Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
It is surprising, at a time of venal fighting amongst the political parties, that the Pensions Schemes Bill has got cross-party support.
The territories it covers are not political. It addresses and tidies up many practical issues which need to be addressed.
Notwithstanding, the Bill runs to 187 pages and, arguably, gives the Pensions Regulator too much power. The Regulator begins their review of the Bill by stating that they are extremely pleased with it – this makes me a little nervous!
The measures in the Bill are intended to make regulation clearer, quicker, and tougher: enforcing clearer scheme funding standards in defined-benefit schemes whilst extending some regulator powers, and streamlining others, thus enabling the Regulator to be more proactive.
There is a new criminal offence and new civil penalty regime, with a maximum penalty of £1 million.
The Bill also introduces the new hybrid, collective ‘money purchase schemes’ to provide smoothed income, although this is not guaranteed. Whether there is any significant demand for these schemes also remains to be seen.
There is to be a revised defined-benefit funding code with clearer standards. There is the rather odd requirement that the chairmen of schemes and sponsoring employers will need to demonstrate to the Regulator how their approach is prudent and appropriate. I question who will want to be a Chairman unless they are well rewarded!
The Regulator also gets better information-gathering powers, including the power to compel interview attendance. The Bill also strengthens protection for defined-benefit transferrers – the scheme can refuse to make a transfer if it suspects a scam.
Sponsoring employers and parent companies will also be required to provide a declaration of intent to the Regulator, with copies to trustees, evidencing consideration of any impact on the scheme from any proposed transaction, and setting out proposed mitigation as soon as practical.
The most constructive and important parts of the Bill are arguably the Pensions Dashboard provisions. These are powerful tools for the individual to help them understand what pension provisions they have.
The Dashboard enables people to view all their pension savings in one place and should help them plan their savings for the future. It is important for savers to be able to trust the data provided. Pension Schemes have worked to improve the accuracy of the data and this will be vital to maintaining confidence. The Regulator urges schemes to engage with the delivery group as it defines data standards and to take action to improve the data without delay. Under the Bill trustees and scheme managers who fail to supply data for the Pensions Dashboards could be fined up to £50,000.
The Regulator comes across as concerned regarding the accuracy of Pension Dashboard data, saying: “we are also working with the industry to understand the challenges that must be overcome for the Dashboard to achieve it aims”.
Individuals are expected on average to hold 11 different jobs over their working career, with potential participation in 11 pension schemes. The information and powers needed to consolidate pension savings are necessary and desirable.
But the Pension Regulator’s comments on the Pensions Bill have a little too much of the Regulator telling the industry what to do, where frequently the Regulator can be as mistaken as the scheme sponsor. In the last two years the costs of the Pensions Regulator and Pensions Ombudsman have risen from £40m to £60m. They are projected to rise to £100m in four years. Pension Schemes levy bills are set to treble.
The industry has rightly focused on missed opportunities. In particular the opportunity has not been taken to build on the success of auto-enrolment by extending participation to workers under 22, so making sure that every pound counts by also removing the lower earnings limits.
The Bill should also have brought forward legislation for the authorisation’s regime for ‘DB Super Funds’ – providing in particular valuation solutions for millions of savers currently at risk of not getting their full benefits.
Super Funds need a robust authorisation regime, which requires primary legislation. They should not be treated as similar to insurance products. They have been legally determined to be pension schemes. Insurance regulation, which provides for the very different insurance markets and risks, is not suitable for pension fund regulation.
The Bill gives the Regulator powers which are too broad. Clause 107 means that instead of focusing on employers and high-level associates of pension schemes, the new criminal offences could apply to anyone involved in such schemes – for example trustees, banks, and insurers. There is a clear view also that Pension Dashboards should include, and arguably be led by, state pension schemes.
Overall the feedback on the Pensions Bill is largely good; the Bill provides much needed legislative clarity on many areas of pension policy and has widespread support across the pensions industry.