What to expect from the forthcoming pensions bill

We might be forgiven for saying that parliament must surely be getting legislative fatigue when it comes to pensions matters. However, in the May 2016 Queen’s Speech a new pensions bill was confirmed to “further reform Britain’s private pension system”. 

 The pensions bill as announced will cover three areas:

• Mastertrusts

• Occupational pension scheme exit charges

• New pensions financial guidance body

Mastertrusts

The pensions bill will contain provisions requiring new mastertrusts to demonstrate they meet strict criteria before entering the market and accepting money

The introduction of auto-enrolment has seen a proliferation in the number of mastertrusts. Mastertrusts are trust-based occupational pension schemes providing defined contribution benefits for non-associated employers.

The Pensions Regulator’s corporate plan for 2016-19 says that 55 per cent of all DC members are in the largest four mastertrusts but there are at least 69 others in existence.

The regulator notes that the failure of a large mastertrust would result in members being forced to meet administration costs as a result of a disorderly exit from the market, and that members of small mastertrusts risk becoming trapped in a scheme that has insufficient members or assets to be sustainable in the long term.

The pensions bill will contain provisions requiring new mastertrusts to demonstrate they meet strict criteria before entering the market and accepting money. 

The former pensions minister Ros Altmann stated that these requirements would also apply to existing mastertrusts. She also commented that a capital adequacy requirement to protect member funds in the event of the scheme winding up would be introduced. The proposed new protections are to be welcomed.

Exit charges

The new pensions flexibilities for DC members were introduced with effect from April 6 2015. The government is concerned some eligible members were prevented from accessing their benefits flexibly because of high exit charges or long transfer times.

Legislation to address this issue for contract-based schemes has already been introduced. The government wants to remove equivalent barriers within occupational pension schemes.

In May 2016 the Department for Work and Pensions issued a consultation. Its main proposals are:

• A cap will apply to early exit charges levied on a member who has reached normal minimum pension age (usually 55) but not the scheme’s normal retirement age.

• Charges will be capped at the same levels proposed by the Financial Conduct Authority.

• The primary duty to comply with the cap will be placed on service providers, unless a charge is applied in practice by trustees or managers. The regulator will be responsible for enforcing the cap.

The DWP’s consultation makes it clear that the primary legislation needed to make these changes will be contained in the pensions bill.

New pensions financial guidance body

The new body will amalgamate The Pensions Advisory Service, Pension Wise and the pensions service offered by the Money Advice Service. It will be funded by a levy on the pensions sector and will provide access to a straightforward pensions guidance service for customers.

The current proposals will streamline the current services. However, each of the services does something totally separate from the others. For example, TPAS deals with pensions complaints, and Pension Wise advises on the pensions flexibilities. The key to the new-look body will be to deliver consistency of service.

And finally...

The pensions bill has not been published and there is not yet any indication of when it will be. Time will tell as to whether the eventual bill will contain the matters in the Queen’s Speech or not. 

Since the speech, a lot has happened: there was the Brexit vote, a new prime minister, a new pensions minister and talk of an overhaul of the regulator’s powers.

Ruth Bamforth is senior associate at Walker Morris