Concerns over the threat of mandation within the Pension Schemes Bill continue to overshadow support for the objectives behind the legislation, with several industry organisations also raising further concerns in other key areas of the bill. 

In its submission to the Pension Schemes Bill Public Bill Committee, Pensions UK said that the majority of measures in the bill will help ensure pension schemes are maximising the value they provide to members, remove complexity for savers and reduce the cost of administering pensions.
 
In particular, the group welcomed measures to introduce guided retirment products, put defined benefit (DB) superfunds on a statutory footing, address the small pots problem, introduce the value for money regime and ensure trustees can make choices about the use of DB surpluses. 

However, the role of fiduciary duty has been emphasised once again, as Pensions UK argued that it believes in a pensions sector that puts fiduciary duty to savers at its heart, with free and open market competition to drive better outcomes for savers.
 
Given this, it raised concerns that some aspects of the bill introduce risks to savers now, and over the long-term.

In particular, Pensions UK argued that it does not believe that the government's plans to include a reserve power are needed, suggesting that voluntary relationship with the industry, as set out in the Mansion House Accord, is a better way to proceed.

In addition to this, it argued that if the clause remains, the legislation governing the amount that funds should invest should be in line with the accord, which sets out that a minimum of 10 per cent of assets should be invested in private markets, half of which (5 per cent) is in the UK. 

It also reiterated calls for the sunset clause to at a minimum be limited to 2032.

The Association of Consulting Actuaries (ACA) echoed these concerns, arguing that whilst the mandation debate is a sensitive, the ability to mandate asset allocation is not in the best interests of schemes, their members or employers and should therefore be removed from the bill. 

The ACA argued that, currently, the bill overreaches into fiduciary duties, blurring responsibility for asset allocation.


Both associations also raised concerns around the inclusion of broad powers for the government to set criteria for how Local Government Pension Scheme (LPGS) pools operate, with Pensions UK warning that government should not be seeking to interfere in how they run their money.

Given this, it argued that the powers in the bill need to be much more specific about the intention behind the drafting.  

The ACA agreed, argued that more detail is needed around when or how these powers are to be used to avoid any future Governments taking actions, which could be to the detriment of scheme managers having sufficient funds to pay members’ benefits.

Pensions UK director of policy and advocacy, Zoe Alexander, said: “Pensions UK welcomes the introduction of the Pension Schemes Bill which introduces important reforms that are positive for long-term retirement outcomes. 

“However, we are concerned that broad new powers to direct investment introduce avoidable risks to savers and must be approached with significant caution. The best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not mandatory basis.”

There were also broader calls for change, as PensionsUK said that whilst it was pleased to see the long-awaited statutory regime for superfunds, parts of the current provisions cut across fiduciary duty and include anti-competitive measures which should be amended. 

Although Pensions UK was also in favour of plans to give trustees more flexibility in accessing surplus funds from well-funded schemes, subject to appropriate safeguards, it said that it would support amendments that would allow trustees to use surpluses to enhance DB member benefits, boost defined contribution (DC) payments or establish CDC schemes without the 25 per cent tax penalty being applied.

This change was also highlighted by the ACA, as it argued that there should be flexibility to make one-off payments to members without adverse tax consequences.

“We would support further flexibility on the use of surplus – in particular, subject to suitable safeguards, permitting surpluses in defined benefit schemes to be transferred to other trusts (including master trusts) without incurring a tax charge, in order to fund future pension accrual for employees," ACA chair, Stewart Hastie, said.

"This would help to ensure that all employers, regardless of size, can use their DB surplus to fund current employee pension accrual in a straightforward way and without a possible tax penalty. It would also help to drive consolidation and scale in master trusts."

Further clarification is also needed on value for money (VFM) and guided retirement measures, as Pensions UK warned that it is not currently clear how the grading criteria for VFM will work at present, which is important because it will determine who can and cannot operate in the market.

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