It has now been 18 months since the Pension Schemes Act 2021 (the “Act”), which introduced some significant changes to the pensions landscape, became law on 11 February 2021. In this alert we set out the key changes made by the Act and provide an update on where we are with each of those changes.
New powers of the Pensions Regulator (“tPR”)
The Act introduced new criminal offences relating to defined benefit (“DB”) pension schemes. Two of the criminal offences it introduced are:
- avoidance of a statutory s75 debt; and
- conduct risking accrued scheme benefits.
These offences apply to any person although there is a defence to these criminal offences of “reasonable excuse”.
If a person is found guilty of either of these criminal offences, they can be imprisoned for up to seven years and/or have an unlimited fine imposed on them. This is in addition to tPR's ability to impose a civil penalty of up to £1m.
Both these criminal offences became law on 1 October 2021.
Contribution notices
The Act added two new grounds which make it easier for tPR to issue a contribution notice (although tPR must still consider that it is reasonable to issue a contribution notice), being the:
- employer insolvency test; and
- employer resources test.
There is a statutory defence to both these new grounds where a person gave due consideration to the act or failure to act and took all reasonable steps to eliminate or minimise the potential for the act or failure to act to have the effect.
It is now a criminal offence to fail to comply with a contribution notice on a similar basis to the two previous criminal offences set out above.
The new grounds for contribution notices apply to actions or inactions which have taken place on and after 1 October 2021.
We expect that, particularly while these two grounds are new, employers will consider pursuing tPR clearance application route in circumstances where the new grounds could apply.
Communications with tPR
The Act has given tPR additional information gathering powers to inspect premises and require a person likely to hold information relevant to the exercise of its powers to attend an interview or answer questions.
Failure to attend an interview or answer tPR’s questions without reasonable excuse will be a criminal offence punishable by a fine. tPR will also be able to issue fixed or escalating civil penalties for failure to comply with its information gathering powers.
In addition, there will be Regulations coming into force (likely to be later this year) which will make changes to the notifications that sponsoring employers of DB pension schemes will be required to make to tPR and, in certain circumstances, to the trustees of the schemes as well.
DB funding and investment strategy
The Act includes a requirement for trustees of DB pension schemes to produce a funding and investment strategy which will have to set out the funding levels that the trustees intend their scheme to achieve by a particular date and how this will be achieved. This will need to be agreed with the employer.
Draft Regulations relating to this new requirement have recently been published for consultation. It is also expected that tPR will update its DB Funding Code of Practice to reflect the changes. tPR is expected to publish its second consultation on the updated Code in autumn this year.
Statutory transfer rights
The Act, and accompanying Regulations, also introduced new conditions that need to be met in order for a statutory transfer to be permitted. The detail of the new transfer conditions, including how the First Condition and Second Condition can be satisfied, is set out in Regulations which came into force on 30 November 2021.
tPR has also recently published a new scam-fighting strategy which includes education, encouraging higher standards and fighting fraud through prevention, disruption and punishment.
Climate change governance and reporting
The Act introduced a framework for pension schemes in respect of governance and reporting requirements for climate related risks.
The detail is set out in Regulations and statutory guidance. The obligations have been phased in. They have applied to schemes with over £5 billion in assets since October 2021 and will apply to schemes with more than £1 billion of assets from October 2022. In reality, many schemes are looking to comply with some or all of the requirements regardless of whether the requirements technically apply to the pension scheme or not.
Pensions dashboards
The Act sets out a framework for pensions dashboards (i.e. a single digital view where members can see, in one place online, all their pension savings), with the detail set out in draft Regulations which will phase in the requirements. The Government published its response to the consultation on the draft Regulations on 14 July. It is proposed that there will be some small amendments made to the draft Regulations to provide further clarification on certain points and include some changes, such as deferring the staging deadlines for the first two staging cohorts by two months.
The Government has also recently published a second consultation to seek views on some further provisions to be added to the draft Regulations in light of responses received to the first consultation. In addition, the Government wants to seek views on a proposal for tPR to be able to share restricted information with the Money and Pensions Service in certain circumstances. This second consultation closed on 19 July.
The Pensions Dashboard Programme has also published a consultation on the pension dashboard standards which are intended to ensure the security, stability and effective operation of dashboards.
It is expected that the first pensions dashboards will go live in 2023.
Collective money purchase schemes
The Act includes provisions relating to the establishment and administration of collective money purchase schemes as well as their authorisation and supervision by tPR with the detail to be set out in Regulations. It is expected that the first collective money purchase scheme will be launched in 2023.
