Pension Schemes Bill marks a new chapter for UK pensions

The Pension Schemes Bill represents a significant shift in how defined benefit (DB) and defined contribution (DC) pension schemes are managed, regulated and supported across the UK.

From enabling surplus repayments to scheme sponsors, to authorising superfunds and consolidating small dormant pots, the Bill lays important legislative foundations. However, as our experts note, much will depend on the detail yet to emerge through regulation.

Our pensions specialists share their views on what this means for trustees, sponsors and members – highlighting both the opportunities ahead and the immediate practical considerations.

Surplus payments and superfunds: a framework for future flexibility

Richard Gibson, Partner and Head of Alternative Risk Transfer

The new Pensions Bill ushers in a creative new era in DB pensions, offering an enabling framework for surplus withdrawal and the use of superfunds and external capital.  In reality, we will have to wait until late this year or into next year to see regulations with the underlying detail.

"The new Pensions Bill ushers in a creative new era in DB pensions"

 Back at the sharp end of work, pension schemes are crying out for help to solve the challenges thrown up by the Virgin Media judgement. The industry is heaving a sigh of relief today that the DWP will offer actuaries new powers to do just that.

Surplus reform: unlocking capital and reshaping endgame strategy

Ian Mills, Partner and Head of DB Endgame Strategy

The Pensions Bill reforms on surplus release are poised to unleash investment in the wider economy. All DB schemes are going to have the power to release surplus assets back to their sponsors without having to fully insure the scheme first.

"With these reforms excess capital can be released quickly from the financial system into the wider economy, where it can be deployed most efficiently."

Without these reforms, the vast majority of schemes would insure as soon as it became affordable, tying up excess capital in the financial system for decades. With these reforms excess capital can be released quickly from the financial system into the wider economy, where it can be deployed most efficiently. In addition, removing the inherent asymmetry in the DB pension funding regime will encourage a more balanced approach to risk-taking in DB scheme's investment strategy – the days of de-risking for the sake of it are over.
 
Member protections are of course important. By enabling surplus to be released only when a scheme is overfunded on a 'low-dependency basis' and only with trustee consent, an appropriate balance has been struck.

Now that the pensions industry has a much clearer understanding of how the surplus regime will operate, it is imperative that DB trustees and sponsors consider whether using these new flexibilities is in their mutual interests. There will be many cases where money can be returned safely and members' pensions can be enhanced. These objectives are not mutually exclusive.

Consolidation with purpose: keeping member outcomes at the heart of reform

Mark Futcher, Partner and Head of DC

Following the recent announcements on consolidation and megafunds, the Pension Schemes Bill sheds further light on the Government’s direction of travel. Encouragingly, the focus appears to be on putting more money in people’s pockets and providing clearer options at retirement – not simply consolidating for the sake of scale.

"These reforms are a step in the right direction, but the real test will be whether they deliver better outcomes for savers."

Given that many workers will accrue up to five pension pots by the time they reach 68, any move to reduce fragmentation and improve retirement confidence is welcome. But reform must have member outcomes and fiduciary duty at its core.

Many smaller, well-run schemes already deliver strong, member-focused results, and it’s vital that their value isn’t lost in the drive for consolidation. These reforms are a step in the right direction, but the real test will be whether they deliver better outcomes for savers – not just simplify the system.

Clarity and complexity: what the Pension Schemes Bill means for the LGPS

Barry McKay, Partner and Head of Public Sector

The newly published Pensions Scheme Bill clarifies significant reforms that impact private sector DB schemes and the Local Government Pension Scheme (LGPS). The Bill is very wide ranging and those involved in managing the LGPS will need to identify those elements which are relevant to them; and those which are not. 

"The Bill makes pooling mandatory for LGPS funds and provides a clear definition of pooling and what is expected which had previously been somewhat ambiguous."

 
For example, the Bill covers DB surpluses but the LGPS is an open scheme providing statutory benefits so the surplus proposals (rightly) do not affect the LGPS or its employers.
 
In relation to pooling it is helpful we now have clarity on several issues. The Bill makes pooling mandatory for LGPS funds and provides a clear definition of pooling and what is expected which had previously been somewhat ambiguous.
 
The Bill also includes provision for a host of new powers for government to direct LGPS funds and pools in a range of areas which will need careful consideration.