The new Government's legislative agenda includes a Pension Schemes Bill, which it says will 'enable consolidation and more productive investment' of defined benefit (DB) and defined contribution (DC) pension funds. A Bill was mentioned in the King's Speech 2024, and a briefing paper indicates that its provisions will include:
- 'Consolidating the DB market through commercial superfunds' – which presumably means creating a permanent legislative regime.
- Automatically consolidating small deferred DC pots.
- A requirement for trust-based DC schemes to demonstrate that they deliver value by applying a standardised test, which 'should result in consolidation'. The Financial Conduct Authority will apply an equivalent framework to contract-based schemes.
- Requiring DC schemes to offer a retirement income solution, or range of solutions, including default investments.
- Removing the need for schemes to apply to the courts to enforce decisions made by The Pensions Ombudsman in relation to recovery of overpayments made to members.
- Extending the definition of 'terminal illness' that qualifies beneficiaries of the Pension Protection Fund and the Financial Assistance Scheme for lump sum payments at an earlier stage.
This list is not necessarily exhaustive. Omissions – such as the previous Government's proposal to create a public sector consolidator administered by the PPF or to change the legislation governing PPF levies – could be added later or legislated for separately. In the case of the PPF consolidator, legislation would need to be fairly rapid if the new Government wishes to meet the previous Government's target of having it up and running in 2026. There is also no indication that the previous Government's proposals on access to DB surplus will be taken forward through this Bill – though, again, measures could be added later.
Many of the Bill's measures had been set in train by the previous Government, and it is unclear from the materials published so far to what extent these might be tweaked. For example:
- DB superfunds: The previous Government envisaged that superfunds would be expected to have a 98% chance of being able to pay benefits in full and that schemes would only be able to access commercial consolidators if they had no realistic prospect of insurance buyout in the next five years.
- DC small pots: The previous Government proposed default consolidation of pots under £1,000 within charge-capped default funds, where these had received no contributions for 12 months; the size threshold was to be kept under review and there would be an opportunity for members to stop the transfer. There would be a 'small number' of authorised consolidators, with a clearing house allocating pots to them.
- DC value for money: The Government's
briefing emphasises variation in the performance of workplace
pension providers. It says applying a value-for-money test will
lead to a 'smaller number of well-performing, well-governed
schemes' but not how small a number is envisaged. The previous
Government had proposed using backward-looking gross returns, with
comparisons focused on periods longer than five years. The new
Government's briefing note does not describe the standardised
test it proposes to use but does allude to a five-year comparison
when describing the need for its proposals.
There is no indication that the Pension Schemes Bill will take forward the idea, which the previous Government was exploring, of employees being allowed to choose a pension provider and be 'stapled' to their existing provider when changing jobs. However, the new Government's briefing does refer to how 'individuals are reliant on their employer to choose a pension scheme on their behalf yet face the impacts of poor investment performance'. - DC retirement options: The previous Government had concluded that members should 'be placed into a decumulation solution by their pension scheme unless they make an active choice', though it was not their intention 'to be prescriptive on what the default solution would be'. The new Government positions its proposal as being about ensuring that 'people have a pension and not just a savings pot when they stop work'; it remains to be seen whether this will involve a greater degree of prescription around defaults or going beyond the previous Government's view that Collective DC decumulation 'could be actively considered' by schemes.
The reference to 'pension schemes' in the Bill's title means that it should not be possible for MPs or Peers to table amendments relating to State Pensions. The King's Speech would not have been expected to cover tax proposals, which are announced separately in Budget statements.
For more details of what the new Government had said about pensions policy before the King's Speech, see our briefing paper.
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