to comply.
Concerns have been raised both during the Bill's passage through Parliament and in the pensions industry that the new criminal offences (avoidance of an employer debt and conduct that detrimentally affects in a material way the likelihood of accrued scheme benefits being received) are too wide in scope and could lead to 'routine behaviour' of parties involved with schemes and those not directly involved such as lenders being judged criminal.
The opposition proposed changes to address these concerns by introducing a requirement to consider a person's role and responsibility and seeking to replace the 'reasonable excuse' defence with a narrower negligence concept. The proposed amendments were not accepted. In response, the Pensions Minister stated:
"It is certainly not the intention to frustrate legitimate business activities where they are conducted in good faith. It is important, however, that where the elements of offences are met, no matter who has committed it, the Pensions Regulator should be able to respond appropriately. Any restriction of the persons would create a loophole for these people to potentially act in such a way…
The new criminal offences proposed in the Bill make it clear that an offence is committed only if the person did not have a reasonable excuse for doing the act or engaging in the course of conduct. Crucially, what is reasonable will depend, obviously, on the particular circumstances of the act, but the burden will be on the regulator to prove that the excuse was not reasonable."
Although the Bill has not yet finished its passage through Parliament, given the Government's stance so far, we believe that it unlikely that there will be further amendments to these provisions. Instead, it will be a case of waiting to see what further clarity the Regulator's guidance will provide but in the meantime, a great deal of uncertainty remains as to how the Regulator will apply these new powers.
Treatment of open and closed defined benefit (DB) schemes
As mentioned, the Government's proposed removal of the House of Lords’ amendment to require that scheme funding regulations consider the funding and investment differences experienced by open and closed DB schemes was accepted.
Having noted that the Government could not be bound "to ensuring that all schemes that are expected to remain open are treated differently from other schemes," the Pensions Minister confirmed the Government's commitment to ensuring that scheme funding regulations would not prevent "appropriate open schemes from investing in riskier investments where there are potentially higher returns" as long as relevant risks are 'effectively' protected including member benefits and the position of the Pension Protection Fund.
Those parts of the Bill which set out the framework for CDC schemes were approved although the proposed House of Lords’ amendment on 'inter-generational fairness' was not. The Pensions Minister also confirmed that regulations might be drawn up in the next year which will allow multi-employer CDC schemes to be set up.
The committee's debate on pension dashboards largely concerned the removal of the House of Lords' amendments which, if successful, would have restricted the initial services provided by pensions dashboards and the commercial provision of services for a year.
Stephen Timms, the chairman of the Work and Pensions Committee, had proposed changes to the Bill which would have enabled trustees to refuse a transfer out upon the identification of certain 'red flags'.
Although the Government agreed with the principle behind these changes it is of the view that matters such as these should be provided for in regulations rather than primary legislation confirming that the Government wished to "bring forward measures that will significantly and realistically prevent future scams". The relevant regulations will contain conditions which need to be met for a transfer to go ahead. The changes were withdrawn.
The Work and Pensions Committee has published correspondence with the Pensions Minister on this point.
Building on the DWP's 'Stronger Nudge' statement of policy intent
Mr Timms had also proposed an amendment to the Bill which would strengthen member guidance requirements. This follows on from the recent Department for Work and Pensions’ statement of policy intent 'nudging' members towards an appointment with Pension Wise before accessing DC benefits. The proposal was to require members and survivors to be contacted with a scheduled Pension Wise appointment before accessing DC benefits and to then be written to annually until the appointment is taken or the member opts out.
This proposal was also considered to be a matter for regulation rather than primary legislation and, as a result, was not accepted.
Other proposed changes debated during the committee stage
The committee also debated several other opposition amendments to the Bill on matters including implementation of the automatic enrolment review, lowering the automatic enrolment age threshold from age 22 to 18, allowing trustees not to pursue an employer debt below a de minimis threshold and amendments designed to alleviate employer debt issues in closed non-associated multi-employer schemes (these have recently been the subject of legal proceedings and Regulator scrutiny with regards to the Plumbing and Mechanical Services (UK) Industry Pension Scheme). None of these proposed changes were accepted.
Subsequent amendments proposed by MPs ahead of the 16 November 2020 House of Commons report stage
MPs put forward a number of further amendments to the Bill following the conclusion of the committee stage. These include:
- a restatement of the 'red flag' transfer provisions and the 'stronger nudge' related amendment which were initially tabled by Mr Timms and which have now received cross-party support;
- changes on pensions dashboards which include a reiteration of the House of Lords rejected proposals to initially restrict the provision of services to exclude financial transactions and commercial operators and further protective provisions relating to vulnerable users and education;
- an amendment which would require primary legislation to stipulate that the Regulator must regulate for defined benefit pension superfunds within six months of the Bill receiving Royal Assent; and
- climate-change related proposals which would require occupational pension schemes to develop, set and implement a strategy to ensure that a scheme's investments and stewardship are aligned with the objectives of the Paris Agreement and a goal to achieve net-zero greenhouse gas emissions by 2050.
MPs will consider and vote on these further amendments in the report stage.
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