Pension Schemes Bill will help to deliver a UK pensions system fit for the future. The government has released the first draft of the Pension Schemes Bill 2024-2025, with a roadmap that sets out its plan to implement reforms across defined contribution (DC) and defined benefit (DB) workplace pensions.
The draft bill and roadmap published on 5 June bring together reforms that are mostly intended to improve retirement outcomes for members and to support UK economic growth as part of the government’s plan to deliver a “private pensions system fit for the future”.
DB schemes
For the trustees of DC master trusts and the providers of group contract-based schemes used for automatic enrolment, the bill provides for the “main scale default arrangement” and contractual override outlined in the government’s recent response to its consultation on reforms to DC pensions. The intention is that the contractual override will be introduced in advance of the intended 2030 deadline for providers to comply with the main scale default requirement in order to support providers as they seek to consolidate default arrangements and make changes to comply with the VfM framework.
Local Government Pension Scheme
For the Local Government Pension Scheme (LGPS), the bill includes the key legislative provisions outlined in the government’s recent response to its “fit for the future'” consultation, together with powers to make regulations to provide the detail.
Timing and fit
The government’s roadmap suggests that the bill might receive Royal Assent in 2026 and gives indicative timescales for each measure in the bill to take effect. However, those timescales are intended to show the order of change. The precise timings will be subject to parliamentary time where needed.
The roadmap also makes it clear that the bill forms part of a bigger picture.
Phase one of the government’s pensions review and many of the provisions in the Pensions Schemes Bill are concerned with ensuring “that the money already in the system is performing as well as it can for savers and for the economy.” Phase two of the government’s pensions review, which is due to begin “in the near future” will then turn “to the wider questions of pension outcomes and what else is required to deliver more adequate retirement incomes for all.”
In addition, to “ensure the necessary safeguards and flexibilities are in place to meet the demands of the evolving pensions landscape” the government plans to consult on measures to improve the governance of trust-based schemes later this year.
Osborne Clarke comment
The Pensions Schemes Bill will bring significant changes for DB schemes, DC schemes, and for the LGPS.
In many cases the detail needed for final preparations will be set out in draft regulations, on which the government will need to consult. Trustees and employers might still, however, like to ask their advisers how the measures included in the bill will affect their scheme and then monitor the progress of relevant changes.
For the trustees and employers of DB schemes, the Pensions Regulator’s recent guidance on new models and options in DB schemes includes steps that trustees and employers can take to prepare for the new provisions around the release of surplus if they expect those provisions to be relevant and would like to do so.
For DC schemes, the VfM regime, guided retirement duty and small pot consolidation framework will all be significant changes. Employers and trustees who are already considering the possibility of terminating a DC scheme or section and moving members to, for example, a DC master trust might like to take into account the estimated timeframe for the introduction of those new duties.
The “main scale default arrangement” and contractual override changes will not apply in situations where employers sponsor their own DC or hybrid scheme. However, they are likely to have some impact on the DC master trust and group personal pension market. As such, employers and trustees might like to discuss them with their advisers in any project that involves transferring DC members to a DC master trust or other arrangement, or closing a DB scheme to the future accrual of benefits and selecting a DC master trust or group personal pension plan to provide benefits going forwards.
