The Pension Schemes Bill received Royal Assent last week and is now enacted. Though assent is a formality, it draws the line in the sand. “What is changing” is now “what has changed” and the work of Guy Opperman has converted into tangible results.
It’s worth comparing this Act to what has come before, thanks here to Wikipedia
The early 1990s established the existing framework for state pensions in the Social Security Contributions and Benefits Act 1992 and Superannuation and other Funds (Validation) Act 1992. Following the highly respected Goode Report, occupational pensions were covered by comprehensive statutes in the Pension Schemes Act 1993 and the Pensions Act 1995.
In 2002 the Pensions Commission was established as a cross-party body to review pensions in the United Kingdom. The first Act to follow was the Pensions Act 2004, which updated regulation by replacing the Occupational Pensions Regulatory Authority (OPRA) with the Pensions Regulator and relaxing the stringency of minimum funding requirements for pensions, while ensuring protection for insolvent businesses.
In a major update of the state pension, the Pensions Act 2007 aligned and raised retirement ages. Since then, the Pensions Act 2008 has set up automatic enrolment for occupational pensions, and a public competitor designed to be a low-cost and efficient fund manager, called the National Employment Savings Trust (or “Nest”).
The Pension Act 2014 was the culmination of Steve Webb’s work within the coalition Government and will chiefly be remembered for reforms of the state pension which was simplified by providing for a new single tier State pension to be implemented on 6 April 2016. It abolished contracting-out , increased State Pension Age from age 66 to age 67 between 2026 and 2028 and a new statutory objective for TPR.
But the framework put in place to introduce automatic transfers for members of workplace pension schemes (pot follows member) was not followed through , nor the vague promise for collective pensions and many of the minor changes around cost disclosures and administration charges on private pensions have proved unsubstantial outside the pension bubble.
How does the Pension Schemes Act compare?
The first thing to notice is that this is not an act about state pensions. It is an act about pension schemes and mostly about private pensions. The driver for Steve Webb’s pot follows members was a single view private pension and this has been replaced by the pensions dashboard providing a technological fix more in line with the spirit of pension freedoms. The dashboard is infact a DWP inheritance from the Treasury.
The second thing to notice is that the Pensions Regulator is being empowered to control defined benefit pensions with considerably more force. The Act acknowledges for the first time that – at least in the corporate sector – sponsoring the accrual of guaranteed pensions will in future be rare. The Act gets headlines for draconian powers against malfeasance but this is window dressing. How the Pensions Regulator uses its new powers will continue to be a major cause for debate and consultation.
The third and perhaps most surprising inclusion in the Act, is the proper facilitation of CDC. Steve Webb threw CDC into the 2014 mix but it didn’t last long when a new Conservative Government arrived and it would have almost certainly have been buried were it not for Royal Mail’s settlement with its unions that ensured both sides could agree on pensions. Such is the importance of Royal Mail’s 145,000 workforce and the service they provide, that a Conservative Government have embraced a very left-wing collective solution. The questions are whether CDC will be adopted elsewhere and why.
But probably the most momentous aspect of the Act is likely to be the requirement on all funded workplace pensions but especially master trusts and large own occupational schemes to properly disclose the impact of their investments on the sustainability of the planet. TCFD disclosures became part of the Pensions Act late in the progress of the Bill but unlike the late provision of the 2014 Act, the strategies for improved ESG were properly thought through.
The Pension Schemes Act is quite different from its immediate predecessors in focusing not on state but private pensions, for delivering developed solutions to issues around privately sponsored pension guarantees and in introducing a new way of looking at pension funds – as agents of environmental , social and governmental change.
How will it the Act be remembered?
Pension Ministers are iconoclasts, they have their own niches and plough their own furrows, The 2014 Act was Steve Webb’s and reflects his interests and the 2021 Act is Guy Opperman’s. With respect to Ros Altmann and Richard Harrington, neither had the appetite or command to impose their personality on pensions as Guy Opperman has. This Act will be remembered as Opperman’s , as 2014’s was Webb’s and 2008’s was the Pension Commission’s.
In terms of direction, the Act steers Britain away from a focus on state pensions and emphasizes the importance of workplace pensions following the introduction of auto-enrolment. The Act responds to the Treasury’s empowerment of individuals to spend their pensions their way, by mandating the provision of pension information on technologically advanced dashboards; it also opens the door to pension schemes to provide scheme pensions collectively through CDC.
Finally it shows a determination from Opperman and the DWP to play an active role in Britain’s contribution to climate change targets through the mandating of TCFD disclosures. The radical intervention into the purpose of funding pensions is what the Pension Schemes Act will be best remembered for and the odd thing is that it has very little to do with pensions!