The Pension Schemes Act received Royal Assent today creating new laws covering areas including defined benefit scheme protections, pensions dashboards and climate change.
With Royal Assent granted, after two year the Pension Schemes Bill has finally become law bringing into force a raft of new measures.
According to pensions minister Guy Opperman, the measures are designed to make Britons’ pensions “safer, better and greener”
Measures in the new Bill include legislation enabling the creation of long-awaited pensions dashboards.
There has been much debate over the timeline and coverage dashboards should aim for to ensure people can trust the information as accurate and complete.
The launch of the dashboards is scheduled for 2023 to allow the inclusion of DB schemes and older-style pensions.
The Act also brings into force new rules around climate change reporting for defined contribution schemes. The Act places a new emphasis on schemes to consider the climate change impact of the investments they make on behalf of members and to publish information for members on how this has been achieved.
The Act will also allow new collective defined contribution (CDC) schemes to be created in the UK. These group schemes are designed to offer a ‘third way’ between guaranteed DB pensions, where all risks are shouldered by the employer, and DC, where risks are shouldered by the member. Under CDC the employer and employee contribute to a collective fund from which the employee draws a retirement income. The funding risk is shared collectively, in a similar way to old-style with profits pensions.
The popularity of CDC schemes is mixed in the pensions industry. Proponents say CDC savers benefit from bigger pensions with lower investment volatility, whereas opponents argue younger generations are asked to make larger contributions to pay for their elders’ pensions.
The Royal Mail has already committed to offering CDC to its members in place of its DB Scheme.
The measures also include tougher punishments for employers who neglect their responsibilities to members of defined benefit schemes, with jail terms and fines up to £1m for individuals who knowingly neglect their responsibilities to members.
Tom Selby, senior analyst at investment platform AJ Bell, said the measures would be seen as an example of the Government bolding the stable door long after the horse has bolted and it is not clear how the punishments might play out in practice. However, he added that “this tougher regime should help place dealing with DB pensions closer to the top of corporate agendas and ensure past scandals are at least less likely to be repeated.”
There is also an emphasis on protecting savers from the growing scourge of pension scams.