Significantly, and following sustained pressure from Pensions UK, others in the industry and Parliament, the power enabling the Government to determine how pension schemes invest is far narrower in scope than first drafted and tightly time limited. This is a victory for fiduciary duty and, ultimately, for savers whose investments will remain governed solely by trustees.
The legislation delivers a series of positive reforms that we expect to increase the value schemes can deliver and, in doing so, improve retirements for millions.
This includes a requirement on schemes to deliver incomes from pension savings at retirement, rather than leaving savers to make complex decisions by themselves. The Bill enables the automatic consolidation of small pension pots, saving money and making the system simpler to navigate for savers. And it underpins the new Value for Money framework, which should enable employers to choose schemes based on overall value, not just price.
The Pension Schemes Bill includes new rules to allow the release of surplus by Defined Benefit schemes, and establishes a clear legislative framework for commercial superfunds, providing greater certainty and oversight for schemes seeking to consolidate defined benefit liabilities, while maintaining protection for members.
Finally, the Bill supports further consolidation in the industry, with the aim of creating the right conditions for schemes to drive efficiencies and to bring investment expertise in-house, supporting more sophisticated investment approaches that are expected to deliver stronger long-term returns.
Strong industry voice throughout the Bill’s passage
The Bill reflects sustained engagement between Government, Parliament and the pensions industry. Pensions UK has played a central role throughout the Bill’s passage, working constructively with ministers, parliamentarians and officials to help ensure the final legislation is practical, proportionate and maintains confidence in the system.
Pensions UK’s work has supported the following changes during the passage of the Bill:
A significant scale back of the mandation power allowing Government to direct how schemes invest, with changes built around the specific demands Pensions UK has made from the start of the Parliamentary process.
Limiting powers relating to the Local Government Pension Scheme, preserving trustee fiduciary duty and scheme flexibility.
On surplus release, providing greater clarity and flexibility around how well-funded defined benefit schemes can make responsible use of surplus while protecting members’ interests.
The abolition of the PPF administration levy, removing an unnecessary cost on schemes while maintaining the strength and security of the Pension Protection Fund.
A legislative solution to the Virgin Media issue, resolving long-standing uncertainty and protecting schemes and members from the risk of disproportionate and unintended consequences.
Julian Mund, Chief Executive of Pensions UK, said: “The passage of the Pension Schemes Act is a victory for pension savers. The legislation enacts a series of critical reforms that will improve the value savers get from pensions and make the system easier to navigate for employers and savers. The power that enables Government to direct how schemes invest has been drastically scaled back, with amendments built around demands Pensions UK has made from day one.
“Pensions UK and its members have played a leading role in shaping this legislation in the round, from policy formation through to today, and now our attention will turn to two things. First, the regulations that will put these reforms into action. And second, working with the Pensions Commission so that the systemic change delivered by the Bill is accompanied by more savings overall – giving us the best chance of delivering the retirements people rightly expect.”
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