It was only announced in the Queen's Speech on 4 June, but already the Government has published its proposals for the reclassification of occupational pension schemes in the Pension Schemes Bill.
The Bill introduces a new category of "shared risk scheme" into pensions legislation (the term "defined ambition" has been axed). It is proposed that in future there will be three main categories of scheme:
| Defined benefits scheme | A full pensions promise in relation to retirement income and other benefits and a fixed normal pension age. |
| Shared risk scheme | A pensions promise in relation to at least some of the retirement benefits. |
| Defined contributions scheme | No pensions promise in relation to any of the retirement benefits. |
A scheme which does not fit squarely into any of the categories is to be treated as if it were two or more separate schemes, each of which fits within its own category (e.g. a scheme with a DB and DC section).
The Bill includes consequential changes to various pieces of existing legislation (including that relating to preservation, indexation, transfers and automatic enrolment) to take account of the new categories.
Interestingly the Bill does not include any provision enabling or assisting employers or trustees to modify current schemes in order to adopt new risk sharing models. As things stand, schemes will be limited by the terms of their power of amendment and subject to the restrictions in section 67 of the Pensions Act 1995 and it may be very difficult for existing defined benefit schemes to adopt risk sharing models such as increasing retirement ages or linking benefit increases to funding performance.
The second main area covered by the Bill is the introduction of a new concept of "collective benefits". This is where a pool of assets is available and each member's benefit is calculated by reference to a proportion of that pool. Members of collective schemes are to be provided with an estimated target benefit which they can expect to receive, with an actuary certifying periodically whether the targets are likely to be met. Much of the detail on collective investment schemes will be included in regulations to be made once the primary legislation is in place.
The Bill can be found here.
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