Pensions Weekly Update: Part Two

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Here are our headline thoughts on the Pension Schemes Bill, which was laid before Parliament on 5 June, and is due to receive its second reading in the House of Commons on Monday 9 June. The bill covers a variety of topics and runs to 114 pages.

Defined Contribution (DC) consolidation – The bill introduces a requirement for multi-employer DC schemes to have at least £25 billion of assets under management in their main default arrangement by 2030. There will be an easement for those with £10 billion in assets under management by 2030, if there is a credible plan to scale up by 2035. The applicability of the easement to a particular scheme will be subject to regulatory approval. Multi-employer schemes generally refers to master trusts and group personal pension schemes (GPPs). Group-wide and industry-wide schemes are exempt from the requirement, along with default funds that serve protected characteristics, such as religion.
DC investment in assets that boost the economy such as infrastructure, property and private equity – The bill introduces a condition that authorised master trusts and GPPs must comply with an “asset allocation requirement” or be exempted, which effectively gives the government a power to mandate “quantitative baseline targets” for pension schemes to invest in a broader range of private assets, including in the UK. This will be regulated through The Pensions Regulator’s (TPR) approval powers.
Extraction of surplus – The bill inserts a new section 36B into the Pensions Act 1995, introducing a statutory resolution power for trustees of defined benefit (DB) pension schemes to modify their scheme rules to allow extraction of surplus. It also repeals Section 251 of the Pensions Act 2004 (which included the requirement that trustees must have passed a resolution before 6 April 2016 to preserve any power in their rules allowing a refund of surplus to the employer). Section 37 of the Pensions Act 1995 is also amended (there had been legal debate around the requirement that the refund of surplus must be “in the interests of members”, and whether this meant over and above acting in accordance with trustees’ usual fiduciary duties). The amendment clarifies that, in exercising the new resolution, trustees should act in accordance with their generally understood trust law duties and for the purposes of the scheme (so without an extension of their member interest obligations).
DB superfunds – The bill provides a legislative framework for DB pension scheme superfunds and prohibits superfund transfers, except where made in accordance with that framework.
Pension Protection Fund (PPF) levy – The bill removes restrictions that prevent the PPF from reducing the annual pension protection levy it collects, when the levy is not required. The PPF has said that it will take a final decision on the calculation of the 2025-2026 levy in line with the new provision in due course, and that it does not plan to proceed with invoicing until it has concluded its decision-making. The PPF expects to provide a further update to schemes by the end of July.
Value for money framework – The bill, along with the power to make value for money regulations, will establish the value for money framework, which has been a long time in the making.
DC decumulation and design – The bill builds on the 2015 pensions freedom and choice, by introducing automatic enrolment into default retirement options, which could include collective defined contribution (CDC) provision. It also introduces “default pension benefit design solutions” to all schemes providing DC benefits (with provision for exceptions to be made).
Small pots consolidation – The bill will facilitate the automatic consolidation of DC pension pots under £1,000, where no contributions have been made in the last 12 months. It introduces an authorisation and supervision regime for multiple commercial consolidators. There will be a central clearing system that will allocate members to a consolidator scheme, unless the member opts out.
More on dashboards – The bill also facilitates the PPF and Financial Assistance Scheme information to be displayed on the government-backed pensions dashboard service provided by the Money and Pensions Service.
The Pensions Ombudsman (TPO) as a competent court – The bill clarifies the legal standing of TPO to make enforceable determinations in pensions overpayment recoupment cases without requiring a county court judge’s order.
Local Government Pension Scheme (LGPS) – The bill sets out new provisions for the LGPS. It permits the government to make regulations that will mandate the proposed new “minimum standards” for pools (including Financial Conduct Authority (FCA) authorisation, full delegation to pools (other than high level investment strategy setting) and requiring administering authorities to take investment advice from their pool). The bill facilitates the “backstop” powers noted in the “fit for the future” consultation response, allowing the government to include in regulations a power to direct, which pool a fund participates in (which the government has indicated could be used to impose its wish to reduce the number of asset pools from eight to six) and amending the Public Service Pensions Act 2013 to introduce a compulsory power to merge funds (and not just require them to pool their assets). Unexpectedly, the bill also permits regulations to allow the secretary of state to direct pools to comply with statutory guidance or to exercise their investment management activities in a particular way, seemingly mirroring the current power in regulation 8 of the LGPS (Management and Investment of Funds) Regulations 2016 to issue such directions to administering authorities.
Other provisions – The bill includes a range of miscellaneous provisions tidying up various inconsistencies.

What Does The Bill Not Include?

The bill does not include legislation to enable the PPF to act as a public consolidator of schemes that are unattractive to commercial consolidators. The government said in its pension investment review final report that it continues to consider this as an option.
There is nothing to address criticisms of certain restrictions which are causing administrative difficulties in pension transfers.

To accompany the Pension Schemes Bill, the government has published a roadmap setting out the government’s provisional plan to implement reforms across DC and DB workplace pensions. It contains an indicative timeline of what to expect and when. Notably, the indicative timings for the bill to receive royal assent is currently during 2026. Other indicative timings are later than perhaps might have been expected. For example, the indicative timing for refund of surplus regulations and guidance is the end of 2027, and the government will aim to set the detail for DB superfunds by 2028. The roadmap does say, however, that key is the sequencing of events rather than the timings themselves, which are subject to change.

In a separate and, dare we say exciting, development the government has announced that it will address the issues raised by the Virgin Media decision that certain amendments to schemes that were formerly contracted-out on a DB basis are not valid without written actuarial confirmation. The government says that it will legislate to allow retrospective actuarial confirmation that historic benefit changes met the necessary standards. The devil will be in the detail, and we will be monitoring this closely.

Finally, Nausicaa Delfas, CEO of TPR, has given a key note speech at a Pensions Management Institute conference. The speech is entitled “the changing nature of trusteeship” and sets out the key trustee traits that TPR considers to be central to good governance. These are that trustees should be:

Saver outcome-focused
Capable of constructively challenging to avoid group think
Highly skilled and diligent
Agile and responsive
Collaborative but accountable
Data-led

TPR says that it will be working closely with the government on its planned consultation on trusteeship and governance set to commence later in the year. TPR is launching a new strategy to articulate its priorities and how it will seek to raise standards of trusteeship through compliance and oversight, based on the key trustee traits mentioned above.

If you would like specific advice on any of these issues or anything else, please contact a member of our Pensions team.