The King’s Speech on Wednesday announced new legislation that the Labour government has committed to bring to Parliament in the first session – including a Pension Schemes Bill. This could see key changes to the system being implemented in the next few years. The Bill will legislate on a number of important policy areas for pension schemes, including:
- Small Pots
- Value for Money framework
- DC decumulation
- DB consolidation
- Pension Ombudsman powers.
We’ll take a closer look at the first three of these in the rest of the blog.
Small Pots
The Bill will introduce measures that prevent people from losing track of their pension pots through the consolidation of deferred defined contribution small pension pots. We’re pleased to see that the government looks set to proceed with the model we think works best for our members and employers – the Small Pots multiple default consolidator model. This involves a member’s deferred DC pots of up to £1,000 being transferred into an ‘authorised consolidator’ scheme. These default consolidator schemes will be subject to higher member protection safeguards. The member will of course be able to opt out of this process. But if they stay in the process, all their small pots will be collected into their allocated consolidator scheme. We have been working with officials to introduce some efficiencies into the design and implementation of this system, to ensure it delivers for members, employers, and schemes.
Value for Money (VFM)
Additionally, the Bill will introduce a new VFM framework. Delivering good VFM for our members is at the core of our mission. However, key to making the proposed VFM framework a success will be to make sure it incorporates appropriate metrics and processes. These must recognise different schemes and memberships, and minimise unintended consequences. Ultimately, any new framework must bring value to members and support decision makers, but also must not introduce disproportionate additional costs into the system. Therefore an evidence and risk-based approach to design and implementation is critical. We look forward to seeing further detail around the standardised test and metrics, and anticipate the government and regulators will publish a consultation document on details of the latter, as well as a new framework and powers for The Pensions Regulator in the Bill.
Decumulation
The Bill also looks set to include a new requirement for trustees of DC schemes to offer retirement products to their members. We are very supportive of this change. But we are keen to see key aspects we think are critical for supporting members – choice architecture and member journeys – which could better enable members to decide how they access their money. We believe it’s important that legislative and regulatory developments must also enable innovation on those elements. The proposals in the recent FCA discussion paper and advice/guidance review are also critical to how this will work in practice.
What wasn’t announced
Issues around adequacy of savings and outcomes, and implementing the Automatic Enrolment Extension Act 2023 were noticeably absent. We believe developing a clear roadmap for auto-enrolment, involving all key stakeholders, is crucial and will provide certainty and stability for employers, members, and the industry in the long term.
What’s next?
We hope the anticipated government Pensions Review will consider a strategy to secure the ongoing success of auto enrolment. We look forward to hearing more about the scope and timing of the Review, and how the new legislative programme will fit in with the Review, and wider measures to support members.
Amongst the other Bills announced in the King’s Speech which might be of interest to pension schemes are the National Wealth Fund Bill, Employment Bill, Audit Reform and Corporate Governance Bill.
It will be a busy few months for the industry and government as the proposals are further developed and as the Bill makes its way through Parliament.
We look forward to continuing to work with colleagues, industry, policy makers and the new government, to help inform and influence the shape of the policy and legislation. Our focus will continue to be supporting best outcomes and ease of implementation for savers, employers, and schemes.
NP/B0059/07/2024
