UK Pension Schemes Bill passes report stage and third reading in the House of Commons

Following an evening of debate, the Pension Schemes Bill (the Bill) had its third reading in the House of Commons on Monday. Yet again, there was a disappointing lack of focus on the new criminal offences to be introduced by the Bill (see our previous blog here). Rather, the debate included a focus on ESG investments, pensions transfers, scheme funding, and superfunds.

• ESG. Particular focus was drawn to Labour’s proposed climate change amendment, which would mandate schemes to develop a strategy for ensuring that trustee investments align with the Paris agreement goals, including the objective to achieve net-zero emissions by 2050. The House displayed conflicting views and particular concern was raised in relation to: (i) the unintended consequences of investment decisions relying on sporadic ESG data; (ii) divestment policies leading to a lack of engagement and board influence; and (iii) the proposals being incompatible with trustee duties to beneficiaries. The amendment was voted down by 356 MPs, against 256 MPs who backed the change.

• Transfers. On the topic of individual transfers, regulations will require trustees to carry out due diligence to test whether certain conditions have been met or any red flags exist before making a transfer. For scam prevention purposes, trustees will have the right to refuse a transfer if such red flags are significant. It remains to be seen how far those regulations will go in shifting the risk associated with transfer decisions onto trustees.

• DB Funding. The House voted down (by a majority of nearly 100) an amendment which sought to ensure that open and active schemes receiving significant cash contributions and closed schemes are treated differently, in accordance with their differing liquidity profiles. However, Guy Opperman MP, the Minister for Pensions and Financial Inclusion, was quick to oppose the idea of a “one size fits all” regime. The approach of the Pensions Regulator following consultation on the revised DB funding code will be crucial here.

• Superfunds. It is no secret that the momentum is gathering on pensions superfunds. Although a clause requiring that the legislation to regulate superfunds be put in place within a certain time frame was rejected, Guy Opperman MP acknowledged the need for imminent legislation in this area, stating that “this Government must bring forward legislation in respect of superfunds in the fullness of time”.

The final amendments will now be considered by the Lords before the Bill is presented to the sovereign to grant it royal assent, thereby making the Bill an Act of Parliament. The Bill is expected to be passed into law by the end of the year, but it remains unclear when the various provisions might be brought into force. From the point of view of the criminal offences, the next crucial piece in the jigsaw will be the Pensions Regulator’s promised guidance, which has been touted by Guy Opperman MP as the means by which much needed comfort will be provided to counter the breadth of the offences – an important but unenviable task for the Pensions Regulator.