The Pensions Schemes Bill 2016-17 had its first reading in the House of Lords on 19 October 2016. It contained more details on a number of legislative changes including long awaited changes to master trust authorisation and administration charges.
The Bill will come as welcome news to many as it delivers important new controls for master trusts and provides a strengthening-layer to existing legislation on exit charges. The new Bill has a clear and distinct focus; to protect savers and to maintain confidence in pension savings.
Perhaps the most welcome of the proposals were those in respect of master trusts. These schemes are an increasingly popular solution serving the UK pensions market, particularly for smaller employers who seek to benefit from the economies of scale which these schemes naturally attract. Statistics from The Pensions Regulator ('TPR') suggests that master trusts benefitted from a 90% increase in memberships and assets since 2013. Yet, one of the major concerns regarding these schemes has been the lack of any requirement to meet a minimum governance standard. As such, the market contains a number of trusts who are suffering as a result of thin margins and weak financial backing, which means that there are many members whose savings are potentially at risk from those trusts who fall short in providing adequate protection. The Bill, it is hoped, will strengthen these schemes by introducing a requirement to meet higher operating criteria.
The Bill also aims to boost consumer protection on a broader range of pension issues; including a new approval regime and giving new powers to TPR which will enable them to intervene where schemes are at risk of failing.
Commenting on the proposals, the Minister for Pensions, Richard Harrington MP, said:
'We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all.
We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.'
When the Bill becomes law, master trusts (which will include existing schemes) will be required to show that:
- persons involved in the scheme are fit and proper,
- the scheme is financially sustainable,
- the scheme funder meets certain requirements in order to provide assurance about their financial situation,
- systems and processes requirements, relating to the governance and administration of the scheme are sufficient, and
- that the scheme has an adequate continuity strategy.
As well as giving TPR new powers to take action where the above criteria have not been met, measures have been included to provide for and ensure an 'orderly exit' where a scheme fails or otherwise chooses to leave the market. This aligns with the government's aim at providing continuity of member saving and supporting employers in fulfilling their automatic enrolment duties.
TPR Chief Executive, Lesly Titcomb, welcomes the new Bill and supports the proposals laid before the House of Lords, stating:
'We are very pleased that the Pension Schemes Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.'
In addition to the changes to master trusts, the Bill will amend existing legislation relating to charges. These changes will craft new regulations which will support the government's intention to introduce a cap on early exit charges. Currently, the charge that exists can create a barrier for occupational pension scheme members wanting to access their pension savings, and so the government is seeking to ensure that people can access their pension freedoms without being unnecessarily penalised by early exit fees.
The proposal to cap charges will be seen to give effect to the commitment made by the government in March 2014 to ban member-borne commission charges arising under existing arrangements in certain occupational pension schemes.
For now, the announcement of the Bill has attracted a lot of positive attention and has been warmly welcomed by many. However, we are currently in the very early stages so there is still a long way to go until the proposals become concrete, the process of which will be followed closely by us.
The Bill us due to have its second reading on 1 November 2016.