The new Pensions Schemes Act - which received Royal Assent on 11th February 2021 - has given the Pensions Regulator powers to issue civil penalties of up to £1m.
Three new criminal offences for bosses who run pension schemes into the ground - or plunder pots for their own financial gain - are also part of the powers and employers could receive a seven-year prison sentence for plundering pension funds.
In addition, the Bill - which is now an Act of Parliament - will tighten the rules on DB pension transfers, put in place statutory amendments and introduce new climate change risk management and reporting requirements.
In April 2016, British Home Stores went into administration with a pension’s deficit of more than £500,000 and in January 2018, Carillion entered compulsory liquidation with thirteen DB schemes in the UK with a deficit of £800 to £900 million. This triggered the parliamentary review into the way pension funds are regulated.
Guy Opperman - Minister for Pensions - said:
“This is an historic day for UK pensions. This act makes our pensions safer, better and greener, as we look to build back better from the pandemic.”
Experts, however, have raised fears that the new broadly drafted powers could have a bearing on normal business activity.
Joe Dabrowski - Deputy Director for Policy at the Pensions and Lifetime Savings Association - said:
“At the very minimum, for employers it will mean thinking about any potential impact any actions might have on funds with more scrutiny. This means an additional layer of risk management and will lead to more documenting, processing and assessments.”
The new Pension Schemes Act will also allow employers to offer collective defined contribution schemes to members. Their money will be pooled and invested collectively.
Joe Dabrowski commented:
“It gives employers the option if they’re thinking about alterations to funding arrangements, or if they wanted a step up from defined contribution, it gives them a new avenue to explore.”
Regarding the obligations introduced in the act for employers to look at their approach to climate change, Joe Dabrowski stated:
“This will lead to schemes having to articulate their approach much more to climate change, what they’re doing, how that’s making a difference.”
David Saunders - Partner at Sackers - stated that there are steps employers should now take in response to the act and added:
“It’s important employers have an internal governance process in place, so people aren’t inadvertently doing things to trigger these regulations without knowing it and are making sure the right people know about this. This includes keeping a paper trail to show discussions had and advice taken on pensions and to record measures taken to protect pension funds.”
Carolyn Saunders - Head of Pensions and long-term savings at Pinsent Masons stated that the act provides a framework for employers and most of the detail will be set out in future regulations - adding:
“The first draft code of practice, published for consultation last year, was concerning for employers to the extent that the direction of travel seemed to be one that would be likely to lead to an increase in employer contributions.”
Draft guidance for consultation which will explain how it will exercise its new powers is expected to be drawn up by the Pensions Regulator.
