The Pension Schemes Act 2017 is the ninth Act of Parliament in respect of State, public or private pensions since the Pension Schemes Act 1993. It contains measures that are intended to continue to encourage greater pension saving and provide individuals with more control of their pension pots, which automatic enrolment and the pension freedoms initiated. The Act will:
- Introduce an authorisation and supervision regime for master trusts to ensure that members are adequately protected against specific types of risks arising in master trusts, and consequently maintain confidence in private pension saving.
- Amend existing powers to allow regulations to override contractual terms that conflict with provisions of the regulations. These regulations will be used in conjunction with existing powers to:
- introduce a ban on member-borne commission charges that arise under existing contracts so that members are protected from hidden charges; and
- introduce a cap/ban on early exit charges in certain occupational pension schemes to ensure that members are not deterred from accessing the pension freedoms due to excessive early exit charges.
Under the Act, “Master Trust Scheme” means an occupational pension scheme which:
-provides money purchase benefits,
-is used, or intended to be used, by two or more employers, and
- is not used, or intended to be used, only by employers which are connected/associated with each other.
Since the roll-out of automatic-enrolment began in 2012, there has been a large growth in master trust schemes in the defined contribution (DC) marketplace. In 2010, there were around 0.2 million members in master trust schemes. By the end of 2016, this had increased to around 7 million. The sharp increase and expected continued growth in membership of master trusts has prompted the Government to take action to ensure that they are adequately regulated and the savings of millions of members are protected.
Consequently, the Pension Schemes Act 2017 seeks to improve the regulation of master trusts by introducing:
- a requirement on master trust schemes to be authorised in order to operate; i.e. to take on members;
- requirements on schemes when the founder wishes to exit or becomes insolvent (a ‘triggering event’) and protections for members;
- powers for the Pensions Regulator (TPR) to grant, refuse or withdraw authorisation and operate an on-going approach to regulation throughout the life of the scheme, which would include the requirement for the scheme to report certain changes or developments.
Much of the detail of the new regime will be provided in future regulations that are expected to be in force from October 2018. Existing schemes will have six months from this point to apply for authorisation. However, the provisions relating to ‘triggering events’ apply retrospectively to existing master trusts from 20 October 2016. TPR has released a form for trustees to notify them that a triggering event has occurred.
BAN ON MEMBER-BORNE COMMISSIONS
The Act will allow full implementation of a ban on member-borne commission payments that arise under existing contracts entered into by trustees and managers of occupational pension schemes. This will increase transparency and fairness of member-borne charges, and maintain confidence in automatic enrolment.
In November 2016, the Government confirmed its intention to implement legislation that will allow a cap on early exit charges in occupational pension schemes for those members who wish to access the pension freedoms. In line with the proposals by the Financial Conduct Authority (FCA) in relation to personal and stakeholder pension schemes, the Government intends to cap early exit charges for members of occupational pensions at 1% for existing members of occupational pension schemes and 0% for new members of occupational pension schemes.
The Act makes provision for regulations to be made to introduce a cap on early exit charges for members of occupational pension schemes who are aged 55 and over and who wish to access the pension freedoms. These are expected to apply from 1 October 2017.
Notwithstanding the outcome of the General Election and the hung Parliament, given that the Pension Schemes Act 2017 is already on the statute books, we expect the measures in it to be implemented as originally intended.
- If using a master trust scheme for workplace pension provision, ensure that it will be authorised under the Pension Schemes Act 2017.
- For employers that have set up their own multi-employer pension scheme, e.g. for a group of employers with common interests, make sure that the scheme is exempt from authorisation through regulations that will be made under the Act.
Existing master trusts should ensure they have processes in place to comply with the ‘triggering event’ regime.
For further information, please contact: John Wilson, Head of Technical at email@example.com.