Briefing on the debates on the legislation that became the Pension Schemes Act 2017, the main purpose of which is to improve regulation of Master Trusts - a type of occupational pension scheme used by many employers to meet their auto-enrolment dutiesJump to full report >>
The Pension Schemes Bill 2016/17 was introduced in the House of Lords on 19 October 2016, went through its Lords’ stages before being introduced into the Commons on 17 January 2017. It received Royal Assent on 27 April.
The main focus of the debates was Part 1 – which established an authorisation and supervision regime for Master Trusts. There was limited discussion of Part 2 – which enabled restrictions to be applied to certain charges in occupational pension schemes.
Master Trusts are pension schemes, set up by a provider such as an insurance company, for multiple employers which are unrelated.
The use of Master Trusts has grown in recent years - to 4 million members in September 2016, from 0.2 million members in 2010 - and is expected to grow further. The reason is that many employers have used them for auto-enrolment (new duties being phased-in between 2012 and 2018, requiring employers to auto-enrol their workers into a workplace pension scheme and made minimum contributions) (DWP Impact Assessment, para 11). Master Trusts are considered a “good fit” for auto-enrolment – removing the need for an employer to set up their own scheme, while at the same time providing ongoing oversight of investments at lower operating costs than single employer schemes (HC 579, March 2016). However, a consensus developed that existing regulation was inadequate because:
To improve member protection, Pension Schemes Act 2017 provided for:
The Government planned to implement the new regime from October 2018 (HL Deb 19 December 2016, c1489). However, to protect members of existing schemes, some provisions took effect from October 2016 (when the Bill was introduced). These include requiring scheme trustees to notify TPR of certain events and restrictions on the charges member charges that can be imposed on members in the event of scheme failure (HC Deb 30 January 2017 c756).
The main area of controversy – where an Opposition amendment was made to the Bill in the Lords but overturned in the Commons – related to the proposal that the Secretary of State should be required to establish a “scheme funder of last resort.” The Government opposed the amendment, arguing that: the risk of catastrophic failure was low; there were provisions in the legislation to protect member benefits; and that it did not want to deter other Master Trusts from rescuing a failing scheme (HL Deb 19 December 2016 c1507). However, Labour Peer Baroness Drake – who had proposed the amendment – said that there was nothing in the Bill to show how members’ benefits would be protected in the event of a Master Trust failing and not having the means to finance wind-up. (HL Deb 19 December 2016 c1504-9). The Lords’ amendment was removed from the Bill at Commons Committee stage and an Opposition attempt to reinstate it at Report Stage was defeated on division (PBC Deb 7 February 2017 c42; HC Deb 29 March 2017 c337).
A change compared to the Bill as originally presented to Parliament is that changes were made to the existing Fraud Compensation Scheme to ensure that Master Trusts were protected by it (DEP 2016-0916; Pension Schemes Act 2017, s 36).
Other issues of debate included:
Part 2 of the Act provided for regulations to over-ride contractual terms in occupational pension schemes where these conflict with the regulations. The intention is enable the implementation of policies to restrict certain pension scheme charges in occupational pension schemes, i.e:
The Pension Schemes Act 2017 received Royal Assent on 27 April 2017.
Much of the detail was left to regulations, on which consultation is planned from autumn 2017 (HL Deb 19 December 2016 c1489; HL Deb 1 November 2016 c561). The Government expects to implement the new regime from October 2018. (HL Deb 19 December 2016, c1489). However, to protect members of existing schemes, some provisions (relating to requirements to notify TPR of key events and restrictions on increasing member charges in the event of scheme failure) took effect from October 2016, when the Bill was introduced to Parliament. (HC Deb 30 Jan 2017 c756).
Commons Briefing papers CBP-7874
Author: Djuna Thurley