The Pension Schemes Bill has been finalised after protracted debates between legislators, and will now move to receive Royal Assent and become law. Pensions Expert rounds up some of the industry reaction across the various elements of the new legislation.
Despite continued reservations about the existence of the controversial ‘mandation’ power, the wide-ranging bill has strong industry support as reflected in reactions this morning.
From radical reforms to defined contribution (DC) pension schemes, to surplus release powers for defined benefit (DB) scheme trustees, levy changes for the Pension Protection Fund, and a legislative framework for superfunds, the bill will reshape the pensions sector over the next decade.
DC: mandation, scale and consolidation
The mandation power was the final sticking point in the Pension Schemes Bill, and while it remains in the legislation, peers in the House of Lords were finally satisfied last night that there were sufficient guardrails in place.
Dr Yvonne Braun, director of long-term savings policy at the Association of British Insurers, said: “We’ve long said that the Pension Schemes Bill sets a new direction for UK pensions and we strongly support the overall package. The bill’s ambitious reforms will help improve people’s retirement by driving a focus on value, making pensions easier to manage, and supporting long-term economic growth.
“We remain concerned that the bill includes a reserve power to mandate how pension funds invest. However, the many additional safeguards we proposed should help to limit any potential negative impact. In particular, the concessions now reflect our calls for an independent assessment before the power can be used.
“We’ll now work closely with our members as they start implementing the wide-ranging measures introduced through this landmark legislation.”
Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, said: “We fully supported the House of Lords in opposing a sweeping mandation power and are pleased that the government has introduced important guardrails.
“As the bill now moves towards implementation, our focus will be on working with government, regulators and the industry to ensure these reforms strengthen the pensions system, support long-term growth and, above all, deliver better outcomes for scheme members.”
‘Historic moment’ for UK pensions
Louise Davey, head of policy and external affairs at Independent Governance Group, said: “The core principle of effective trusteeship is the ability to act in the best interests of their members, consistent with their fiduciary duties. Mandation flies directly in the face of this.
“We’re pleased to see that the government has backed down and significantly reduced its proposal – however, it still has clear remnants of a mandation-led approach, which has no place in a healthy and fully functioning pension ecosystem.”
Davey underlined the importance of a “pipeline of strong projects that support the UK’s economic goals” as well as delivering investment performance. “It is this combination that will allow trustees to confidently allocate money domestically,” she said.
Patrick Heath‑Lay, chief executive officer of People’s Partnership, provider of the People’s Pension, said: “This is a historic moment for the UK pensions market. The bill contains several important market reforms that will drive scale and efficiencies, while ultimately ensuring that better value is delivered to millions of pension savers. These changes will further strengthen the UK pensions system and help it drive investment into the wider UK economy.”
Heath-Lay highlighted new rules to introduce default consolidators for small pots and the focus on default decumulation offerings that many DC providers are already working on.
“We are well into the planning phase of our own solution and believe it is a vital component in supporting people to make the right financial decisions that can be complex and hard to navigate,” he said.
DB: surplus, superfunds, and zero levies
For DB schemes, trustees are set to get new powers to use surpluses in certain circumstances. The bill also includes a legislative framework for DB superfunds, with several potential new providers said to be in talks with the Pensions Regulator.
Elsewhere in the new legislation, the Pension Protection Fund has been given the ability to set a zero levy without compromising its future levy-raising powers.
Jon Forsyth, LCP partner and head of pensions developments, said the bill’s DB contents “will give valuable flexibility to schemes, and when used in the right circumstances can mean better outcomes for members and sponsors alike”. In combination, the changes were “a valuable set of wins for the DB industry”, he added.
On superfunds, LCP’s Laura Amin head of DB consolidation, said the permanent framework would give investors, trustees and sponsors confidence that “superfunds are a robust model to which to entrust their members’ pensions”.
Moving to implementation
The Pension Schemes Bill includes a number of elements that require secondary legislation and consultations to move forward, including the Value for Money framework.
David Brooks, head of policy at Broadstone, said those in charge of the next stages “will need to keep a clear focus on how these reforms improve member outcomes in practice”.
“With a rolling pipeline of consultations expected over the next 12 to 24 months, trustees and employers will need to remain closely engaged as the detail is shaped,” Brooks added.
Jeremy Goodwin, partner and head of pensions at Eversheds Sutherland, said: “Although not all of the mechanics are yet settled, the overall direction of travel for the coming years is now clear. This sets the context within which we need to address the longer-term challenges being examined by the Pensions Commission, including how we ensure the automatic enrolment generation can afford to retire.”
