Need to know:
- The Pension Schemes Act sets out the framework for the dashboard with everyone’s pensions in one place. Employers should start getting their data ready now.
- It will enable trustees to ‘red flag’ a transfer request and block it. The new scam rules need to be communicated to employees.
- Large schemes face new rules on climate change risk; a catalyst for more member engagement.
The much-delayed Pension Schemes Act finally became law in February. It promises to revolutionise the retirement landscape. While largely remedying abuses in the world of defined benefit pensions, it also has major implications for employers that run defined contribution schemes and their employees.
Commenting on the Act, minister for pensions and financial inclusion Guy Opperman said: “It has made pensions safer, better and greener. Safer, by cracking down on scams and unscrupulous bosses. Better, by making pensions more accessible through the dashboard. And greener, by encouraging investment in a more sustainable way.”
Of particular interest to defined contribution (DC) employers are the reforms setting out the framework for the dashboard, rules on climate change and scam prevention.
Pensions dashboard framework
The introduction of pension dashboards will bring pensions into the digital age, making information about retirement savings available to savers via their smartphone, tablet or computer screens.
The Department for Work and Pensions will publish secondary legislation over the next few months which will include what employers and trustees have to do and by when. It is a good idea for employers to get members’ data ‘dashboard ready’ before they are compelled to do so by the Act.
Kate Smith, head of pensions at Aegon, advises: “Once employers know when they have to onboard to pension dashboards, they should tell their employees about this. It’s unlikely to be a priority, as currently it isn’t expected until 2023 at the earliest.”
Awareness of scams
Pension scams have become an increasing area of concern for trustees. The new system would mean signs of a fraudulent transfer, such as ‘get rich quick’ promises, will be given a ‘red flag’ and other signs, such as unclear costs and charges would compel the saver to seek professional guidance to ensure they understand the potential risks involved in the transfer. It would also allow trustees to block a transfer.
The Act, as Nigel Peaple, director of policy and advocacy at the PLSA, says, “helps combat the risk of pension scams by re-establishing the employment link and giving schemes the power to either challenge or stop a transfer request”. Once these new transfer rules have been published, it would be a good idea to let employees know about them, and use this as an opportunity to highlight the risk of pension scams, advises Smith.
Civil penalties
“The new civil penalty of up to £1 million, the so-called nuclear deterrent, is one to watch,” says Jacqui Reid, partner at Sackers. She says: “This could apply in the context of DC arrangements where a person knowingly or recklessly provides The Pensions Regulator (TPR) with false or misleading information.”
Extensions to TPR’s information-gathering powers should also be on a DC scheme’s radar, with TPR able to call trustees, scheme employers and/or professional advisers to interview whenever it thinks its regulatory functions might be in play, Reid adds.
The Act brings in new measures to require trustees to comply with new climate change risk rules including monitoring emissions annually, but initially affects only the largest schemes. Paul Herbert, head of DC investment, Willis Towers Watson, advises: “Authorised master trust or collective DC arrangements and schemes with more than £5 billion need to comply this year and schemes with assets over £1 billion need to comply by next year.”
He adds: “The DWP will undertake a review in the second half of 2023 to identify best practice and determine whether to extend the requirements to smaller schemes from late 2024 or early 2025, following consultation.”
An annual report must be produced in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TFCD) to the same deadline as the trustee report and accounts.
Finally, the Act puts in place a statutory framework for collective DC schemes. Penny Cogher, partner, Irwin Mitchell points out: “Currently only Royal Mail uses this model and there is no real intention at the moment to expand this.” For now, says Cogher, the only real change for most DC schemes “is the restriction on transfers out to occupational pension schemes where there is no link between member and scheme employer”.
However, Peaple warns, “there is already talk of a further pensions bill, perhaps as soon as next year,” as the scope of auto-enrolment needs attention. Watch this space.