The Pensions Schemes Bill: a work in progress?

So any consideration of its proposals has to take place against the background of an unusual degree of uncertainty as to whether the bill, in any form, will make it to the statute book.

If one did make a guess about the Bill’s ultimate future, however, it would probably be a fairly safe bet that one way or another much of its content will at some time come back before Parliament. 

It’s very largely the fruit of extensive consultation carried out by the Department of Works and Pensions (DWP) over the past two years on a number of different issues and it’s difficult to suppose that any government would not want to promote measures intended to “support pension saving in the 21st century, putting protection of people’s pension at [their] heart”, as the explanatory notes to the Queen’s Speech put it. 

The regulator will have the power to impose a financial penalty of up to £1m for such behaviour and for the provision of false or misleading information to the regulator or to trustees or managers.

Moreover, the major parts of the bill have some obvious appeal and the proposals in relation to defined benefit (DB) schemes build on manifesto commitments.   

Regulatory power

As foreshadowed in the White Paper 'Protecting Defined Benefit Pension Schemes', one of the effects of the bill will be to extend the regulator’s information-gathering powers by enabling it to require persons to attend for interview in relation to DB schemes generally and to widen the circumstances in which an inspector may visit premises. 

That will give greater consistency in the powers available to the regulator across the field of its activities.

The notifiable events regime will also be widened and tightened up.

Schemes protection

These are positive steps for the protection of schemes. After all, having or being able to obtain the relevant information is a necessary prerequisite to the exercise of powers.

The new criminal offences also foreshadowed in the White Paper are there as well, in the form of the offences; the avoidance of employer debt and conduct risking accrued scheme benefits, both of which carry a maximum sanction of a seven year prison term and a fine. 

Further, the regulator will have the power to impose a financial penalty of up to £1m for such behaviour and for the provision of false or misleading information to the regulator or to trustees or managers.

In addition, the regulator will have wider powers to impose fixed and escalating penalties for failures to provide information. 

It’s difficult to predict how effective these provisions will be in deterring employers from the sort of activities which have hit the headlines in the past.

But the principle is welcome, even if the drafting may require careful scrutiny, for example, the absence of the word “reckless” from the definition of the offences, despite references to reckless behaviour having been prominent in the White Paper.

A welcome can also be given to the introduction of the new employer insolvency and employer resources tests for the purposes of the regulator’s power to issue contribution notices and to the general toughening up of the regime.

The remaining feature promised by the White Paper was the improvement of the DB scheme funding regime. 

The bill proposes that trustees or managers should be required to determine a funding and investment strategy, which is to be reviewed and revised if necessary, and then prepare a statement of strategy, to be signed by the chair of the trustees, if there are trustees. 

The scheme’s technical provisions are to be set on a basis consistent with the strategy, a copy of which is of course to be supplied to the regulator.

As might be expected, the relevant provisions will be fleshed out by regulations. In practice. The regulator’s awaited new Funding Code will obviously be highly material in the overall scheme funding regime.

This does all seem like progress, but in fact the bill has had a somewhat mixed reception. 

That is not only because of the political uncertainty regarding its fate, but because other significant areas which were noted in the White Paper for further consultation and consideration do not feature. 

There are two absences in particular: any provisions relating to consolidation of DB schemes, and any provisions relating to the simplification of DB benefits, especially in connection with GMP equalisation. 

Pending further movement on those fronts, there will certainly be industry voices arguing that the DB changes are a work in progress, not a job done.

Elizabeth Ovey is a barrister at Radcliffe Chambers