New UK pension legislation has completed its passage through parliament after the government gave reassurances over proposed funding rules during a session in the House of Lords this week.
The Pension Schemes Bill is now ready for royal assent, although consultants at LCP have flagged that large sections of it will not come into force for many months, with key provisions on scheme funding possibly not implemented until well into 2022.
The legislation covers three main areas: collective defined contribution schemes, pension dashboards, and new powers for The Pensions Regulator (TPR), including to require trustees to revise their funding and investment strategy to ensure benefits can be provided over the longer-term. There are also climate change-related reporting requirements.
TPR proposals for the funding code for defined benefit schemes have raised concerns the rules would be too strict and too formulaic, and that open schemes in particular could be pushed to derisk and close.
The House of Lords has been pushing for amendments over this issue but this week withdrew a renewed challenge after members’ concerns were addressed by junior minister Baroness Stedman-Scott.
Speaking in the House of Lords on Tuesday, Stedman-Scott said: “Much of our original thinking was driven by the fact that most schemes are closed and maturing, but we completely accept that we need to be clearer about our thinking on other important groups of schemes.”
She added: “Let me make it clear now that the government, having further considered the debate on the Bill and feedback from the pensions industry, fully intend that the defined benefit funding regime will remain scheme specific, and any bespoke approach should build on this foundation. This regime will continue to apply flexibility to take account of individual scheme circumstances.”
The minister also said the government and TPR would publish impact assessments, which would include analyses of different de-risking approaches on members and sponsors of all schemes, including those that are open or immature, and those that are not targeting buyout.
Mike Smedley, partner at consultancy Isio, said the comments made by the minister represented “a material softening” by the government.
“Although the debate [in the Lords] was about open schemes the government commitment on flexibility didn’t just recognise those schemes, it was a broader commitment that the approach would be genuinely scheme-specific,” he told IPE.
He said the industry would welcome the commitment “with open arms” but warned that “it might not all be as rosy as it sounds”.
“The potential fly in the ointment is that sponsor covenant remains a critical piece of the jigsaw, and an open scheme may need a cast iron sponsor to justify their position,” he said.
In an interim response to its first DB funding code consultation, TPR last week said it expected the government’s consultation on draft regulations to be in the first part of this year, and that it therefore anticipated publishing its second consultation – on the draft funding code itself – in the second half.