You may have read various headlines about the Pensions Bill which was first announced in the Queen’s Speech in October. Its progress was subsequently halted with the calling of the General Election but it has now been confirmed by the Queen and is on its way to becoming law.
Given all the to-ing and fro-ing, you could be forgiven for being unclear as to what it actually includes. It has, in fact, remained largely unchanged and has met with widespread cross-party support.
The main initiatives include:
- The introduction of the framework for pensions dashboards
- Legislation to establish collective defined contribution (CDC) schemes
- Greater powers for The Pensions Regulator
The government said the purpose of the bill was to “support pension saving in the 21st century, putting the protection of people’s pensions at its heart.”
The long-awaited pensions dashboards are designed to allow savers to view all their lifetime savings in one place through a digital interface. Data will be retrieved directly from pension providers and updated in real time. The Pensions Bill has introduced new rules that will provide a framework so that providers will be compelled to provide accurate information. State pension data should also be visible.
Experts warn, however, that primary legislation will take most of 2020 to reach the statute book and it could be several years before much of the older data from company and private pensions is accessible. Research has shown that 65.8% of respondents would like to use a dashboard to see how much their pension is worth and what type of income that would translate to in retirement. 54% of those surveyed, though, said they would be unlikely to use the system if it only contained partial information.
It’s clear that dashboards have the potential to revolutionise retirement planning but the industry wants to ensure early users are not put off by incomplete versions.The Bill is really only the beginning.
Collective Defined Contribution schemes
The Bill also announced its commitment to the creation of a ‘framework for the establishment, operation and regulation of Collective Defined Contribution (CDC) schemes.’ Currently, employers can offer either a Defined Benefit (DB) scheme or a Defined Contribution (DC) scheme but both have their disadvantages. DB schemes can present significant risks to the employer while DC schemes may give a less predictable income for scheme members. As a result, the Government has decided to offer this new type of scheme, the CDC, also known as a Collective Money Purchase scheme.
As the name suggests, both the employer and the employee would contribute to a collective fund from which the retirement funds would be drawn. The scheme does not produce individual pension pots and the funding risk would be shared collectively by the individual investors.
Unlike DB schemes, CDC schemes do not guarantee a certain amount in retirement. Instead, they have a target amount they will pay out, based on a long-term mixed risk investment plan.
Greater powers for The Pensions Regulator
The other key part of the proposed Bill is that The Pensions Regulator (TPR) will be given stronger powers to obtain the correct information about a pension scheme and its sponsoring employer in a timely manner. This will ensure it can gain redress for members when something goes wrong. Any company boss found to have committed ‘wilful or grossly reckless behaviour’ in relation to a pension scheme will be guilty of a criminal offence, which will carry a prison sentence of up to seven years.