The 2024 King’s Speech on 17 July 2024 introduced 40 bills – the highest number of bills to appear since the Queen’s Speech of 2005. Notably, the new Pension Schemes Bill was unveiled. Here is our take on what to expect!
| Key Points on the Pension Schemes Bill: • Consolidation of small DC schemes to prevent people losing track of their pension pots. • Consolidation of DB schemes through commercial superfunds. • Focus on boosting pension investment and improved governance through the value for money framework. |
The Bill aims to introduce the following measures:
- Consolidating defined contribution individual deferred small pension pots. This aims to help prevent people from losing track of their pots, and reduce inefficient loss-making pots for schemes as individuals move between jobs.
- ‘Value for Money’ framework. This introduces a standardised test that trust based defined contribution schemes will utilise to compare themselves against similar schemes and demonstrate their value. The aim is to leave the pensions market with a smaller number of well-preforming and well governed schemes.
- Placing duties on trustees of occupational pension schemes to offer a retirement income solution, including default investment options, to their members.
- Consolidating defined benefit schemes through commercial superfunds to protect members in closed legacy defined benefit schemes from the risk of losses if their employer becomes insolvent.
- Reaffirming the Pensions Ombudsman (TPO) as a competent court, removing the need for schemes to apply to the courts to enforce TPO decisions. This should reduce recovery costs and puts to bed differences in opinion over how TPO and the courts regard TPO’s standing.
- Amending the Special Rules for End of Life (Pension Protection Fund and Financial Assistance Scheme (FAS)). The aim is to extend the definition of ‘terminal illness’, allowing eligible members within the PPF and FAS to receive a lump sum payment at an earlier stage.
Comparison against the previous government’s policies
These measures build upon the measures introduced by the previous government. In November 2023, the then Chancellor, Jeremy Hunt, announced his Autumn statement that built upon the earlier “Mansion House Reforms” that were announced in July 2023. These reforms sought to consult on changes to rules around the return of defined benefit surpluses to employers and included protections such as the PPF acting as a a superfund for DB schemes (Click here for the article in Part 1 of December 2023 Pensions Compass).
Additionally, the previous government initiated a call for evidence on a lifetime provider model to tackle issues with ‘small pot’ pensions, which set the foundations for the consolidation that the new Labour government seeks to achieve. The Value for Money framework was also proposed by the previous government.
The new Pensions Schemes Bill, therefore, focuses on many of the same aims as the previous government with a view to creating a pensions landscape with fewer, more effective schemes, sharper investment strategy and ultimately better protection and value for members. However, there was no mention specifically of the PPF being used as a DB consolidator. That is not to say the new government has dropped this initiative. Speculating, perhaps the new government recognises that any means of using the PPF as a consolidator will take a long time to put in place within the necessary statutory framework.
There was also no mention of reforms to DB surplus repayment rules. Between February and March 2024, the previous government consulted on changes to the way in which DB surpluses can be repaid to employers including a proposed statutory override to make it easier for employers to access surpluses. Will the new government carry forward these reforms, or is the omission a sign that these reforms haven’t made the cut?
Time will tell when it comes to the effectiveness of these measures, the shape that these new DB superfunds will take and whether reform of DB surpluses remains on this government’s agenda. Improving market efficiencies and pensions investments, whilst welcome news, may not be as radical as some may have expected, particularly, when compared to that of the previous government’s policies.
Ongoing legislative developments
Meanwhile, there are various other legislative developments that were started under the previous government which remain to be seen whether the new Labour government will pick up and continue. However, if the Pension Schemes Bill is anything to go off, then perhaps we can expect the new government to pick up the baton in the following areas too:
- Notifiable Events Regime:- the Department for Work and Pensions (DWP) published draft regulations which introduce two further employer-related notifiable events to the existing list of notifiable events. These additions cover a ‘decision in principle’ by an employer to sell a ‘material proportion’ of its business or assets, or to grant a ‘relevant security’ over its. Regulations still need finalising.
- GMP Conversion Act:- which amends and clarifies the conditions around GMP conversion. The Act received Royal Assent on 28 April 2022 but is not yet in force.
- Auto-Enrolment:- regulations are awaited to remove the lower earnings band and reduce the minimum qualifying age to 18 with a view to increasing uptake in auto-enrolment pensions.
- New DB Funding Code of Practice:- the Pensions Regulator recently laid before Parliament its new DB funding code of practice which, once in force, will replace the existing DB funding code for valuations with effective dates on or after 22 September 2024 (for further details, see our article on the new DB funding code here).
We shall have to wait and see whether the outstanding legislation and regulations come into effect. Ultimately, the direction is for fewer, more effective schemes to increase uptake and investment in pensions and delivering more value for members. Labour’s decision to appoint Emma Reynolds as Pensions Minister at HM Treasury and DWP is a departure from when pensions policy previously fell solely to DWP, with HM Treasury being responsible for pensions tax. Will this new dual-appointment help ease any potential barriers between the two government departments and help push-forward with pensions reforms?
Stay tuned with the Pensions Compass as we cover these developments throughout the year and see whether, under the new Labour Government, these developments will achieve the intended aims.