As expected, there was no new Pensions Bill announced in today's Queen's Speech, ending speculation about the prospects of auto-enrolment being extended any time soon. Despite this, a number of the Bills that have been announced are still likely to have an important impact on the pensions industry. Most notably, the Financial Services and Markets Bill will reform the regulation of the UK's financial services sector, including the Solvency II capital requirements for insurers, the Online Safety Bill will prevent the hosting or publication of fraudulent paid-for advertising in an attempt to reduce online fraud and scams and the draft Audit Reform Bill will establish a more robust audit, corporate reporting and corporate governance system which it is hoped will help protect jobs, pensions and investments. There will also be an overhaul of the UK's approach to the recognition of human rights and responsibilities with the introduction of a new Bill of Rights.
Alongside this, pension schemes and sponsors can also expect to see secondary legislation brought forward to:
- introduce the new pensions notifiable events for corporate sponsors
- implement the new scheme funding requirements contained in the Pension Schemes Act 2021
- set out the timetable for the introduction of pension dashboards and the legal duties on schemes and dashboard providers, and
- modify the requirements for implementing GMP conversion (following the passage of the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 at the end of the last Parliamentary session).
The Financial Services and Markets Bill
The purpose of this Bill will be to:
- maintain and enhance the UK's position as a global leader in financial services, ensuring the sector continues to deliver for individuals and businesses across the country. It will be designed to promote a competitive marketplace for the effective use of capital, supporting economic growth, and
- establish a coherent, agile and internationally respected approach to financial services regulation that best suits the interests of the UK.
The Government hopes to achieve this through:
- revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK
- updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness
- cutting red tape in the financial sector to make the UK an even more attractive place to invest and do business, while making sure that high standards are maintained
- harnessing the opportunities of innovative technologies in financial services, including supporting the safe adoption of cryptocurrencies and resilient outsourcing to technology providers, and
- supporting individuals' confidence in financial services by ensuring continued access to cash across the UK and protecting people from scams.
It is expected that the Bill will contain reforms to the Solvency II capital requirements for insurers. In a recent speech at the Association of British Insurers' annual dinner, Economic Secretary to the Treasury, John Glen indicated that these reforms will include:
- a substantial reduction in the risk margin, including a cut of around 60-70% for long-term life insurers
- more sensitive treatment of credit risk in the matching adjustment
- a significant increase in flexibility to enable insurers to invest in long-term assets such as infrastructure, and
- a meaningful reduction in the current reporting and administrative burden on firms.
If these reforms are implemented it is likely this would have a positive impact on both pricing and capacity in the UK's pensions buy-out market.
Online Safety Bill
This Bill is designed to improve protections for users online, especially children, whilst protecting freedom of expression. The Government has confirmed this will include measures to require large social media platforms and search engines to prevent the hosting or publication of fraudulent paid-for-advertising, which is critical in the fight against pensions and investment scams.
The Bill will introduce a duty of care on online companies, making them responsible for protecting users and tackling illegal content. This will create safeguards and standards so that users know when and how companies are using tools to identify illegal content and to stop harmful material being viewed by children.
Ofcom will be designated as the independent online safety regulator and will be given robust enforcement powers. This will include the power to issue fines of up to £18 million or ten per cent of qualifying annual global turnover – whichever is greater – as well as business disruption measures, making them less commercially viable in the UK. Senior managers of tech firms will face the prospect of being held held criminally liable if they fail to comply with information requests from the regulator.
Audit Reform Bill
Following a number of high profile audit failures, this Bill is designed to rebuild trust in the UK's audit, corporate reporting and corporate governance system and the insolvency regulatory framework. It will include measures which will:
- ensure accountability for those with key roles in the system
- establish a new statutory regulator, the Audit, Reporting and Governance Authority, which will protect and promote the interests of investors, other users of corporate reporting and the wider public interest, and
- give the new regulator effective powers to enforce directors' financial reporting duties, to supervise corporate reporting, and to oversee and regulate the accountancy and actuarial professions
- seek to increase competition in the audit market by supporting the growth of challenger firms to reduce the dominance of the largest audit firms, giving businesses greater choice and making the market more resilient
- reform the regulation of Insolvency Practitioners to give greater confidence to creditors and strengthening corporate governance of firms in or approaching insolvency, and
- bring the largest private companies in scope of regulation, recognising the public interest in private companies of this size.
It is hoped these measures will improve confidence in the UK market and improve protection against risks for jobs, pensions, suppliers and investors from unexpected company collapses.
Bill of Rights
Reform in this areas has been anticipated for many years and The Ministry of Justice released a consultation paper outlining proposals for reform of the Human Rights Act 1998 at the end of last year. In its consultation, the Government proposed to 'overhaul' the 1998 Act in order to 'restore common sense to the application of human rights in the UK'. It states that it will remain faithful to the basic principles of human rights in the European Convention on Human Rights and proposes a new, distinctly British, Bill of Rights, designed to 'make sure a proper balance is struck between individuals' rights, personal responsibility, and the wider public interest'.
The key elements of the proposed Bill of Rights include:
- the United Kingdom will remain a party to the European Convention on Human Rights, and the Bill of Rights will retain the rights listed in Schedule 1 of the 1998 Act
- section 2 of the 1998 Act, which requires English courts to 'take into account' Strasbourg jurisprudence, is to be amended to provide that domestic Courts should firstly consider whether a rights issue can be solved by reference to domestic legislation or the common law. The aim is to ensure a wider range of jurisprudence is considered by English courts and to foster a more 'autonomous' approach to the development of human rights
- section 3 of the 1998 Act, which requires English Courts to interpret legislation as compatible with Convention rights 'so far as it is possible', is either to be repealed or replaced by language that is less strict: legislation should be interpreted as compatible with Convention rights where this could be done 'on an ordinary reading of the words' of the statute and where it would be 'consistent with the overall purpose of the legislation'
- a permission stage for human rights claims is to be introduced to weed out frivolous or unmeritorious claims. The permission stage could require applicants to show that they have suffered a 'significant disadvantage' or, failing that, that their claim should be heard on the basis of 'overriding public importance'
- public authorities are not to be held liable when acting in accordance with the will of Parliament. Moreover, the extent of public authorities' 'positive' obligations in human rights law is to be limited
- guidance is to be provided to the Courts on the application of the principle of proportionality for qualified Convention rights. Whilst the precise wording has not been determined, guidance will involve requiring Courts to take into account the expressed view of Parliament
- the role of personal responsibility is to be recognised in the human rights scheme (the Bill of Rights could, for example, use a remedy system to reduce rewards on account of the applicant's conduct), and
- a process for assessing European Court of Human Rights' rulings is to be set up, with Parliament at the centre.
The consultation closed on 8 March 2022. After it has considered the responses, the Ministry of Justice has said that it will bring forward legislation to introduce the new Bill of Rights. The new regime will inevitably cut across all sectors.
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.