The Pensions Schemes Act becoming law marks an important landmark which will boost savers’ confidence in their retirement plans thanks to better protection.
The Act provides a strong package of measures to further safeguard UK pension savers. We are extremely pleased to see it become law and have worked closely with the Department for Work and Pensions (DWP) to develop effective proposals that will make a real difference to savers.
Through the new Act, we will build on our clear, quick and tough approach to drive better standards across the pension schemes we regulate and ensure savers are treated fairly by employers.
We will be clear in our expectations when talking to trustees and quick to take tough action where we have concerns. Trustees and sponsoring employers will be expected to demonstrate to an even higher level how their funding approach is prudent, appropriate and sustainable.
Tackling unscrupulous employers
The package of measures gives us enhanced powers to take action against unscrupulous employers, to gather information more efficiently and to scrutinise how Defined Benefit (DB) pension schemes are funded.
The overall package of measures will make using our powers more efficient and introduces deterrents against behaviour that risks savers’ benefits. The changes in the Act will also help us drive better standards across the schemes we regulate and better equip us to protect savers.
Enhanced information-gathering powers will significantly aid our investigations by giving us more tools to progress them effectively and efficiently, including by being able to compel people to attend interviews and giving us broader powers to conduct inspections.
New fixed and escalating civil penalties for breaching our information-gathering powers will mean fast, proportionate enforcement action can be taken against those who delay or fail to comply with our requests for information. This will help us secure the information we need sooner.
The Act also highlights that pension scheme trustees should be considering the effects of climate change, and we can expect regulations requiring them to engage more fully with the risks and opportunities arising from the response to this global emergency. We too are stepping up to meet this challenge and will be launching our own climate strategy during 2021.
Next steps While the passing of the Pensions Schemes Act is a significant milestone in boosting the protection of savers, there remains more to do.
We will be continuing to work closely with the industry to produce the necessary codes and guidance to ensure the measures are introduced in the most effective way.
Our revised DB funding code has to be consistent with new legislation set out in the Act and the consultation and development of the DWP’s regulations are currently expected to be in the first part of this year. This means we anticipate publishing our second funding code consultation in the second half of 2021.
We recently published our interim response to our first consultation on the first revised code. The consultation aimed to scope out what the revised code may look like under the new developing legislation.
It asked for views on several proposals including TPR’s proposed regulatory approach including twin track routes to demonstrating compliance: Fast Track and Bespoke, the principles that should underpin all valuations in the revised framework, and ideas on how these principles could be applied in practice to provide clearer guidelines.
There were 127 responses to the consultation across a broad range of stakeholders, generating 6,000 comments in total.
This first part of the consultation was complex and we are grateful for the well thought through responses which gave light to a number of issues to be considered.
The second funding code consultation in the second half of 2021 will include:
- a full summary of the responses to our first consultation and the approach we have taken in light of these responses and the final legislative package
- the draft code of practice for consultation and our proposed regulatory approach, including developing thinking around:
- our process to review and update Fast Track guidelines
- our approach to assessing valuations
- engagement with DB schemes
- an impact assessment and supporting analysis.
A look ahead
Alongside our work to enhance protection for savers through the Pensions Schemes Act, we will also be introducing our new Corporate Strategy early this year. This sets out where we and the industry will need to prioritise in the coming years and continues to build on TPR’s transformation into a clear, quick, tough regulator.
The strategy will reflect the changing nature of workplace pensions, outlining the shift in focus, over time, from DB to DC saving.
While support remains in place for pension schemes and employers in the wake of COVID-19, the future financial wellbeing of savers continues to underpin TPR’s long term ambition.
The strategy analyses different groups of savers by generation - Baby Boomers, Generation X and Millennials - recognising that each group faces different life circumstances and risks in relation to their pensions.
For younger savers automatically enrolled into DC pensions, investment performance, value for money and at-retirement decision making will play a much greater role in retirement outcomes.
From the analysis five strategic priorities emerge:
- Security - protecting the money that savers invest in pensions. Maintaining focus on the promises that are made to savers in DB schemes and on protecting their pensions from scammers; over the fifteen-year horizon of the strategy, as assets in DC schemes grow, there will be a shift in primary focus to the security and value that these schemes provide savers.
- Value for money - savers’ money must be well invested; costs and charges must be reasonable; and good quality, efficient services and administration are driven by robust data.
- Scrutiny of decision-making - monitoring those who make decisions that impact savers’ outcomes; closely scrutinising any decisions that pose a heightened risk to the quality of these outcomes.
- Embracing innovation - encourage innovation and good practice; collaborating with the market to enhance security, efficiency, transparency, simplicity and choice.
- Bold and innovative regulation - transforming the way TPR regulates to put the saver at the heart of its work; driving participation in pensions saving and enhancing and protecting savers’ outcomes; maintain a sharp focus on bold and innovative regulation, anticipating and preventing issues before they materialise.
The strong package of measures included, and the Pensions Schemes Act, together with the clear vision for our aspirations over the longer term set out in our Corporate Strategy will help us map out and influence the development of the savings landscape.
Being able to forecast and respond to emerging risks and challenges more effectively means that savers are more protected now and in the future.
This article was featured in Pensions Aspects magazine March 2021 edition.
Last update: 4 March 2021