Just because it is allowed for in legislation, does not mean that it will actually happen. This is the case with three initiatives that were due to add to employer and pension providers’ already hefty workload in the next year or so.
On 15 October 2015, Pensions Minister Baroness Altmann made a written announcement in the House of Lords and Under-Secretary Shailesh Vara made the same announcement in the House of Commons. Both said that the following initiatives would be put on hold saying that ‘the time is not right to ask the pensions industry to absorb the new swathe of regulation’:
‘Pot Follows Member’
Regulation 33 of the Pensions Act 2014 in Great Britain and Regulation 32 of the Pensions Act (Northern Ireland) 2015 provide for future legislation that would allow the ‘automatic transfer of pension benefits’. Simply, this would allow the accumulation of small pension pots from previous employments to be transferred to the current pension pot – a process that was referred to as ‘pot-follows-member’.
Steve Webb, Pensions Minister in the Coalition Government (May 2010 – May 2015) described this as a ‘scheme that enables people to keep their savings in one place’ and announced that this would roll out from October 2016. The current Pensions Minister Roz Altmann and her Under-Secretary have shelved this roll-out.
Shared Risk Schemes
The Pension Schemes Act 2015 in Great Britain allows for the introduction of a new category of pension scheme called the shared risk scheme, commonly known as a Defined Ambition scheme. This scheme would provide elements of both existing pension regimes, merging the certainty of a Defined Benefit scheme whilst sharing the risk of a Defined Contribution scheme.
The 2015 Act allows for the development of the DA scheme but such development was also put on hold by the announcement.
The same 2015 Act in Great Britain allowed for Collective Defined Contribution (CDC) schemes. Very simply, pension contributions could be paid into very large pension pots rather than individual ones – for example one large pot for a particular industry type. The pension that is payable from a CDC would be from the shared assets of the scheme, the idea being that investment risks / benefits are shared. The legislation is complicated about the management and administration of such CDC schemes.
However, as above, whilst the 2015 Act allows for CDCs, further consultation and regulations on the development has also been put on hold.
We’re sure this will be a welcome announcement for employers and pension scheme administrators whilst they get their heads around the plethora of the pensions flexibility changes announced in 2014. However, the legislation itself has not been repealed and still exists to implement these in the future. Indeed, this is confirmed in the announcement which says ‘the market needs time and space to adjust to the other reforms underway and these areas will be revisited once there has been an opportunity for that to happen’.
This is only a temporary respite and everyone should be aware that they could be back in years to come!