Generally, commencement of most of the Act depends on future regulations. The government has said it is progressing these but any subsequent regulations are unlikely to come into force before October 2021, given that statutory instruments usually take effect in either April or October.
Pensions Dashboards – at last?
The Pension Schemes Act 2021 (the “Act”) envisages that individuals will, one day, be able to access electronically a one stop shop to see all their pension savings including their state pension – pensions dashboards.
The Act introduces the legislative framework for pensions dashboard services, namely:
- eventually, a commercially operated pensions dashboard known as a “qualifying pensions dashboard service” that will have to meet certain prescribed requirements; and
- initially, the pensions dashboard service which will be provided by the Money and Pensions Service (“MaPS”).
The detail of the requirements for qualifying pensions dashboard services ((i) above) will be set out in subsequent regulations. However, it is likely that trustees of occupational pension schemes will be required to provide pensions information to a qualifying pensions dashboard service or the pensions dashboard service operated by MaPS.
“Pensions information” that trustees may be required to provide information relating to:
- the constitution of the scheme;
- scheme admin and finances;
- rights and obligations under the scheme;
- pensions and other benefits which accrue, or may accrue, under the scheme;
- other matters relevant to occupational pension schemes generally; and
- information as regards the position of an individual in relation to the scheme.
The regulations will also likely specify the circumstances, manner, form and time in which pensions information must be provided and in relation to electronic communications how to securely send the information.
Occupational pension scheme trustees should think about getting their data ready in anticipation of the subsequent regulations. In particular, trustees should check that their data is accurate and whether their data is sufficient or needs improvement. Trustees may need to invest in new IT equipment to help facilitate data provision and may need to review their governance procedures. Likewise, scheme sponsors should support trustees by sharing relevant data that they hold.
Regulations may contain provisions to ensure compliance. This could mean greater regulatory powers for the Pensions Regulator to enforce through compliance notices, penalties or otherwise. The more preparation trustees and sponsors do now, the less chance of falling foul of the regulations later on. That said, it is likely to be well into the future before we start to see any commercial dashboards. Initially, the pensions dashboard service will be provided by MaPS.
Conditions on Statutory Transfer Rights – tackling pension scams
The Act sets out the framework for restricting statutory transfer rights in the future to protect against pension scams. However, the precise means for tackling pension scams will be determined by future regulations. The government intends to consult on the new regulations which means it may be some time before new restrictions on statutory transfers come into force.
It’s possible that the regulations may require members to provide certain information to trustees before a statutory transfer can take place, including in relation to the member’s employment or place of residence. Members may also have to prove that they have obtained from a prescribed person information or guidance about exercising their transfer rights.
However, as there are no such restrictions currently in force, scheme trustees do not at present have to take any different action at the moment. Trustees should ensure that legitimate statutory transfers are made wherever possible in light of and bearing in mind the current guidance published by the Pensions Regulator as well as being mindful of the possible changes.
If trustees and/or members are in any doubt about the legal requirements concerning transfers, please contact us for further assistance – scammers remain very active.
Collective Defined Contribution (“CDC”) Schemes
Defined in the Act as “collective money purchase scheme” and commonly referred to as ‘CDC schemes’ are defined contribution schemes in which risks are shared collectively between all the members which enables target income to be set (but is not guaranteed). In contrast, individual members of ordinary defined contribution schemes usually bear the risks, particularly, around the investments that their fund is invested in. The Act establishes the legal framework for CDC schemes in which the Royal Mail is widely-anticipated to be one of the first sponsors to establish a CDC scheme.
CDC schemes are classified as a type of money purchase benefits that fall outside the scope of the Pension Protection Fund and employer-debt statutory regime. The classification as money purchase benefits provides sponsoring employers with assurance that they will not later be found liable for the cost of any decline in fund value. The attraction for sponsoring employers, therefore, is that they do not have liability to top up should investment performance be poor.
Finance Bill 2020-2021 published on 11 March 2021 contains provisions to ensure that CDC schemes operate as registered pension schemes. This means that CDC schemes will have access to pension tax relief and available exemptions e.g. from tax for certain lump sum benefit payments and lump sum death benefits. The Act also prohibits any person from operating a CDC scheme unless it is authorised by the Pensions Regulator.
It remains to be seen whether CDC schemes will be a popular choice for sponsoring employers who will, no doubt, be watching how the anticipated Royal Mail CDC scheme plays out. There will also be no immediate impact for scheme trustees. However, over time, more sponsoring employers may begin to consider switching to CDC schemes, particularly as an alternative option to accruing DB benefits.
One pitfall with CDC schemes is that the new legislation does not currently permit unassociated multi-employer master trusts from providing CDC schemes (the legislation only permits a single employer or a connected group of employers to participate). It will be interesting to see what regulations (if any) may be made in future to potentially widen the scope of CDC Schemes in this way.