The King's Speech, following the election of the Labour government, included a raft of proposed legislation - including a new Pension Schemes Bill. Many of the Bill's reforms are a close replica of the previous government's policies announced in the 2023 Autumn Statement and Mansion House speech, which we summarised earlier this year.
We're awaiting full details of the Bill (including the text of the draft Bill itself), but in the meantime, we've outlined below a summary of the Bill's proposed measures.
- Consolidation of DC small pots – individuals' Defined Contribution deferred small pension pots will be automatically consolidated in one place. It's hoped that this will allow individuals to keep track of their pension pots, maximise retirement income and deliver value for money although we don't yet have details on the form that the small-pot consolidator will take.
- New trustee duty - trustees will be expected to offer members a 'retirement income solution' or a range of solutions for retirement, rather than a 'savings pot'. The rationale is that this should improve retirement outcomes for members and boost economic growth if funds are invested in productive assets.
- DB superfunds – closed legacy Defined Benefit schemes will be consolidated through commercial 'superfunds', so as to provide members greater protection from the risk of their employer becoming insolvent. Although the previous government considered that a public sector consolidator (such as the PPF) would have a role to play, this wasn't included in the Bill.
- Value for money framework – trust-based DC schemes will need to meet a standardised test to demonstrate they deliver value for money. Contract-based DC schemes will also be expected to comply, as it's anticipated that the Financial Conduct Authority will introduce rules to apply the framework to those schemes, too, to ensure consistency.
- Definitions of 'terminal illness' for PPF and FAS members – the definition of 'terminal illness' will be amended so that eligible members of the Pension Protection Fund and Financial Assistance Scheme can receive a lump sum terminal illness payment sooner.
- TPO is a "competent court" – the Bill will confirm that the Pensions Ombudsman will once again be a "competent court" for the purposes of recoupment in overpayment cases, overriding the Court of Appeal's judgment last year. This means that where there is a dispute with a member relating to recoupment, a determination from the Ombudsman will be sufficient to recoup overpaid benefits and a court order will no longer be needed.
Following the King's Speech, the Chancellor announced a pensions review with the aim of improving pension scheme investments. A report on the first stage of the review is expected in 'the next few months', following which its focus will turn to improving pension outcomes and increasing investments in UK markets. Work kicked off on 22 July 2024 with an industry roundtable hosted by both the Chancellor and the Pensions Minister, so we will keep you updated as and when new developments arise.
If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact.
