The government must ensure the Pensions Schemes Bill is fit for purpose, says Nigel Peaple , Director Policy & Research.
The Pension Schemes Bill does many useful things.
It strengthens the powers of the Pensions Regulator (TPR) to protect members, it helps create the pensions dashboards, while also enhancing the transfer regime to protect savers against pension scams. These are all measures that will go a long way to ensuring more people have a better income in retirement; one of the PLSA’s key goals.
However, while all of those moves are being celebrated – and rightfully so – there are a number of areas in the current wording of the legislation that we believe should be improved, and others that are, put frankly, missing.
At the time of writing, the Bill was due to go to its Report Stage, where the whole of the House of Commons will have the opportunity to discuss and amend it.
Back in October, the PLSA submitted written evidence to the Public Bill Committee ahead of the Committee Stage to set out our views on the Bill. Our submission provided our views on the Bill and encompassed a wide-range of changes we believe would strengthen the legislation.
The first of these was TPR’s powers and Section 107. It’s fair to say that the provision of enhanced powers to TPR to tackle incidents of reckless behaviour by employers is something the PLSA supports. However, under the current wording, Section 107 would unintentionally criminalise ordinary business activities and could have unintended negative consequences for pension schemes and pension savers.
The PLSA believes these measures could prevent legitimate actions to make pension benefits more secure and discourage trustees, who include workforce representatives, from taking part in pension scheme governance. Instead of focusing on employers and high-level associates of pension schemes, these new criminal offences could apply to anyone involved with schemes such as trustees, banks that lend to employers, insurers and investment counterparties. Put simply, Section 107 needs more work to clarify the circumstances in which they are intended to be used, as well as to narrow the parties whom the new powers could and should affect.
The next is pension scams. Pension scams continue to be a blight on the industry, and in the wake of Covid-19 more and more are popping up to deny people the money that is rightfully theirs to enjoy come retirement. To help with this fight, the PLSA has given its support to the Bill’s inclusion of measures that re-establish an employment link as an important protection for savers against scams. However, we’d also like the government to further allow trustees to stop the transfer of a saver’s pension benefits when they identify known red flags.
Our third point was on the creation of pensions dashboards. The Bill has given us a huge step forward as it provides the legislation that will pave the way for pensions dashboards, allowing savers to access their pensions information online, securely and all in one place.
We have argued that the government should ensure the first pensions dashboard will be a single, non-commercial product hosted by the Money and Pensions Service (MAPS) and that no other dashboard should go live until a full consumer protection regime is in place.
New amendments tabled by the government would allow dashboards to be used to provide transactional services and remove a one-year bedding-in period. We believe that these new amendments place people at risk of losing their life-savings if they fall prey to pension scammers or mis-selling. We strongly believe that these amendments should be withdrawn.
Our fourth area was automatic enrolment (AE). It’s fair to say that we were disappointed that the government has passed up the opportunity to fulfil its 2017 commitment to extend the scope of AE in respect of age and earnings – by changing the threshold from age 22 to age 18, and by removing the Lower Earnings Limit. This Bill should include the necessary changes to primary legislation, with commencement in the mid-2020s.
While it is clear that right now – as the country faces the economic fallout from Covid-19 – is not the right time to increase AE contributions, it is reasonable to introduce such modest changes to come into effect around five years or more from now.
Our final comment concerned the decumulation of DC schemes. As we’ve said before, many savers are facing very complex decisions as they approach retirement and some may be losing out. In October, we published recommendations for a new regulatory framework to enable schemes to support members as they approach and make their retirement decisions. We would like to see legislation brought forward in this, or the next Pension Schemes Bill, to support savers to get a better income in retirement.
The Pension Schemes Bill is as important a piece of legislation as any affecting our industry. Workplace pensions provide an essential retirement income for millions of people, so it is vitally important the £2 trillion pensions sector has legislative clarity.
So while we have warmly welcomed some of the measures identified in the Bill, we are also disappointed at other areas. It’s our hope that our views don’t fall on deaf ears, and that the government will seek to resolve these issues in the near future – or it will miss the opportunity to help millions of savers.