On 11 February 2021, Royal Assent was given to the Pension Schemes Bill 2019 - 21. The Pension Schemes Act 2021 (the PSA 21) has finally reached the statute books. The PSA 21 is an important and wide-ranging piece of pensions legislation that will have a material impact for trustees of occupational pension schemes.

In this update, we set out the key points that will impact on trustees and provide links to our series of blog posts (with more information on each area).

We've also put together a one-side overview of the various elements that make up the PSA 21.

The Pensions Regulator gains new powers

Under the PSA 21, The Pensions Regulator (TPR) will be given a range of new powers:

  • TPR will have recourse to new criminal and civil penalties for breaches of pensions law (including three new criminal offences for the most serious breaches). With the maximum penalties set at seven years' imprisonment and/or unlimited fines, this is one area that has attracted a lot of attention;
  • TPR will gain enhanced information gathering powers, including the right to require attendance at interviews;
  • PSA 21 will introduce new notifiable events that are applicable with certain corporate transactions;
  • PSA 21 introduces two new tests allowing TPR to impose contribution notices.

What does this mean for trustees?

Trustees need to be aware of TPR's new powers and the tighter regulatory regime that this will lead to. This may also lead to earlier and more proactive funding discussions with sponsors. Many of TPR's new powers are aimed at anti-avoidance and corporate activity that puts accrued benefits at risk.

Trustees should, however, be mindful that TPR looks at the whole pensions landscape, including trustee actions and decision making. TPR's focus on notifiable events on certain corporate transactions is likely to see employers engage earlier and more frequently with trustees of the schemes that they sponsor.

More information

Read our blog post on the Pension Schemes Act 2021 and increased regulatory powers.

A foundation for a new scheme funding regime

The PSA 21 sets out the foundation for a new scheme funding regime. There will not be an immediate change in the statutory regime - this will follow in secondary legislation that we expect to be consulted on later this year. In addition, TPR is in the middle of consulting on changes to its code of practice on defined benefit scheme funding. It is expected that a draft of the new code of practice will be unveiled in the second half of this year with the whole regime to go into force in the first quarter of 2022.

Under the new regime, it is expected that trustees will need to:

  • determine a funding and investment strategy for the scheme (described in the White Paper as the long term objective);
  • have a written statement setting out their strategy; and
  • submit a version of the statement signed by the chair of trustees to TPR.

What does this mean for trustees?

Trustees will need to understand the legal obligations relating to the new requirement to develop a funding and investment strategy and produce (and, depending on future regulations, publish) a statement in relation to it.

Trustees will also want to put in place plans to engage with employers about long-term funding and investment plans in order to comply with the new legal duties.

More information

Read our blog post on the Pension Schemes Act 2021 and scheme funding.

New regime for statutory transfer requests

The PSA 21 gives the government the power to make regulations on statutory transfer requests. The PSA 2021 sets out that the regulations may include new requirements such as that the member:

  • provides details and/or evidence of their employment and/or place of residence (e.g. payslips and utility bills); and
  • obtains information or guidance about exercising their transfer rights from a prescribed person. Members will need to provide evidence to trustees that they have complied with this requirement.

Failure to meet the new statutory requirements upon requesting a transfer will mean that the statutory right to transfer is lost in respect of the request.

What does this mean for trustees?

The detailed requirements and consequences will be set out in regulations. As a result, immediate action is not required. However, trustees should remain vigilant about the wider issue of pension scams and be mindful of the forthcoming changes.

In addition, trustees will ultimately need to ensure administrators adapt processes appropriately to meet new requirements on statutory CETVs. Trustees should therefore ask administrators to explain how they're planning to deal the new regime.

More information

Read our blog post on the Pension Schemes Act 2021 and the statutory right to transfer.

New trustee duties to consider and report on climate change risk

Under the PSA 21, trustees of certain schemes will be required to make, report (and, subject to regulations, publish) disclosures on climate change risk in line with international standards. The detail of trustee duties is set out in regulations which are currently being consulted on. In addition, trustees will be able to refer to statutory guidance, a version of which has also been released for consultation.

What does this mean for trustees?

Trustees of schemes that are in scope will need to ensure they have effective governance in place in respect of risks and opportunities resulting from climate change. Trustees will have to report on the basis of the recommendations issued by the Task Force on Climate-related Financial Disclosures (TCFD) to evidence the governance in place.

More information

Read our blog post on the Pension Schemes Act 2021 and climate change risk.

A statutory framework for pensions dashboards

The PSA 21 sets out the legal framework for pensions dashboards. Pensions dashboards are a digital interface which allows an individual to see all their pension savings in one place. Specific duties on what trustees will need to do to ensure that their schemes comply with the new regime will follow in regulations and guidance. It is expected that trustees of large pension schemes will have to comply within two to four years (with the largest schemes having duties applied first).

What does this mean for trustees?

Trustees will not need to take immediate action on pension dashboards as the detailed duties will be set out in regulations and guidance. Trustees can, however, take useful initial steps to engage with the policy and understand what pension dashboards will mean for their schemes. One of the obvious areas to start is on scheme data. Trustees will need to ensure their data is accurate and of sufficient quality to be used for pensions dashboards. This may require Trustees to work on improving the data they currently hold.

More information

Read our blog post on the Pension Schemes Act 2021 and pension dashboards.

A statutory frame work for collective defined contribution

The PSA 21 sets out the legal framework for collective defined contribution (CDC) schemes. At this stage, CDC looks set to be used by Royal Mail as a solution to a long-running pensions issue. There is, however, the potential for CDC to have a wider role in the pensions landscape.

What does this mean for trustees?

Certain employers will be watching the Royal Mail scheme to see if CDC is a viable option for future pension provision. Trustees should be aware of this possibility. CDC is only likely to become more mainstream if future regulations allow non-associated multi-employer MasterTrusts to provide CDC schemes.

More information

Read our blog post on the Pension Schemes Act 2021 and collective defined contribution.