Pension Scheme Bill Suggests no significant change in direction for the new Government

The King’s Speech on 17 July 2024 contained 40 bills ranging from significant reforms to implementing legislation proposed from the previous Government.  The Pension Scheme Bill leans towards the latter end of the range with the aim of introducing laws that will be familiar to those in the pensions industry.  

The good news for many is that there are no proposals to change anything to do with pensions taxation.  This adds more comfort to the belief that the initial plan to reintroduce the Lifetime Allowance has been dropped, at least for now and the longer it stays dropped the more complex it becomes to reintroduce it.

Instead, the focus of the Bill is on strengthening pensions investment to drive growth and improve returns for those investing in pensions.

The Bill’s measures will include:

Small Pots

Consolidation of defined contribution individual deferred small pension pots. This aims to enable deferred small pots to be automatically brought together into one place. This should benefit both pension savers and providers, delivering better value and convenience for savers and reducing the number of loss making small pension plans for providers.

Value for Money

This aims to ensure all members are saving into pension schemes delivering value through the ‘Value for Money framework’.  This will introduce a standardised test that trust based defined contribution schemes must meet to demonstrate they deliver value.

The FCA will apply the same framework to contract schemes and therefore ensure consistency across the market.

The hope is that this will result in more consolidation and leave a smaller number of well governed schemes providing better outcomes for savers.

Retirement Solutions

This will require occupational pension schemes to offer retirement income solutions such as drawdown, so people have a pension as opposed to just a savings pot when they stop work. The plan is to include default investment options in decumulation.

This aims to improve outcomes for savers and lead to more funds being invested for longer.

Defined Benefit Superfunds

This aims to further consolidate the defined benefit market through commercial Superfunds which in turn, will offer greater protection from employer insolvency for members in closed legacy defined benefit scheme.

Pension Ombudsman

Reaffirm The Pensions Ombudsman (TPO) as a competent court, removing the need for pension schemes to apply to the courts to enforce TPO decisions in relation to the recovery of overpayments.

The government note that on average 3,000 cases a year are captured by a court ruling that the Pensions Ombudsman is not a competent court in overpayment cases.

Special rules for end of life

This will allow eligible members within the Pension Protection Fund and the Financial Assistance Scheme to receive a lump sum payment at an earlier stage.

The government estimate that by introducing the Value For Money framework, retirement solutions and the small pot consolidation measures it may lead to around nine per cent higher pension pots at retirement for an average earner when saving over a career.

Many of the measures are also expected to lead to the creation of larger, more consolidated pension funds, more able to invest in higher risk assets such as infrastructure and UK private equity.