The Pension Schemes Bill 2019 – 2020, originally published on 16 October 2019, was due to have its second reading in the House of Lords on 30 October but, following the dissolution of Parliament, this reading did not go ahead. With the general election over and perceived cross-party support for the Bill, the new Government is expected to bring the Bill back shortly.
We therefore take a look at some of the key points arising from the Bill and possible implications for pension plan trustees and employers.
The Bill provides for the introduction of pensions dashboards. These will allow people to view the pension savings in all their pension plans across their lifetime on one electronic platform. To facilitate their introduction, trustees will have a legal obligation to provide pensions-related information (which may include information about members' benefits and the constitution, administration and financing of the pension plan) to any 'qualifying' pensions dashboard service.
The Pensions Regulator will be granted new powers to enforce compliance with these new obligations.
Collective defined contribution plans
The Bill also provides a legislative framework for collective defined contribution (CDC) plans, now referred to as "collective money purchase" (CMP) plans.
Contributions into a CMP plan are pooled and invested with a view to delivering an aspired benefit level; as contributions are fixed, the benefit level offered can only ever be a target or an estimate. Given that the level of benefit payable is not guaranteed by the employer, members need to recognise from the outset that the benefit levels aspired to may not be achieved and that the level at which pensions are paid may fluctuate.
Under the Bill's provisions, the calculation of the value of CMP benefits will be based on an actuarial assessment of the plan's assets and the value of the members’ rights, and on whether adjustments are required to the rate or value of the benefit.
Similar to the current regime for master trusts, CMP plans will need to be authorised and supervised by the Pensions Regulator. Plans will be required to submit regular supervisory returns and to notify the Regulator about 'significant events' (which will be defined in regulations).
As a result of the ongoing issues around members being persuaded to transfer their pension savings to inappropriate or even fraudulent pension plans (as highlighted in our recent update), the Bill introduces additional due diligence checks to be undertaken by pension plan trustees before making a statutory transfer of a member's benefits. These checks relate to the member's employment and place of residence.
Defined benefit plans: long term funding strategy and trustee chair
Trustees of defined benefit (DB) pension plans will be under a new obligation to determine, and keep under review, a 'funding and investment strategy' to ensure that benefits under the plan can be provided over the long term.
As soon as reasonably practicable after determining or revising the strategy, and after consulting with the plan employer, trustees will be required to prepare a written statement of their plan's funding and investment strategy signed by the trustee chair (if there is no trustee chair, one will have to be appointed). The statement must be submitted to the Pensions Regulator. The Regulator will be granted powers to direct that trustees must revise their funding and investment strategy where it considers appropriate.
Trustees of DB pension plans will also need to send an actuarial valuation to the Regulator as soon as possible after they have received it.
Trustees and employers should note that the Regulator has delayed consulting on its revised DB funding code until early 2020.
The Regulator's stronger powers
The Bill's provisions will strengthen the hand of the Pensions Regulator significantly. The provisions are wide-ranging, encompassing new criminal offences and associated penalties, the extension of the 'moral hazard' regime and new powers to gather information from regulated pension plans and employers.
Moral hazard powers
The Bill provides the Regulator with two new grounds for issuing a Contribution Notice:
- the employer insolvency test – where a pension plan is in deficit and a person is party to an act, or failure to act, that would materially reduce the amount of the section 75 debt which is likely to be recovered by the pension plan should a section 75 debt fall due, and
- the employer resources test – where an act, or failure to act, reduces the employer's resources and that reduction is material relative to the amount of the pension plan's estimated section 75 debt.
The Bill also extends the 'notifiable events' regime. The detail will be in regulations which are expected to prescribe two new employer-related notifiable events which have to be reported to the Regulator:
- the sale of the business or assets of a sponsoring employer, and
- the granting of security on a debt to give it priority over debt to the pension plan.
When these events or the sale of controlling interest in a sponsoring employer occur, corporate planners will have to make a declaration of intent, copied to the trustees, setting out information on the notifiable event and how any detriment to the pension plan will be mitigated.
Wider information-gathering powers
The Regulator's information-gathering powers will be widened to include a stand-alone interview power (not dependent on a notice previously having been issued) to require any employer, trustee, member or professional adviser to attend an interview in respect of any matter relevant to the exercise of any of the Regulator's functions.
The Regulator's power to inspect premises will also be strengthened to allow inspectors to enter any premises where documents or records are kept which are relevant to the exercise of any of the Regulator's functions.
New financial powers and penalties will allow:
- fixed penalties (up to £50,000) and escalating penalties (up to £10,000 per day) where the Regulator establishes non-compliance with the information requirements, and
- civil penalties for knowingly or recklessly providing false or misleading information to the Regulator or to DB plan trustees in specified circumstances (up to £1million).
New criminal offences
The Bill creates three new criminal offences, the penalties for which include fines and imprisonment:
Failure to comply with a contribution notice
Conduct risking accrued plan benefits (in broad terms, an act which detrimentally affects in a material way the likelihood of a member receiving accrued plan benefits where the person knew, or should have known, that the act would have that effect and the person has no reasonable excuse)
Unlimited fine and/or up to a 7 years' imprisonment
Avoiding a section 75 debt
Unlimited fine and/or up to a 7 years' imprisonment
The Bill also gives the Regulator the power to impose civil penalties of up to £1 million for each of these offences (although a civil penalty will not apply if criminal proceedings are ongoing or if there has been a conviction).
Implications and next steps
If the new Government reintroduces the Pensions Bill, its provisions may be different or more extensive given that a number of provisions were not included first-time round due to lack of time (for example, the legal backbone for DB consolidator funds).
The most significant changes in the pre-dissolution version of the Bill undoubtedly relate to the expansion of the Pensions Regulator's powers. These powers are wider than anticipated and could potentially restrict corporate transactions.
It is also noteworthy that immediately before Parliament's dissolution, a private member's bill was introduced into the House of Lords that sought to impose a requirement to seek the permission of the Regulator and the trustees of any occupational pension plan before a dividend payment was made by a company.