Queen’s Speech confirms Pension Schemes Bill and CDC pensions

The queen

The Queen has confirmed that the implementation of the Pensions Schemes Bill will be brought forward, legislating for the introduction of pensions dashboards as well as collective defined contribution (CDC) pension schemes.

The Bill was one of the measures announced in the Queen’s Speech, delivered on Monday 14 October 2019 to officially open Parliament. She said: “To help people plan for the future, measures will be brought forward to provide simpler oversight of pensions savings. To protect people’s savings for later life, new laws will provide greater powers to tackle irresponsible management of private pension schemes.”

The Pensions Schemes Bill will deliver a framework for the establishment, operation and regulation of CDC pension schemes, as well as provide a structure to support online pensions dashboards; this includes awarding The Pensions Regulator (TPR) with new powers to ensure that schemes comply to offer savers accurate information.

CDC arrangements require employer and employee contributions to be pooled within the pension scheme, with the resulting collective pot being invested. These plans pay employees an income in retirement, rather than members having to purchase an annuity or invest their money by other means. The expected level of benefit in retirement is not guaranteed; the amount paid out will depend on investment performance and the average life expectancy of members.

A spokesperson at Royal Mail, which is looking to implement a CDC pension scheme, said: “We welcome the announcement of the Pension Schemes Bill today. If the Bill is passed, this will enable CDC pension schemes under UK law, for the first time in the UK.

“The announcement of the Bill puts us one step closer towards making CDC a reality for Royal Mail and its people. We have worked closely and jointly with [the Communication Workers Union] at all levels on this important issue and will continue to do so.”

TPR’s existing powers will also be strengthened under the new Bill, including the introduction of new criminal offences, which can carry a maximum sentence of seven years’ imprisonment and a civil penalty of up to £1 million. TPR will also be able to obtain the information it needs about schemes and employers in a timely manner. These measures aim to ensure that TPR can respond earlier to cases of non-compliance.

The Bill will further create regulations around the circumstances under which a pension scheme member can have the right to transfer their pension savings to another scheme, and improves the defined benefit (DB) scheme funding system, by requiring trustees to submit a statement on their funding strategy.

Legislation around the Pension Protection Fund (PPF) will also be amended under the new Bill, to enable the PPF to continue to apply the compensation regime as intended, as well as further clarifying the definition of administration charges.

Tom McPhail, head of pensions policy at Hargreaves Lansdown, said: “The Bill contains [CDC] provisions which will enable Royal Mail to press ahead with their plans to develop this new halfway-house type of scheme. Whether any other employers follow Royal Mail in the future is uncertain; there’s currently no sign of a queue forming.

“Pension dashboards will enable pension savers to log into their chosen pension provider and view all their retirement savings accounts in one place. The key to making it work is to force all pension providers to open up their data, which this legislation will now do. Delivery of the dashboards may still be a few years away but in the end it will help with planning and cut down on lost pension pots. It won’t, however, give individuals the right to ask employers to pay their contributions into a pension of the employee’s choice, so there will still be the problem of increasing numbers of pension pots every time someone changes jobs.

“Regulatory powers in the Bill will give [TPR] more powers in taking to task employers who may be neglecting their final salary schemes in favour of paying dividends out to shareholders. It will help strengthen the protection of employees’ guaranteed pensions, and hopefully cut down on the kind of scandals such as we’ve seen with BHS and Carillion in recent years.”

Charles Counsell, chief executive officer at TPR, added: “We welcome the measures announced in the Pensions Schemes Bill, which will allow us to continue in our commitment to be a clearer, quicker and tougher regulator.

“We also welcome the innovation of [CDC] if this can provide better outcomes for savers and employers without increasing risk. We are working closely with government to ensure an effective regulatory regime.”

The Queen additionally spoke on employment measures. These include providing better support to working families in order to promote workplace participation and increasing fairness and flexibility in the labour market, ensuring that both employers and employees are not detrimentally impacted when utilising flexible forms of working.

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The Queen further referenced Sajid Javid’s commitments, made at the 2019 Conservative Party Conference earlier this month, highlighting the increase to the national living wage to two-thirds of median hourly earnings and to lower the qualifying age threshold from 25 to 21 within the next five years.

In her speech, she said: “My government will take steps to make work fairer, introducing measures that will support those working hard.”