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The Pension Schemes Bill has today received royal assent. Two weeks of parliamentary ping-pong ended last night, when the House of Lords agreed "mandation" measures following a series of Government concessions.
The resulting Act provides for various major reforms, aimed, in particular, at improving retirement outcomes and driving UK growth. Key provisions cover:
- investment and governance under the Local Government Pension Scheme;
- refunds of DB surplus;
- superfunds and superfund transfers;
- DC scale and asset allocation;
- "guided retirement" for DC members;
- the consolidation of small dormant pots;
- value-for-money;
- a "contractual override" for GPPs;
- the indexation of pre-1997 PPF compensation; and
- the remediation of issues arising from the Virgin Media case.
Most provisions of the original Bill emerged from the parliamentary process unscathed. But the Lords baulked at a proposed reserve power, which would allow the Government (or successors) to mandate investment by master trusts and GPPs. Compromise provisions were ultimately agreed, under which the mandation power will be:
- confined to main default arrangements;
- capped based on targets in the Mansion House Accord (10% in private markets, of which half to be in the UK);
- exercisable once only, and not before 2028 or after 2032;
- (if exercised) effective only until the end of 2035, at which point the asset allocation requirement will fall away; and
- subject to a significant carve-out: trustees/providers will effectively be able to obtain an exemption, if they apply to the relevant regulator having reasonably concluded that investing as mandated is unlikely to be in members' interests.
By and large the Act provides only a framework for the relevant reforms. Detail will be set out in regulations yet to be made. And most provisions of the Act will not take effect for months or even years to come. A timeline was set out in the Government's 2025 roadmap; we expect an updated version to be published shortly. We also expect consultation on some of the necessary regulations – for example, as to refunds of surplus.
One significant measure comes into force immediately: Virgin Media remediation. Trustees can now ensure (where necessary) that historic amendments are valid on "section 37" grounds, if they obtain retrospective actuarial confirmation. Relevant guidance has already been issued by The Pensions Regulator and the Financial Reporting Council.
We will be publishing separately an overview of the Act's provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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