What’s in the Bill?
DB schemes
There is confirmation of the recent announcement1 from the DWP about removing some of the barriers to paying surplus funds to employers and members. The Bill provides for this only in principle; the detail will follow in subsequent regulations.
Legislation will be introduced for DB superfunds. This will replace the interim superfunds regulatory regime that was introduced by The Pensions Regulator in 2018.
The Bill will also remove the restrictions on the PPF Levy that prevents the levy from being reduced. The PPF is currently showing a large surplus, but it cannot reduce the levy, or even waive the need to collect it in a particular year, regardless of its funding position, else it would be barred from increasing the levy again if needed in the future.
Of less direct interest to trustees and sponsors is the provision to extend the definition of ‘terminal illness’ for members receiving benefits via the PPF or the Financial Assistance Scheme, so that eligible members who are diagnosed as terminally ill can receive payments at an earlier stage of their illness.
The Bill also provides for the consolidation of Local Government Pension Scheme (LGPS) assets into investment pools, as detailed in the outcome of the Pensions Investment Review2.
DC schemes
Following the recent final outcome of the Pensions Investment Review, the Bill will require multi-employer DC schemes, unless exempt, to have at least £25 billion of assets in their main default arrangement by 2030 or be on route to achieving that scale by 2035 through having £10 billion in their main default.
In addition, the Bill provides long-awaited legislation in three areas that have been in development over a number of years:
- A Value for Money framework will be introduced to enable a shift in focus from cost towards value and protect savers from becoming stuck in underperforming arrangements for extended periods. This will align with the equivalent work that the Financial Conduct Authority is undertaking for contract-based schemes.
- Default pension benefit solutions will be implemented so that members will still have the options available to them through pension freedoms, but they can choose to receive an extra offer of support – through being enrolled into default solution(s) in the decumulation stage of their benefit journey – which could include collective DC options
- The Bill will establish the automatic consolidator vehicle for members’ small pots of less than £1,000 to be automatically transferred to their largest pot (with members having the right to opt-out if they choose).
DB and DC schemes
Worth noting is a measure that will apply to all pension schemes. The legal standing of The Pensions Ombudsman to make enforceable determinations in pensions overpayment recoupment cases will be re-established, overturning a requirement to obtain a county court judge’s order to confirm the Ombudsman’s determination. This will speed up the processing of overpayment cases for members and trustees.
Timescales
The DWP has published a roadmap3 document alongside the Pension Schemes Bill. This includes some timescales for implementing some of the reforms.
For example, changes to the PPF Levy are anticipated to apply from April 2027, with the regulations on superfunds and surplus flexibilities expected to come in force later that year.
The first Value for Money assessments are expected in 2028, while the small pots consolidation duties, as previously forecast, are due in 2030.
However, these timescales should not necessarily be relied upon, as the DWP is clear that the timings “are very much indicative and subject to Parliamentary time where required”.
Comment
This Bill has been a long time coming, with the government confirming its plans for a Pension Schemes Bill in the July 2024 King’s Speech. Some of the policies covered by the Bill – such as value for money, DB surplus extraction, small pot consolidation and superfunds – date back to the time of the last Conservative administration.
Pension savings are long-term investments, but pensions policy is often rightly criticised for being too focused on the short term. This Bill should be welcomed for providing a legislative framework in a number of areas that have been in the pipeline for some years, and this will hopefully spur on their full development.
