Looks at the Pension Schemes Bill 2019-21 which covers Collective Money Purchase Schemes, Pensions Dashboards and stronger powers for the Pensions Regulator
The future of pensions policy is a broad topic. Below we have provided relevant information in sections on private and state pensions.
The debates on the Bill highlighted a range of future pension policy issues.
The Pension Schemes Bill
Describing it as a “landmark Bill” at Report stage on 16 November 2020, Pensions Minister, Guy Opperman explained:
It will impact the lives of millions of people across this country and it will make our pensions safer, better and greener. I genuinely believe that the work we are doing on CDCs and the pensions dashboard, the fact that we are giving real powers to the regulator and taking the opportunity to crack down on the callous crooks who take our constituents’ pensions, the work we are doing on scams, and the fact that we have for the first time put climate change at the heart of pensions means that this will be ground-breaking legislation that we should all be proud of. I welcome the cross-party support that we have heard (HC Deb 16 November 2020 c109).
Its main provisions are to:
- Provide the legislative framework for Collective Money Purchase Schemes (CMPS) (Parts 1 and 2), often referred to as Collective Defined Contribution schemes. This would provide employers with the option of a new type of pension scheme that is more sustainable for sponsoring businesses than a defined benefit (DB) scheme, and has the potential to give an income in retirement that is more predictable for members of defined contribution (DC) schemes who do not wish to purchase an annuity (Impact Assessment, page 1). Royal Mail and the Communication Workers’ Union have agreed to establish such a scheme. For background, see Library Briefing Paper CBP 8674, July 2020.
- Introduce measures intended to strengthen The Pension Regulator’s powers and improve the information available to better enable it to protect defined benefit scheme members’ savings (Part 3). For background, see Library Briefing Paper CBP 4368, July 2020.
- Provide a legal framework for Pensions Dashboards, digital interfaces that enable people to see all their pension savings in one place so that individuals can make better decisions about their retirement plans (Part 4). For background, see Library Briefing Paper CBP 8407, December 2020.
- Make further provisions relating to pension schemes: i.e. make changes to the funding regime for Defined Benefit pension schemes; specify the destinations and circumstances under which a pension scheme member would have a right to transfer their pension rights to another scheme; and enable the Pension Protection Fund (PPF) to continue to administer the compensation scheme as intended (Part 5).
At Report Stage on 30 June 2020, the House of Lords voted to accept opposition amendments, which were later removed from the Bill in the Commons. A date for the Lords for it to consider these Commons amendments has not yet been set.
The Lords amendments related to:
- Fairness in CMPS schemes. An amendment in the name of Liberal Democrat Peer, Lord Sharkey, would have required trustees of a CMPS to assess the extent to which the scheme is operating in a manner fair to all members (HL Deb 30 June 2020 c601; Division 2284). Critics of CMPS claim that they are inherently unfair towards younger generations as older people may have first call on the pooled fund to pay their pensions and workers may have to make up any shortfall with increased contributions. However, the Government believes it is possible to design a model to mitigate these risks, like that proposed by Royal Mail (Impact Assessment, para 5.2). The Lords amendment was removed from the Bill at Commons Committee stage. The Government said regulations would set out clear principles and processes that schemes must follow to ensure that different types of members are treated the same, where justified (PBC Deb 3 November 2020 c12 and 22).
- Pensions dashboards. One area of debate has been whether there should be a single dashboard provided by the Money and Pensions Service (MaPS) – a statutory arms-length body – or multiple dashboards provided by industry. The Work and Pensions Committee recommended the former, on the basis that consumers wanted “simple, impartial, and trustworthy information” and that multiple dashboards, hosted by “self-interested providers” would add complexity (Pension Freedoms, April 2018, para 49). However, the Government said multiple dashboards would improve consumer choice and should exist alongside a non-commercial dashboard, which would offer an “impartial service to those who prefer it, or who may not be targeted by the market” (Feasibility report, December 2018, Executive Summary, para 5). At Report stage, Peers agreed to amendments in the name of Labour Peer, Baroness Drake, that she argued would protect consumers from detriment. These were to i) require the MaPS dashboard to be up and running for a year, and the Secretary of State have reported to Parliament on its operation, before other commercial dashboards could be launched; and ii) exclude facilities for engaging in financial transactions, such as transfers, from pensions dashboards (a decision to allow which should require further primary legislation) (HL Deb 30 June 2020 c657 and 674). The Government opposed both amendments, arguing that having commercial dashboards from the start would maximise the possible reach of the policy and help meet the differing needs consumers; enabling financial transactions via dashboards was part of a possible solution to the proliferation of small pension pots. Both amendments were removed from the Bill on division at Commons Committee stage (PBC Deb 3 November 2020 c56 and 73-4).
- Funding requirements for open DB schemes. Clause 123 of the Bill would introduce Schedule 10, which would provide for amendments to the scheme funding provisions of Part 3 of the Pensions Act 2004. It introduces a new requirement for schemes to have a ‘funding and investment strategy’ for providing pension benefits over the longer term and to report on its implementation to The Pensions Regulator (TPR) in a new ‘statement of strategy’. A Lords amendment to require a different approach to the regulation of funding for open defined benefit schemes (i.e. those with actively contributing members) compared to closed, was removed at Commons Committee stage (HL Deb 30 June 2020 c689; PBC Deb 5 November 2020 c87). The reason for amendment was concern that TPR’s proposed approach would result in open schemes having to take an unnecessarily cautious approach to investment, thereby increasing the costs to sponsoring employer and potentially leading to their premature closure. The Government disagreed, arguing that there was sufficient flexibility in the framework (PBC Deb 5 November 2020 c80).
Other issues of debate on the Bill included amendments related to climate change and measures to prevent scams, both of which were accepted by the Government. The Government rejected amendments related to access to guidance for people exercising pension freedoms and the scope of auto-enrolment.
Pension funds and climate change
Trustees of occupational pension schemes with more than 100 members are required to produce a Statement of Investment Principles (SIP), setting out their strategic approach to investment. From October 2019, these must specify policies in relation to financially material considerations, including those relating to environmental, social and governance (ESG) considerations, such as climate change. (TPR guidance for trustees – investment governance).
The Government successfully amended the Pension Schemes Bill to introduce clause 124, which would enable trustees to be required by regulation to consider climate change goals, including the Paris Agreement temperature goal. (HL Deb 30 June 2020 c625). At Report stage in the Commons, the Opposition tabled an amendment to enable regulations to “include an objective of achieving net-zero greenhouse gas emissions by 2050 or sooner.” The Government opposed the amendment on grounds that it would “direct investment, breach fiduciary duties and lead to divestment and negative outcomes” (c112). This amendment was defeated on division by 356 votes to 256 (HC Deb 16 November 2020 c130).
Clause 125 of the Bill would enable regulations to stipulate the conditions which persons, including a pension scheme member, would need to meet to have a statutory 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.
The Government amended this clause at Report stage in the Lords to specify that in certain circumstances, people wishing to transfer out must provide evidence that they have obtained information or guidance from a prescribed person or were exempt from doing so. This would mean that “selected “at-risk” members would have to pause their transfer and demonstrate they have taken action to consider the risks of proceeding.”(HL Deb 30 June 2020 c645).
In the Commons the Chair of the Work and Pensions Committee, Stephen Timms, argued that trustees should not have to proceed with a transfer where there were good grounds for believing that a proposed transfer involved moving pension savings into a scam. He welcomed assurances given by the Minister that he would bring forward regulations along these lines under existing powers in the Bill (HC Deb 16 November 2020 c65-6).
Also related to scams, Mr Timms moved amendments aimed at ensuring that individuals receive an impartial guidance appointment from Pension Wise before they become eligible to access their pension benefits, with an appointment booked for them each year until they take one up. He said Pension Wise was an excellent service with high satisfaction ratings, but noted that one in 33 of those eligible to use it did so. He felt that proposals by the Government to require trustees to provide a stronger nudge to guidance, expected to increase take-up to one in nine, did not go far enough (HC Deb 16 November 2020 c63).
Responding, Mr Opperman said he could not support the amendment, which would “massively enhance the workload of Pension Wise by at least 10 times.” He stood by the Governments approach which was that individuals who make an application to transfer pension rights or start receiving pension benefits should be referred to appropriate pensions guidance. It was also proposing measures that would act as a “stronger nudge” to guidance. Mr Timms’ amendment was defeated on division by 351 votes to 262 (Ibid, c114-6).
Provisions in the Pensions Act 2008 placed a duty on employers to automatically enrol jobholders into and contribute to a qualifying pension scheme. The auto-enrolment duties were phased-in by employer size, between October 2012 and February 2018. The minimum contribution was also phased-in, reaching its full amount (8% in total: 3% from employers, 4% from employees and 1% tax relief) from April 2019.
The policy has reversed the decline in workplace pension saving. A 2019 evaluation showed that:
- Since the start of automatic enrolment in 2012, more than 10.2 million workers have been automatically enrolled;
- By 2018, the number of eligible employees participating in a workplace pension had increased to 18.7 million (87 per cent), up from 10.7 million (55 per cent) in 2012;
- Opt-out rates have remained low, at around nine per cent.
Although the policy is widely viewed to have been a success, there are concerns that an estimated 12 million people may still be under-saving for retirement. To go some way to address this, the 2017 auto-enrolment review recommended lowering the age threshold for auto-enrolment from 22 to 18 and removing the lower limit of the ‘qualifying earnings’ band, so that contributions are payable from the first pound earned. The Government said it intended to implement these changes in the mid-2020s. It would also consider the case for moving beyond the 8 per cent minimum contribution rate.
At Committee stage debate SNP spokesperson Neil Gray moved an amendment that would require the Government to lay before Parliament a timetable for the changes proposed in the 2017 review. (PBC Deb 5 November 2020 c110). Mr Opperman said the Government would unquestionably implement the automatic enrolment review by the mid-2020s. He expected there to be a further Pensions Bill this Parliament. The amendment was defeated on division by six votes to nine (Ibid c118-25). For background, see Library Briefing Paper CBP 6417, July 2020.
State Pensions were not within the scope of the Pension Schemes Bill. Some future policy issues relevant to state pensions which have recently been raised in Parliament are set out below.
The Social Security (Uprating of Benefits) Act 2020 was passed to ensure that those benefits linked to earnings – which include the basic and new State Pensions – can be uprated in April 2021 despite earnings growth according to the relevant measure having been negative. The Bill had cross-party support (HC Deb 1 October 2020 c559-67). The Government said this would enable it to meet its commitment to the triple lock (Explanatory Notes, para 5). However, it seems likely that questions regarding the triple lock and its future will continue to be raised in the press and elsewhere. For background, see Library Briefing Paper CBP 9011 (September 2020).
Questions about how to increase take-up of Pension Credit (the main means-tested benefit for pensioners) continue to be raised in Parliament, particularly given the BBC’s decision to restrict the free TV licence for over 75s to Pension Credit recipients (e.g. PQ 101291, 9 October 2020). The latest take-up statistics covering 2018-19 showed a “small but encouraging improvement,” with take-up of Guarantee Credit – the safety-net element of Pension Credit –rising from 68% to 70% of those eligible to claim it. The statistics also showed a significant improvement in the take-up of Pension Credit by expenditure, with some 76% of Pension Credit being claimed, up from 70% in the previous year (PQ5662 23 November 2020). For background, see Library Briefing Paper CBP 8135 (August 2020).
State Pension age
The legal challenge to increases in the State Pension age for women born in the 1950s was rejected by the Court of Appeal in September 2020. The Parliamentary and Health Service Ombudsman (PHSO) is investigating six sample complaints to see if there was maladministration in DWP’s communication of the changes. For background, see Library Briefing Paper CBP 7405.
The above is by no means exclusive. There are many other issues that will form part of the debate on the future of pensions policy. Further information can be found below.
Pensions Dashboards Programme [plan to enable individuals to view all their pensions data via their chosen dashboard]
Pensions Policy Institute [research institute]
Pensions Regulator [workplace pensions]
An examination of the triple lock mechanism used to uprate the State Pension - its effect so far and the arguments for and against
As part of the EU, the UK was part of a system to co-ordinate the social security entitlements for people moving within the EU. This paper looks at the arrangements for those within scope of the UK-EU Withdrawal Agreement and after the Brexit transition period