On 11 February, the Pension Schemes Act was finally granted Royal Assent. Its journey through Parliament was far from smooth: it had been introduced over a year earlier, but the emergency caused by the pandemic disrupted Parliamentary business to an extent that it was not until the beginning of the current calendar year that its provisions finally became law.
The significance of the new Act lies in the range of key reforms that it introduces. One key change is the new requirement for trustees to report on how their scheme has responded to climate change. Trustees will now need to comply with the eleven recommendations made by the Taskforce on Climate-related Financial Disclosures (TCFD). This was an important objective of Pensions Minister Guy Opperman who, in October 2019, had written to the trustees of the UK’s largest pension schemes to ask about their existing approach to climate change reporting.
The Act also contains a new requirement for the trustees of Defined Benefit (DB) schemes to establish a ‘funding and investment strategy’ in order to confirm that schemes are able to pay members’ benefits over the longer term. Other reforms include provisions to allow further development of the pensions dashboard and to allow the Royal Mail to establish the UK’s first Collective Defined Contribution (CDC) scheme. The sheer number of important reforms contained in the new legislation means that over time the Act will be seen as an important milestone in the history of workplace pension provision.
However, the new Act is not without controversy. Section 107 is designed to introduce sanctions for those who deliberately compromise the funding of a DB scheme’s funding. The provisions have their origin in the Pensions Regulator’s (TPR’s) battles with Sir Philip Green in the wake of the collapse of BHS. Whilst the policy intent has met with widespread approval, the wording of Section 107 has caused great concern within the pensions industry. This is because the Section is worded in such a way that it is far from clear exactly who could be affected or the grounds that might lead to prosecution. Critics argue that potentially any organisation which provides consultancy services to DB schemes which lead to a reduction in a scheme’s funding position could be subject to legal sanctions.
PMI is the current Chair of the Joint Industry Forum (JIF), which is an umbrella organisation made up of the principal professional bodies and trade associations working in the pensions industry. Since late 2019, JIF has tried to establish effective dialogue with the Department for Work and Pensions (DWP) to establish how Clause 107 is to be implemented in a way that makes a workable distinction between consultants acting in good faith and those individuals that the Clause was intended to target. It is unfortunate that after such a long time the industry’s concerns remain unresolved.
The Pensions Act 2021 contains a wide range of important reforms to workplace pension provision and its impact will affect pension schemes for decades to come. However, it is unfortunate that at this stage some of its provisions require clarification. In order for the industry to be able to move on, in line with Government, these issues need to be resolved promptly.
Last update: 14 April 2021