Briefing on the legislation increasing the State Pension age for women born in the 1950s, and the campaigns against it
The Pension Schemes Bill [HL] 2019/21 was introduced to the House of Lords on 7 January 2020. Information about the background, including impact assessments and the debates in Parliament, are on the Bill page on the Parliament website.
The Bill had its Second Reading was on 28 January 2020 (see briefing paper prepared by House of Lords Library). This was followed by four days in Committee between 24 February and 4 March, Report Stage on 30 June and Third Reading on 15 July 2020. Debates can be seen here.
Opening the Third Reading debate, Work and Pensions Minister, Baroness Stedman-Scott said the Government had made a number of amendments and would consider further those made by the opposition:
The Government listened to your Lordships’ arguments and concerns as the Bill progressed and made a number of amendments both in Committee and on Report— 73 in total, which I think you will agree have strengthened the Bill. We recognised the concerns of the DPRRC and this House in respect of delegated powers; we listened to your thoughts about a public dashboard; we introduced measures in respect of climate reporting and the Paris Agreement; and we have responded to the threat of scams by tightening the rules on transfers.
Your Lordships made further amendments to the Bill on Report concerning intergenerational fairness, consumer protection and scheme funding. We will look at these carefully along with the strong arguments made in support of them as the Bill progresses in the other place. (HL Deb 15 July 2020 c1668)
Information on the main provisions and links to the relevant House of Commons Library Briefing Papers are below.
Parts 1 and 2 – Collective Money Purchase Benefits
Part 1 and 2 of the Bill would provide for a framework for the operation and regulation of collective money purchase schemes (commonly known as collective defined contribution pensions) in the UK.
The existing UK workplace pensions framework enables employers to offer only either Defined Benefit (DB) or Defined Contribution (DC) schemes. There is a demand for a third type of scheme, able to provide more predictability for scheme members than DC, without the cost volatility for employers associated with DB. (Pension Schemes Bill – impact assessment, Annex G, October 2019).
In Collective Defined Contribution (CDC) schemes, both the employer and employee would contribute to a collective fund from which an income is drawn. The funding risk would be borne collectively by the individuals whose investments make up the fund and the employer carries no ongoing risk, similar to a DC scheme. CDC schemes would offer a target income at retirement rather than a specified income like a DB scheme. If the scheme is under (or over) funded then the level of member benefits can be adjusted to ensure the assets of the collective fund are equal to the liabilities relating to the target incomes.
The Government consulted on its proposals for CDCs in November 2018, Delivering collective defined contribution schemes – a public consultation. This followed a report by the Work and Pensions Select Committee, Collective defined contribution schemes (HC 580), July 2018.
The Government amended Part One of the Bill at Lords Committee stage on 24 February 2020, to apply a charge cap of 0.75%, as applies to the default fund of DC schemes used for auto-enrolment.
At Report stage on 30 June 2020, the Government made amendments to address concerns about regulation-making powers (HL Deb 30 June 2020 c578). Peers also voted to accept an opposition amendment that would require trustees to assess whether their CDC scheme operated fairly between different groups of members (Ibid, c598).
For more information see House of Commons Library Briefing Paper CBP 8674 Collective Defined Contribution (CDC) Schemes (July 2020).
Part 3 – the Pensions Regulator (TPR)
The Government says that “cumulatively, the improvements to the Regulator’s powers in this Bill will help the Regulator to meet their aim of being “clearer, quicker and tougher,” and in afford increased protection for Defined Benefit scheme members’ savings” (Explanatory Notes, para 13). The powers relate to:
– Criminal and civil sanctions – strengthening the existing sanctions regime by introducing three new criminal offences and a new power to issue civil penalties of up to £1 million.
– Changes to the regime for Contribution Notices (one of the powers available to TPR to ‘recover any losses caused to a Defined Benefit pension scheme as a result of avoidance behaviours’).
– Corporate transaction oversight – provisions in the Bill would ‘require persons involved in a corporate transaction to make a statement setting out information about the event and how any detriment to a Defined Benefit pension scheme, as a result of this event, is to be mitigated.’
– Provisions to give TPR a ‘more coherent set of information-gathering powers.’ (Explanatory Notes, paras 13 to 23).
The consultation process leading up to this included:
- The Green Paper Security and Sustainability in Defined Benefit Pension Schemes, Feb 2017, Cm 9412
- The White Paper Protecting defined benefit pension schemes, March 2018, Cm 9591
- Protecting DB pension schemes – a stronger Pensions Regulator, June 2018
The Pension Schemes Bill [HL] 2019-21 contains provisions intended to help TPR to meet its aim of being “clearer, quicker and tougher” and affording increased protection for Defined Benefit scheme members’ savings. They relate to:
- Criminal and civil sanctions – strengthening the existing sanctions regime by introducing three new criminal offences and a new power to issue civil penalties of up to £1 million.
- Changes to the regime for Contribution Notices (one of the powers available to TPR to ‘recover any losses caused to a Defined Benefit pension scheme as a result of avoidance behaviours’).
- Corporate transaction oversight – provisions in the Bill would ‘require persons involved in a corporate transaction to make a statement setting out information about the event and how any detriment to a Defined Benefit pension scheme, as a result of this event, is to be mitigated.’
- Provisions to give TPR a ‘more coherent set of information gathering powers.’ (Explanatory Notes, paras 13 to 23).
When the Bill was in the Lords, Peers expressed concern that the scope of clause 107 (sanctions for avoidance of employer debt) was too wide in terms of the people potentially caught by it. There were fears that it had potential to inject “great uncertainty into pensions administration” and deter “ordinary pensions and business activity.” The Government responded that the aim was to “target individuals who intentionally or knowingly mishandle pension schemes or endanger workers’ pensions by behaviours such as chronic mismanagement of a business or avoiding pension liabilities.” It was important that “where the elements of an offence are met, no matter who has committed it, the regulator should be able to respond appropriately. Any restriction of the persons potentially in scope would create a loophole for those people to act in such a way” (HL Deb 30 June 2020 c634-8).
For more information see House of Commons Library Briefing Paper CBP 4368 The Pensions Regulator – powers to protect pension benefits (July 2020).
Part 4 – Pensions Dashboards
Part 4 of the Bill would provide a framework to support pension dashboards, including powers to compel pension schemes to provide accurate information to consumers.
A pensions dashboard is a digital interface that enables people to see all their pension savings in one place. Evidence from the Netherlands is that this can encourage consumer engagement with pensions by making them more tangible and visible. The Financial Conduct Authority highlighted the need for this in the UK in the report of its Financial Advice Market Review in March 2016.
DWP published the findings of a feasibility study in December 2018. In its response in April 2019, the Government said that:
- Industry would design and develop its own dashboards. The Single Financial Guidance Body – now the Money and Pensions Service (MAPS) – would convene a delivery group to help ensure that this happened safely and securely.
- Multiple dashboards would improve consumer choice but should exist alongside a non-commercial dashboard, hosted by MAPS, offering an impartial service to those who prefer it, or who may not be targeted by the market.
- The Government would legislate to require pension schemes to provide individuals data (with their consent) via pensions dashboards. This would follow the creation of “a robust delivery model with the appropriate governance.”
- There might be merit in exempting some schemes from compulsory participation, such as Small Self-Administered Schemes (SSAS) and Executive Pension Plans (EPP).
- The Government would work with the industry delivery group to integrate the State Pension into pensions dashboards.
Clauses 118 and 119 would give the Secretary of State regulation-making power to support the provision of pensions information to individuals using pension dashboards.
Three key amendments to this part of the Bill were agreed to or voted on at Report stage in the Lords:
- The Government inserted a requirement for MaPS to provide a pensions dashboard service.
- The Opposition made amendments that would:
For more information see House of Commons Library Briefing Paper CBP 8407 Pensions dashboards (July 2020).
Part 5 – further provisions relating to pensions
Clause 123 – Funding of defined benefit pension schemes
The current funding regime for defined benefit (DB) pension schemes was introduced under the Pensions Act 2004 (part 3). It requires trustees to: draw up a statement of funding principles; obtain a full actuarial valuation at least every three years; and, where the scheme is in deficit, prepare a recovery plan setting out the steps that will be taken to meet the funding objective over what timeframe. The aim is to “strike a reasonable balance” between the demands on the employer and the security of member benefits (Cm 9412, Executive Summary).
The White Paper published in March 2018 showed that, although most sponsoring and employers and trustees and used the flexibility of the current system reasonably, good practice was not universal. It proposed a revised Code of Practice, which would clarify key terms. Legislation would require the trustees of DB schemes to appoint a Chair, and for that Chair to report to the Regulator in the form of a Chair’s Statement, submitted with the scheme’s triennial valuation. (DWP, Protecting Defined Benefit Pension Schemes, Cm 9591, March 2018). Provision for this is in clause 123 of the Pension Schemes Bill [HL] 2019/21.
At Report Stage on 30 June 2020, the House of Lords voted to accept an Opposition amendment that require a different regulatory approach for schemes that were open (and so had active, contributing members) and those that were not. This was on the basis that the liquidity profile of an open and active scheme that is receiving regular, significant cash contributions is very different from a closed scheme (HL Deb 30 June 2020 c679).
For more information see House of Commons Library Briefing Paper CBP 4877 Defined benefit pension scheme funding (July 2020).
Clause 124 – Transfer rights
This would allow regulations to be made to stipulate the destinations and circumstances under which a pension scheme member will have a right to transfer their pension savings to another scheme. The aim is to protect members from scams by helping trustees of occupational pension schemes ensure transfers are made to safe, not fraudulent, schemes (Explanatory Notes, para 29).
For more information see House of Commons Library Briefing Paper CBP 8643 Pension scams.
Clause 125 – climate change risk
Clause 125 would require occupational pension schemes to manage the effects of climate change effectively as a financial risk and report on how they have done so. This clause was added to the Bill as a Government amendment at Committee stage. See CBP 8905 Pension fund investments – climate change risk (July 2020).
Clause 126 – Pension Protection Fund (PPF)
Clause 126 is intended to ensure the PPF can continue to administer the compensation regime as intended following court rulings. For more information see House of Commons Library Briefing Paper CBP 3917 Pension protection fund (June 2020).
Help for Members of Parliament and their staff
In addition to writing and updating published papers as bills go through Parliament, the House of Commons Library can assist Members of Parliament and their staff with individual research requests about bills, particularly on the policy background.
The Public Bill Office (PBO) supports public bill committees. The staff working in the PBO can advise Members of Parliament on tabling amendments to bills and on the drafting of Private Members’ Bills.