The Pension Schemes Bill was finally approved by the House of Lords on Tuesday evening, following a further watering down of the mandation clause, and is now set to receive Royal Assent where it will become law.
One peer described the new wording as “mandation-lite” and said while there will still concerns around these reserve powers, safeguards had been put in place which should help protect member interests.
This follows a period of ping pong between the House of Commons and the House of Lords, with mandation being the main sticking point. This allows the Government to compel schemes to invest in certain assets, which it sees as being a key reserve power to boost investment into private markets, should schemes fail to meet their voluntary Mansion House commitments.
Many peers expressed concerns about the open-ended nature of these reserve powers, and the fact it over-rides the fiduciary duties of trustees to invest in the best long-term interest of members.
This was the fourth revision to the wording made by the Work and Pensions Secretary Pat McFadden, which was eventually voted through by peers.
The changes that were accepted set out more clearly what the government must do before enacting these reserve powers, which includes setting out steps that the government has taken to address specific barriers preventing schemes investing in the UK or private markets.
The Pensions Minister, Torsten Bell says this mandation power will also be subject to a new “savers’ interest tests”. This will give trustees and schemes the right to appeal if they think any enacted mandation power is not in savers’ interests.
There will also be a ‘sunset clause’ that will effectively mean these powers do not extend beyond 2032, by which point schemes should have delivered on Mansion House commitments.
These powers were described by the Lib Dem peer Baroness Sharon Bowles as “a decent compromise”.
There had been concerns that the whole Pension Schemes Bill could be under threat without agreement on this point, due to the time constraints. The Government has until the end of parliamentary session, 13 May, to pass this Bill into law, which includes a range of reforms, such as the new scale tests, the value for money framework, provisions to allow DB schemes to release surplus funds, and new rules around default retirement income solutions.
There was relief from many across the industry that the was clarity about the future direction of DC pension schemes. The news was welcomed by Pensions UK.
The Pensions Management Institute chief strategy officer Helen Forrest Hall says: “We fully supported the House of Lords in opposing a sweeping reserve power to require specific asset allocations and are pleased that the government has introduced important guardrails.
“As the Bill now moves towards implementation, our focus will be on working with government, regulators and the industry to ensure these reforms strengthen the pensions system, support long-term growth and, above all, deliver better outcomes for scheme members.”
Pensions commentator Henry Tapper described this as “very good news” He adds: “The Pension Schemes Bill has completed its journey through Parliament. Time to celebrate before the really important work begins – implementing the huge reforms it contains to deliver better pensions for savers.”
Lumera commercial director, data and dashboards Maurice Titley adds: “The progression of the Pension Schemes Bill to Royal Assent is a landmark moment that heralds a significant evolution of the UK’s pension system.
“For trustees and providers, the legislation will create a regulatory environment that definitively requires strong governance and robust data to adapt. In the DC market, the reforms will usher in a period of accelerated consolidation activity as providers look to achieve scale.
“The growing focus on providing default retirement solutions and Value for Money will force providers to invest in their data and administration systems to ensure that their operations are able to cope with this shift.”