The Pension Schemes Act 2021 — what does it mean for business?

Are you a business struggling to manage a legacy, trust-based occupational scheme?

If so, there is new legislation set to come into force later this year, which means businesses face more scrutiny when it comes to how they manage pension funds and is set to make that process more demanding.

The Pensions Regulator (PR) said in February, when the Pension Schemes Bill received royal assent, that it provided a “strong package of measures to further protect UK pension savers”.

And that’s all good news, of course.

But these additional responsibilities mean it pays for employers to be aware of the new act’s implications so they can take the steps they need to minimise risk, costs and, importantly, continue to look after their people.

Those risks are significant: failure to comply can have a range of outcomes varying from the reputational consequences of being named publicly to having to pay fines.

Some of the Pension Schemes Act 2021’s provisions extend to all occupational schemes, including legacy, trust-based defined contribution (DC) pensions. These are what we’re looking at here.

Trust-based defined contribution schemes

Even after auto-enrolment, many businesses have this type of pension scheme in place.

Groups of employer-appointed trustees run these funds. We know too, even before the bill received royal assent, trustees and employers were increasingly finding these arrangements called for more of their time.

For example, as we know due to the demanding requirements of trusteeship it’s not always straightforward to recruit trustees in the first place. Furthermore, trustee training can be a costly and lengthy process, with an alternative option being to appoint a professional trustee, and pay the associated costs.

After all, the PR insists the trustee board has to have the right governance and the skills and knowledge to work effectively together, and with pension scheme advisers, so members’ interests are protected. The DC code sets out the standards expected for legal compliance. However, depending on the scheme the reporting requirements can be onerous.

The reality is these burdens will increase with the new legislation, so how will the new rules affect DC schemes?

Regulator enforcement powers — the PR will have additional powers to require people to attend interviews and to inspect premises. There is also a new £1million penalty for knowingly providing the regulator with false or misleading information.

Transfer rights — certain conditions have to be met before members can transfer their benefits to another scheme.

Pension dashboards — the act includes a structure for providing a pensions dashboard service to allow members to see and manage their funds in one place.

Governance and reporting — a consultation is underway, but under draft regulations, depending on scheme size trustees will have additional new responsibilities when it comes to the oversight of climate-related risks and opportunities, including having an effective governance and risk management strategy in place.

The PR will be able to issue fines of up to £5,000 for individual trustees, or £50,000 for corporate trustees, for failure to comply.

What now?

With the provisions set to come into force in the autumn, there’s no time like the present for employers to get up to speed on what the changes mean for them, and seek the advice they need to keep things on track.

Having the right processes in place to avoid unintentionally triggering the regulations will be imperative, as will documenting what steps they take to protect pension funds and where applicable to engage fully with climate-related responsibilities.

The good news for employers with small inactive legacy trust schemes of this type is there are good options where these responsibilities can be transferred and the business burden relinquished.

For more details on this topic or any enquiries regarding this please contact Nigel Saunders for more details.