A new Pensions Schemes Bill – which pension reform measures is the new Government prioritising? And what of those that didn’t make the cut?, Louise Pettit

In view of the new Government’s growth agenda, hopes were high that yesterday’s King’s Speech would include a Pensions Bill and indeed pension investment received top billing with an early mention in the speech itself. Delving into the accompanying briefing paper revealed that we are promised a new Pension Schemes Bill which will take forward many of the initiatives conceived under the previous Government’s Mansion House reforms. But there are a number of notable omissions in the Bill as well – are these measures that have been dropped, or might they follow at a later date?

What will be in the Bill?

It is interesting to see the new government pick up the baton where the previous government’s work in progress Mansion House reforms had left off. As pensions are by their nature long term obligations, consistency in policy approach is to be welcomed. As the Mansion House reforms did before it, the Pension Schemes Bill has productive finance at its core and it’s therefore no surprise to see many of the measures that have been included are those focussed on consolidation of schemes – both in the DB and DC space.

The briefing paper notes that the Bill is designed to “increase the amount available for pension savers” and says that Bill will help savers “get better outcomes from their pension assets and support the Government’s mission to deliver growth”.

DC measures

DC measures promised in the new Bill include:

Value for money

To be applied across the trust and contract based market, a new standardised value for money test will require DC schemes to show that they meet the test and are delivering value for savers – “this should result in consolidation in the pensions market by leaving a smaller number of well-performing, well governed schemes which will not only improve outcomes for savers but is likely to lead to more productive investment of funds”. This is consistent with the measures announced in the July 2023 Mansion House reform proposals. Under the last Government we had been awaiting draft regulations and a “Spring 2024” consultation on FCA rules – will these now follow alongside the new Bill?

Small pots

This time last year the then Pensions Minister Laura Trott confirmed that the DWP proposed to adopt the multiple default consolidator model to deal with the challenge of deferred small pots and launched a consultation on how that model might work. The consultation response, published in November, confirmed that the DWP would proceed with the multiple default consolidator option, and would establish an industry working group to work through the design and delivery questions. The response also included a call for evidence in relation to a longer term vision for pension saving, including the case for a lifetime provider model.

We are told now that the new Pension Schemes Bill will include measures to prevent “people from losing track of their pension pots through the consolidation of Defined Contribution individual deferred small pension pots”. This will happen “automatically” to “maximise income in retirement and deliver value for every saver” as well as benefitting schemes by reducing the number of loss-making small pots they have to manage. It will be interesting to see whether the multiple default consolidator approach put forward by the last Government to the small pots problem will be adopted or whether they might look again at the pot follows member approach – one suspects the former given how far developed those proposals are but we will know more when we see the draft Bill.

Retirement solutions

In substance this looks to be the same as the new obligation for trustees to offer decumulation solutions that the previous Government promised to bring in as part of the Mansion House reforms. Rebadged as a requirement to offer “retirement solutions”, the briefing on the Bill promises to “place duties on trustees of occupational pension schemes to offer a retirement income solution or range of solutions, including default investment options, to their members.” Detail as to the shape of that obligation is awaited with interest.

DB proposals

With an initial consultation back in 2018, DB superfunds have been in the pipeline for some years now. In the Mansion House reforms, the then Chancellor promised to set out plans to establish a new permanent regulatory regime for DB superfunds. The consultation response, published in July 2023, envisaged that superfunds would provide “a new scaled up way of managing DB liabilities” and would be of most interest to schemes that are 70% to 90% funded on a buy out basis (able to afford the entry price but unlikely to be able to buy out in the short term).

The introduction of superfunds will require primary legislation and it looks like that will now come imminently in the Pension Schemes Bill, but doubtless much of the detail will be left to be worked out in regulations.

Pensions Ombudsman clarification

Away from the pensions for growth agenda, we’ve written previously here about the implications of the Court of Appeal’s decision in the CMG case and the Pensions Ombudsman’s response to the conclusion that that it is not a competent court for the purposes of section 91(6) of the Pensions Act 1995. To recap, the effect of the decision was that the Ombudsman’s determination alone was not sufficient to allow trustees to recoup pension overpayments where there was a dispute – an application needs to be made to the county court for an order to enforce the recovery.

The Pensions Ombudsman had been in discussions with the DWP for legislative intervention to resolve the issue and take away this additional administrative step and it looks like that will now come in the Pensions Schemes Bill, which includes a promise to “reaffirm” that the Pensions Ombudsman is a competent court. With an estimated 3,000 cases affected annually and serious capacity constraints in the county courts this will doubtless be welcomed across the industry.

What won’t be there?

The Labour party manifesto promised us a review of the entire pensions eco-system but no mention of that in the King's speech or the accompanying Bill.

No place either for any auto-enrolment reforms – in view of ongoing concerns around pensions adequacy there had been some discussion about whether we may see the new Government set out a road-map to seek to address this by increasing AE contribution rates over time.

As set out above, the Bill will take forward proposals for a new DB superfund regime, with a view to facilitating consolidation of the DB market in the hope of improving investment performance through economies of scale. However there is no place in the Bill for a new public sector DB scheme consolidator – a measure put forward by previous Chancellor Jeremy Hunt as part of the Mansion House reforms package. This was one of the elements of the package that attracted the most interest, with industry concerns raised about market distortion amongst other things, but also one that was reasonably far progressed with the outcome of a second DWP consultation awaited and the PPF having put forward scheme design principles. Does the silence in this Bill mean the PSC has been dropped, or might we see this picked up further down the line, perhaps as part of the pensions landscape review?

Nothing in the Bill either on CDC but of course in that case the primary legislation is already in place in the Pension Schemes Act 2021 – and Royal Mail has announced recently that its CDC scheme (currently the only one) will be launching this Autumn. Will we see Regulations to bring forward the expansion of the CDC regime proposed by the previous government, so that unconnected employers are able to pool assets in new whole-life, multi-employer CDC schemes? The 2021 Act already provides the necessary powers for such expansion.

Which other Bills announced in the King's speech might be interesting for pension schemes?

From an investment perspective, the new National Wealth Fund will be of interest to schemes. The briefing paper commentary describing the National Wealth Fund Bill promises that the Fund “will play a central role in the Government’s industrial strategy and growth and clean energy superpower missions making transformative investments across every part of the country supporting thousands of good jobs and making everyone better off, while generating a return for the taxpayer. It will directly invest in the priority sectors set out in the manifesto in every corner of the country”.

Last week Chancellor Rachel Reeves and Secretary of State for Energy, Security & Net Zero Ed Miliband met with pension fund representatives as part of a taskforce to help set up the Fund, which hopes to attract investment from institutions like pension funds in order to help achieve its green objectives.

The draft Audit Reform and Governance Bill will establish a new regulator, to replace the Financial Reporting Council, and will ensure “robust and rigorous scrutiny of large companies by auditors and greater transparency around their finances”. This should enable stakeholders, including pension scheme trustees, to have a more accurate understanding of the company’s health. The hope is that this in turn then helps minimise the impact of corporate failures – BHS and Carillion are both cited in the briefing paper as past examples.

What happens next?

We await the draft Bill – no promises have been made as to timescales, but given the keen focus of the new Government on growing the economy and the scale of the investment potential of pension funds we would hope to see a Bill in reasonably short order. Of course, much of the detail for these measures will need to follow in secondary legislation and we can expect to see consultations on draft regulations during the Autumn.

In the meantime, a day of debate on the new measures relating to economic growth, infrastructure and employment is scheduled for the House of Lords on Monday 22 July.

This blog reflects the position as at 18 July 2024