New powers to fine directors for pension failures
“This is an odd Queen’s Speech. With no majority in the House of Commons and Brexit wrangling still top of the agenda, there is every chance the Government’s legislative agenda will be voted down by opposition MPs.
“Nonetheless, the proposals contained within the Pensions Bill published today tell us something about this Boris Johnson-led Government’s priorities for savers and retirees.
“The Bill sets out severe punishments for company directors who neglect defined benefit schemes. This comes in response to a series of high profile corporate failures – most notably BHS and Carillion - which have resulted in members being hit with cuts to their pensions.
“The new deterrents include a criminal offence for bosses who demonstrate ‘wilful or grossly reckless behaviour’ in relation to defined benefit schemes.
“While the rhetoric here is tough, what constitutes ‘wilful or grossly reckless behaviour’ has not yet been spelled out. Ultimately it may be the courts that decide how this sanction is applied in the real world.”
Scams clampdown
“The Government’s response to the rise of pension scams has been welcome but far too slow, leaving millions of people at greater risk of falling victim to fraudsters.
“This latest intervention, if it becomes law, was first proposed in 2017 and should strengthen the ability of pension providers to refuse a transfer where there is evidence the scheme someone is moving to is being used to facilitate scam activity.
“Previously there has been a real tension between the right of savers to move their money to a different scheme, which is clearly very important, and the responsibilities on providers in blocking transfers to suspect schemes. Addressing this tension will help ensure fewer people fall victim to pensions fraud.”
Pensions Dashboards
“While there has been cross-party support for the introduction of Dashboards, it had until now not been entirely clear whether Boris Johnson was a fan. The fact the reforms have been given the green light from Number 10 via the Pensions Bill means work developing and testing Dashboards can now begin in earnest.
“Dashboards have the potential to revolutionise retirement engagement in the UK by allowing savers to see all their pensions in one place, but we need to recognise the first versions will be extremely limited.
“Schemes won’t be forced to provide data in the initial phase and total compulsion is expected to take years, meaning people will only see partial information. Ensuring the limitations of early Dashboards are made crystal clear to users will be vital in establishing and maintaining trust.
“Protecting member’s data to prevent scammers from infiltrating the system is of paramount importance and there should be no attempt to launch until security can be guaranteed. There are also significant questions around data standards, regulation and the presentation of information which will need to be addressed.
“In the long-term there is no reason Dashboards can’t be expanded to including other financial products such as ISAs, as well as providing information on things like costs and charges to help people shop around for the best deal.
“The likes of Monzo have shown the way in the banking world, and I expect pensions to follow a similar path in the coming years.”
Introducing Collective Defined Contribution schemes
“Finally, the Pensions Bill proposes legislation which should eventually allow new ‘Collective Defined Contribution’ (CDC) schemes to be introduced in the UK.
“Versions of these schemes, which sit somewhere between old-style defined benefit arrangements and more modern DC plans, have been introduced in other countries, to varying degrees of success.
“Royal Mail has pledged to shift its members to a CDC scheme once the rules are in place, although there has been little sign of significant demand from other employers.
“Communication will be absolutely key to ensuring people understand what they are getting into with CDC.
“While the scheme might target a certain level of pension, this will not be guaranteed, meaning members could see cuts in their benefits even after they have started drawing an income from the fund. Such benefit reductions were experienced in the Netherlands and sparked vociferous protests from those affected.”
