UK government sets out indicative timeline for pensions reform

The Department for Work and Pensions (DWP) has published an indicative timeline for reform – Workplace pensions: a roadmap – stressing that the key takeaway should be sequencing rather than precise timing. This is because many elements require parliamentary approval of primary or subsequent secondary legislation.

DWP, HM Treasury, The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) will also undertake normal consultation or discussion paper phases in the meantime.

The roadmap is split into defined contribution (DC) and defined benefit (DB) sections.

DC and value for money

The timeline for implementation of measures affecting DC pension funds is driven by the 2030 date for the minimum size requirements. The government has said it sees this as the “watershed date” for the vision for the DC market of the future to be in place.

It said that by 2030, DC pension funds of all sizes and types will be subject to requirements to conduct annual Value for Money (VFM) assessments, and trustees will have to offer a default guided-retirement product.

According to the DWP, these two requirements offer clarity for trustees, employers and providers on their duties in the run up to 2030.

It added that this may also help with decision-making for some, as they see the increasing bar of what it means to be an automatic enrolment scheme going forward.

DWP said that the scale proposal, along with the contractual override and VFM measures, will reshape the market. Part of this will be reducing the fragmentation within DC schemes, which currently have numerous legacy arrangements.

It expects that prior to 2030, there will be a “material reduction” in arrangements via the contractual override measures. Afterwards, the scale deadlines will begin, which will set a requirement on the majority of multi-employer providers to have a single main scale default arrangement to continue to receive auto-enrolment contributions.

‘Megafunds’

Following that, the government said it will work alongside the regulators and the industry to ensure any remaining arrangements are justified and any new arrangements are only created in multi-employer schemes, subject to scale requirements.

Once ‘megafunds’ are in place, the government will focus on consolidating small pots.

It said that policy and delivery work will be finalised over the coming years, but the timing of requiring the movement of small pots is such as to allow a “‘cooling off period’ before the duties on schemes are ‘switched on’ to avoid schemes being required to move deferred small pots earlier than having to move other pots should they be on track to consolidate or merge with another scheme”.

DB and surplus

For DB schemes, the government’s mission for economic growth is the imperative driving reform. Therefore, it said that measures that can be quickly and directly operationalised to unlock growth come first in the timeline for implementation, such as the levy for the Pension Protection Fund (PPF).

The DWP said that any substantial changes the PPF board wishes to make to the levy will come into force in the financial year that begins after the Royal Assent for the Pension Schemes Bill.

In May, the government set out its response to the consultation on DB Options, including more details about how and when trustees can access their surplus more flexibly. It said that the surplus regulations and guidance will come into force by the end of 2027.

Simultaneously, the DWP will work with the regulator to set out the details of the permanent market for DB Superfunds, which it will aim to set by 2028.

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