The biggest overhaul of UK pensions for decades will see the introduction of civil penalties of up to £1m as the Pension Schemes Act 2021 is passed
The Act will strengthen protections for pension savers by extending the powers of The Pensions Regulator (TPR), introducing the power to issue civil penalties of up to £1m, alongside three new criminal offences.
It will also pave the way for the launch of the long-awaited Pensions Dashboard.
Trustees of occupational pension schemes will be required to provide standardised benefit information to pensions dashboard providers. The Financial Conduct Authority (FCA) will impose similar requirements on personal pension providers.
Schemes will need to keep these developments under review and be prepared to provide data to the dashboards once this becomes necessary. The Money and Pensions Service's Pensions Dashboard Programme has already been working on implementation of dashboard, and published a first set of data standards in December 2020.
Voluntary onboarding of schemes and testing is expected in 2022, and the first dashboards are expected to be available with staged onboarding from 2023.
There were also a number of measures to give The Pensions Regulator (TPR) more powers to sanction abuse of schemes by companies and pension trustees.
A tough new sentence has been created - with a maximum penalty of seven years in prison - for bosses who run pension schemes into the ground, or plunder pots to line their own pockets. This will deter employers from making reckless decisions with their defined benefit schemes and strengthen the regulators’ powers to take efficient and timely actions to protect members’ hard-earned savings.
Claire Carey, partner at Sackers, said: ‘Several years in the making, the Pension Schemes Act 2021 will bolster TPR’s powers through new criminal and civil sanctions, compel DB trustees and employers to think longer term by introducing a new funding and investment strategy, and hopefully help curb pensions scams by imposing new restrictions on statutory transfers.’
Details on the extent of the regulator’s powers give an indication of the scope of their widened reach, with recourse to severe penalties and criminal action if required.
Simon Tyler, legal director at Pinsent Masons said: ‘The first of these criminal offences arises where a person intentionally avoids an employer debt, and had no reasonable excuse for doing so. This wording is potentially wide enough to catch normal behaviour; such as preventing an employer debt from arising by carrying out a corporate rescue, or implementing an apportionment arrangement.
‘The second new criminal offence arises where a person's conduct detrimentally affects the likelihood of members receiving their accrued benefits, where that person knew or ought to have known the effect of his or her conduct, and had no reasonable excuse for that conduct. Again, the wording could potentially catch normal behaviour; such as business transactions by the employer that reduce its net assets in return for a future commercial gain, or even the payment of a transfer out of the scheme by trustees.
‘The third new offence is relatively uncontroversial. It arises where a person knowingly or recklessly gives TPR false or misleading information about a notifiable event. The existence of the offence should have the positive impact of ensuring that employers and trustees take their dealings with the regulator seriously.
‘The fourth new offence arises if a person fails to comply with a contribution notice without a reasonable excuse. The general aim of a contribution notice is "to recover any losses caused to a defined benefit (DB) pension scheme as a result of avoidance behaviours". Contribution notices can be enforced in civil courts, but the intention of the new offence is to give TPR more muscle.’
The introduction of pensions dashboards will give savers more oversight of their pension savings, creating one single platform to more easily access and review pension pots. Savers will be able to see how much they can expect each month in retirement, and find out how they can improve their retirement prospects.
The Act also legislates for the creation of a new style of pension scheme - Collective Defined Contributions (CDCs). Developed in cooperation with trade unions, CDCs have the potential to increase returns for millions, whilst being more sustainable for both workers and employers.
The Pensions Regulator’s (TPR) chief executive, Charles Counsell, said: ‘The Pension Schemes Act 2021 provides a strong package of measures to further protect UK pension savers.
‘The Act gives us new powers to act against unscrupulous employers and enhances our ability to gather information more efficiently, and to scrutinise how defined benefit pension schemes are funded and the actions that affect them.
‘We will be clear in our expectations when talking to trustees, employers and others, and quick to take effective action where we have concerns. Trustees will be expected to demonstrate how their funding approach is prudent, appropriate and sustainable.’
The Act ensures pensions play their part in the UK’s transition to a net zero future through climate risk reporting, and changes to requirements around pension scheme funding to improve financial sustainability.
The new pensions regime is set to come into force in 2022 following further consultation.