On 11 February, the Pension Schemes Bill received Royal Assent to become the Pension Schemes Act 2021, but most of its provisions are not yet in force.
We don't yet know exact dates on which the new measures will take effect, but recent statements by the pensions minister do give us some idea. We take a look below about what we know so far.
1. New criminal sanctions: Autumn 2021
The pensions minister has said the new criminal offences (avoiding an employer debt under section 75 of the Pensions Act 1995 or conduct risking accrued scheme benefits) will become law in the Autumn and only apply to acts occurring after that. The criminal sanctions wording remains very broadly drafted despite industry representations that the Act risks criminalising routine activities. The Pensions Regulator plans to consult on guidance regarding the use of its new criminal sanction powers, and it's not expected that the new criminal sanctions will come into force until the guidance is finalised.
2. New power for the Pensions Regulator to issue penalties of up to £1 million: Autumn 2021
It appears that the Regulator's new power to issue penalties of up to £1 million for acts or omissions which mirror the new criminal offences will also take effect in the Autumn.
3. New grounds on which the Pensions Regulator can issue a contribution notice under its "moral hazard" powers: Autumn 2021
In future the Regulator will be able to require additional scheme funding from an employer or connected person if an act or omission reduces the employer debt recoverable by the pension scheme on a hypothetical insolvency, or materially reduces the employer's resources relative to any employer debt which might be triggered under pensions legislation.
It appears that the Government intends the new tests to come into force in the Autumn. It's not yet clear whether the new tests could be applied to acts or omissions which occurred before they came into force. The pensions minister has said the Regulator's new powers won't be retrospective, but exactly what that means here is open to interpretation.
4. Extended notifiable events regime: 2021 – further detail TBC
The Act allows for regulations to extend the list of events which must be notified to the Pensions Regulator, and to require the employer to tell the Regulator about corporate transactions in advance. It also contains a requirement for notifiable events information to be provided to the scheme trustees at the same time as it is provided to the Regulator. The Regulator will have a new power to impose a financial penalty of up to £1 million for breaching notifiable events legislation. On timing, the Government has said it will consult on draft regulations "later this year" for commencement "as soon as practical thereafter".
5. Scheme funding regime changes: 2022
The Act paves the way for major changes to the scheme funding regime applicable to defined benefit pension schemes. Trustees will be required to put in place a long-term funding and investment strategy (often referred to as the long-term objective or "LTO"), which must be agreed with the scheme employer. The legislation will operate in tandem with the Pensions Regulator's new defined benefit funding code. The pensions minister has said the government plans to consult on the necessary regulations "later this year".
The Regulator has said it intends to consult on its draft defined benefit funding code in the second half of 2021 after the government's consultation on regulations. It has indicated that scheme valuations being done in 2021 and potentially those conducted in the first quarter of 2022 will be done under the existing code.
6. Pensions dashboards: 2023
The Act provides the statutory framework for pensions dashboards which will allow members to view details of all their pension arrangements via a single online portal. The pensions minister has said the government aims to consult on regulations for the pensions dashboard later this year and lay draft regulations before Parliament for debate in 2022. He has said that delivery remains on track for 2023 in line with plans published by the Pensions Dashboards Programme (PDP). The PDP anticipates that schemes will first be compelled by law to provide data for the dashboard in 2023. It published a technical data standards guide in December 2020 designed to ensure schemes can prepare their data for onboarding to pensions dashboards.
7. Changes to the law on pension scheme transfer values: early Autumn 2021
The Act contains the power to make regulations requiring trustees to make extra checks, such as requiring evidence of employment, before paying a transfer value in respect of a member. The government hopes that the changes will reduce pension scams. The pensions minister says the government plans to consult on draft regulations in "early Summer" and bring the measures into force "from early Autumn".
8. New governance and reporting requirements re climate change risk: from 1 October 2021 onwards for the largest schemes and for master trusts
The government plans to bring in new reporting and governance requirements for occupational pension schemes with assets of £1 billion or more and for authorised master trusts of any size. The new requirements will come into force:
- on 1 October 2021 for master trusts;
- from 1 October 2021 onwards for schemes with assets of at least £5 billion; and
- from 1 October 2022 onwards for schemes with assets of at least £1 billion.
The government plans to review in 2023 whether to extend the measures to smaller schemes from late 2024 or early 2025.
9. Collective money purchase schemes: TBC – consultation in Summer 2021
The Act allows for the establishment of "collective money purchase schemes" under which benefits can be adjusted periodically to achieve balance between the available assets and the amount needed to provide benefits. Such schemes will have to be authorised by the Pensions Regulator which will spell out detailed requirements. The pensions minister hasn't committed to a timescale for bringing these measures into force, but has said the government will consult on draft regulations in the summer.