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Pension Schemes Act 2017

Policy background

  1. The Pension Schemes Act aims to build on recent pension reforms such as automatic enrolment in workplace pensions.
  2. Once automatic enrolment is fully rolled out in 2018, the Government estimates that ten million people will be newly saving or saving more for their retirement1 . This Act seeks to ensure that these savers are appropriately protected, regardless of the sort of pension scheme they are saving in, by increasing the regulation of Master Trusts which account for over 4 million members and £8.5bn assets in 84 schemes (as at January 2016).
  3. Following the coming into force of the pension freedoms in April 2015, many members of pension schemes aged 55 and over were able to access their retirement savings more flexibly. The government sought to protect these people from excessive exit fees through the Bank of England Act 2016, which gave the Financial Conduct Authority powers in this respect, from April 2017. This Act seeks to provide members of occupational pension schemes with a level of protection equivalent to that of members of personal pension schemes.

Master Trust Authorisation

  1. The Act provides that:
  • An authorisation and supervision regime for Master Trusts will be introduced, so that Master Trusts would have to demonstrate to the Pensions Regulator that they meet certain key criteria on establishment, and then continue to do so.
  • Existing Master Trusts will be brought into the regime and required to meet the new criteria.
  • Requirements will be placed on trustees to act in certain ways in the event of wind up or closure of a Master Trust to protect members in those circumstances.
  1. The Pensions Regulator is provided with greater powers to take action where the key criteria are not met.
  2. The authorisation regime and criteria aim to target specific areas of risk that arise from the structures and dynamics in Master Trusts compared to other occupational pension schemes - including employer engagement with the scheme, the profit motive for most Master Trusts, and the volume of savers involved in these schemes, and the potential impact on confidence in pension savings should a scheme fail and exit not be managed. The provisions in the Act focus on the authorisation regime process and the Pensions Regulator’s powers to operate it, the authorisation criteria, and the introduction of measures intended to ensure an orderly exit where a scheme fails or otherwise chooses to leave the market. The focus on an orderly exit is aimed at providing continuity of member saving and support to employers in continuing to fulfill their automatic enrolment duties where applicable.

Administration Charges (cap on early exit charges and ban on member-borne commission charges)

  1. The Act amends existing legislation to allow regulations to be made which override terms of certain contracts which conflict with the regulations. This seeks to support the government’s intention to introduce a cap on early exit charges in certain occupational pension schemes.
  2. This change will also support the commitment the government made in March 2014 to ban member-borne commission charges arising under existing arrangements in certain occupational pension schemes. Member-borne commission charges under new arrangements were banned from April 2016.

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