Landmark changes for UK pensions.
The long awaited Pension Schemes Act received royal assent on 11 February 2021. The Act aims to strengthen protections for savers, increase the regulator’s powers and align pension schemes with government ambitions to combat climate change. Minister of Pensions, Guy Opperman stated that he believes the new Pension Schemes Act 2021 will make pensions safer, better and greener.
Some of the most important changes to be brought in by the Act will include:
- New powers for the Pensions Regulator (TPR) to issue civil penalties of up to £1 million
- Three new criminal offences with a maximum penalty of seven years in prison for those who misuse pension scheme assets
- The introduction of enhanced inspection and interview powers for TPR to gather information
- The introduction of collective defined contributions (CDC) schemes, where assets are pooled between members
- A new funding regime for defined benefit schemes which may require higher employer scheme funding levels
- A new climate risk reporting regime and new changes to pension scheme funding to improve financial sustainability
- The setting up of a Pensions dashboard allowing members to see all their savings on one single online platform
- Restrictions on transfers out of pension schemes to help fight pension scams
Further consultation and guidance is anticipated before the various provisions come into force, probably in Autumn 2021.
Actions for trustees:
- Engage with the employer to prepare a funding and investment strategy
- Understand the TPR’s new powers and sanctions – actions that put at risk accrued benefits such as avoiding a pension debt or failing to pay a contribution notice, may result in a fine and /or up to seven years in prison
- Be aware of the new notifiable events regime and greater penalties
- Be ready to supply data to be used in the new pensions dashboard – the requirement for all schemes to connect to the dashboard may arrive in 2023
- Start preparing to make and report on climate change risk affecting your scheme - DWP is currently consulting on regulations for new governance and disclosure requirements
- Start implementing governance measures in relation to climate change risk in investments
- Ensure administrators implement new processes to meet new requirements for statutory transfers from your scheme
- Review your Trustees Insurance Policy and consider whether it offers sufficient cover for the new provisions under the Act
Actions for employers:
- Engage with trustees about the scheme funding and investment strategy
- Keep the trustees informed of any proposed transactions that may impact on scheme funding
- Get up to speed on the new notifiable events (to be confirmed in the regulations) relating to corporate transactions such as the sale of a material part of an employer’s business or assets, the sale of controlling interests in a company and the granting of security in priority on a debt
- TPR will be able to issue a contribution notice when the employer insolvency test or the employer resources test (to be set out in more detail in guidance) are met and failure to comply with a contribution notice may be considered a criminal offence carrying an unlimited fine
- An employer insolvency test is a material reduction in the amount that could be recovered from an employer if a hypothetical insolvency had arisen and an employer resources test looks at whether employer resources have been materially reduced, taking into account the amount of any employer debt
- Engage with trustees in relation to climate change and governance measures
- Be aware of the new criminal sanctions and check whether the directors and officers indemnity insurance covers all civil penalties
- Consider whether CDC schemes may be a suitable option to provide pension benefits
- Be prepared to offer greater indemnity insurance cover to scheme trustees
We will keep you updated as more detail emerges. Contact Sasha Butterworth if you have any queries.
TLT’s pension team works with employers and trustees and advises on all aspects of pensions law and regulation.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.