The Pension Schemes Act 2021: Safer, better, and greener?

The Pension Schemes Bill completed its long march through Parliament this week and will become the Pension Schemes Act 2021 (the “Act”) once it has obtained Royal Assent.

In the press and in Parliament, the Pensions Minister has made the Government’s aspirations for the Act clear by stating that the new law will make pension schemes “safer, better, and greener”.

Safer Pensions

The Pensions Regulator (the “Regulator”) will be further empowered by the Act. The Act will create new grounds under which the Regulator can issue Contribution Notices, and will introduce new criminal sanctions to support the Regulator’s enforcement functions.

The Regulator will also be granted greater information-gathering and investigation powers, and will be able to impose sanctions on parties that refuse to engage. In addition, the Regulator will be able to exercise increased oversight of corporate transactions through the expanded Notifiable Events regime.

These new powers and sanctions have been drafted very broadly, clearly with recent pensions scandals in mind. We will need to wait and see how the Regulator chooses to exercise its new powers in future.

The Act also provides for the creation of more stringent conditions on members exercising their right to a cash equivalent transfer.

These conditions, once implemented in secondary legislation, will create new obstacles for pension scammers and will make it easier for trustees to refuse transfers into seemingly scam schemes.

Better Pensions

The Act establishes the framework for the creation of Collective Money Purchase schemes (“CMPS”). The Government believes the CMPS can, over time, become an attractive alternative to the Defined Contribution scheme.

The most visible change, from a consumer perspective, will be the establishment of Pensions Dashboard services under the Act. Pensions Dashboards will allow end-users to view all of their pension pots in one place online.

The funding regime for Defined Benefit schemes (“DB Schemes”) is also set to be supplemented by the Act. Trustees/managers of DB Schemes will be required to set a “funding and investment strategy” for ensuring benefits can be provided on a long-term basis.

They must also prepare a written “statement of strategy” that sets out the funding and investment strategy amongst other things.

The Regulator plans to issue a new DB Funding Code of Practice which will build on the provisions of the Act, but this will not have effect before 2022.

Greener Pensions

With the United Nations Climate Change Conference set to take place in Glasgow this November, the Government has been keen to bolster the UK’s green credentials.

The Act seeks to ensure that pension funds are on hand to aid the wider “greening-up” of the UK economy. The Act introduces the concept of “climate change risk” to the Pensions Act 1995.

Provision is also made for future regulations requiring trustees/managers to account for climate change risk in various ways.

Going Forward

As alluded to above, many of the changes introduced by the Act will require secondary implementing legislation before they can begin to take effect.

The Government has stated that it hopes to have the Regulator’s new powers available for use by autumn of this year.

The Regulator is also due to publish guidance on its application of the new criminal sanctions in the coming months.