On 16 October 2019, the long-awaited Pension Schemes Bill 2019-2020 (the Bill) was published.
In our first insight on the Bill - '', we looked at the new powers that the Bill proposed for the Pensions Regulator, together with the additional duties on DB pension scheme trustees in relation to a funding and investment strategy.
In the second of our insights on the Bill, we turn our attention to the other areas covered by the Bill, namely:
- collective defined contribution schemes (CDC) (or collective money purchase schemes, as the Bill defines them),
- pensions dashboards;
- scheme transfers;
- changes to the PPF compensation rules; and
- amended definition of "Administration Charges".
Parliament has now been dissolved and the general election is to be held on 12 December 2019 - read our insight on the election and implications for pensions - which means that the Bill is now lost. However, that said, in our view it is likely that the next government will introduce a replacement pensions bill covering the same (or very similar) issues in the new year. The Bill also had significant cross-party support. It is therefore still important to be aware of the contents of the Bill because it is still relevant as a strong indicator of the likely future direction of pensions policy under the next government.
Key points for trustees and employers
1. The Pensions Bill 2019 has fallen away because of the general election to be held on 12 December 2019. However, it is still indicative of the likely future direction of pensions policy.
2. The Bill establishes the framework for CDC (collective money purchase) schemes.
3. The Bill also provides for the operation of pensions dashboards, although much of the detail will be contained in regulations.
4. The Bill also restricts the right to a statutory transfer.
5. The Bill addresses the anomaly caused by the Beaton judgment.
6. The Bill amends the definition of "Administration Charges" to address uncertainty in regards to the meaning of this term.
What does the Bill cover?
A framework for CDC
The Bill defines a CDC scheme (or a Collective Money Purchase Scheme (a "CMPS") as they are referred to in the Bill). CMPS must be set up under trust and can only be set up by a single employer or associated employers. This means that the CMPS structure will not be available to industry-wide schemes with non-associated employers (at least initially). This may have an effect on the number of employers who decide to adopt a CMPS structure. However, it is hoped that once this legislation becomes law, it will not only be the Royal Mail who opt to open a CMPS in lieu of having a defined benefit scheme.
Requirement to be authorised
The Bill includes a requirement for CMPSs to be authorised. TPR will decide whether a CMPS meets the authorisation criteria. The authorisation regime will be very similar to the authorisation process that already exists in respect of Defined Contribution (DC) Master Trusts. As is the case with DC Master Trusts, TPR will also supervise CMPSs. The supervision process for DC Master Trusts is still a work in progress and we expect that a similar approach will be adopted for CMPSs once the approach is agreed for DC Master Trusts.
TPR will have a number of powers, including but not limited to publishing a list of authorised schemes, being notified of certain events, directing trustees to obtain an actuarial valuation if they have not already done so and issuing a risk notice if TPR is concerned about the scheme. These powers mirror the powers that TPR has in respect of DC Master Trusts. However, the DC Master Trust authorisation regime is fairly new and we have not had enough time to see how TPR intends to use its supervisory role. It will be interesting to see how TPR exercises its powers in respect of DC Master Trusts, as this should give a good indication of how TPR is likely to act in respect of CMPSs.
Benefit Provision under a CMPS
The Bill dealt with benefit provision under a CMPS. One of the defining characteristics of a CMPS is that benefits can go up and down in a CMPS. The Bill contains provisions regarding a CMPS' rules containing provisions on how the rate and amount of benefits will be determined. Further, as expected, Trustees of CMPSs will be expected to obtain actuarial valuations.
The Bill also contains provisions regarding triggering events (i.e. when authorisation is withdrawn or the employer goes insolvent) and the process that should be followed when a triggering event occurs.
Foundations for pensions dashboards
The Bill made provision for the operation of pensions dashboards, defined as an electronic communication service by which information about pensions may be requested by, and provided to, an individual (or a person authorised by him/her). Precisely what information must be included on the dashboard, how it will work (e.g. the use of intermediaries and other technical specifications) and who can operate a dashboard service was to be set out in further regulations and guidance.
Also included was a new requirement to be imposed on both occupational pension scheme trustees and providers of workplace arrangements to provide "pensions information" (such as general information about the scheme as well as member benefits) to a qualifying pensions dashboard service, or any such service provided by the Money and Pensions Service (MAPS). Compliance with this requirement to be policed and enforced by TPR.
The Bill also provided for MAPS to operate a dashboard service. The creation of a non-commercial dashboard is intended to complement commercial dashboards. The Government will also provide state pension data to the MAPS-operated dashboard.
It seems clear that the dashboard project will become a reality in time. It has the opportunity to make a significant contribution to pension saving in this country by providing real-time information to savers which is useful and holistic.
Greater scrutiny of individual benefit transfers
The increase in pension scams and the decision in Hughes prompted the DWP to consider whether the statutory right to transfer needed to be narrowed.
The Bill contains long awaited provisions which will restrict the statutory right to transfer. Certain requirements will have to be met before a cash equivalent can be transferred. It is expected that these conditions will concern the member's employment or place of residence. Full requirements will be set out in regulations.
Changes to the PPF compensation rules
The Bill amended both the PPF Compensation Regulations and PPF Multi Employer Scheme Regulations retrospectively to deal with an anomaly resulting from the judgment in Beaton.
The proposed amendment will mean that all fixed transferred-in pensions will be treated as attributable to pensionable service for the purposes of calculating PPF compensation, except when aggregating benefits for the compensation cap.
Changes to the definition of administration charges
The Bill proposed to amend the definition of administration charge to cover any use of the scheme's assets to meet the administrative expenses of the scheme, to pay commission or in any other way that does not constitute the member drawing their pension benefits or moving their savings to acquire pension rights in a different scheme. This change was proposed as DWP felt that the definition of administration charges needed to be clarified following a number of questions in regards to what was included in this definition.
Trustees and employers need take no immediate action. Now we wait to see what the next Parliament brings. We hope (and expect) that will include another pension schemes bill in very similar form to the one we have just lost.