After a long process, the pension schemes bill has been approved by Parliament and is soon to receive Royal Assent to become the Pension Schemes Act. Benjamin Mercer, Pensions Expert reporter discussed with Partner Jane Kola and the president of the Society of Pension Professionals, James Riley, the new criminal provisions in the Pension Schemes Act being so broadly drafted that they could strangle legitimate business activity, potentially resulting in unnecessary bankruptcies.

Jane explained:

“Normally criminal law is drafted very precisely, so people can regularise their conduct to ensure they don’t commit the offence unless they want to. A lack of clarity could be immensely damaging to pension schemes, their sponsors and their lenders, all of whom could find themselves criminally liable for normal business activities.”

“It’s not just the decision maker who is in the fire line. All of the advisers potentially are also with them in the dock. You could find people being very scared to do things that are for the good of the business, and particularly M&A activity, restructuring and refinancing. You could see companies with DB schemes really struggle to get through those processes and ironically some businesses might go bust over the next couple of years, who otherwise wouldn’t have done, because people are worried about ‘Are we committing an offence or aren’t we?’”

The second topic discussed was the shift change for actuaries proposed by the report prepared for the Institute and Faculty of Actuaries and its recommendations to improve its members’ outcomes. Jane, as coauthor of the report, talked the audience through the whats and the whys.

Jane commented:

“We decided to look at what do we really, as pensions professionals, want to deliver in respect of our clients and the answer is ‘Actually, good member outcomes’. That won’t necessarily mean perfect member outcomes and there will be some members who will get more than others but the reality is we wanted all of our clients to put their best foot forward.

“And then we looked at how we might achieve that and that was about setting goals but also ensuring that those who are advising in setting those goals are the right people. The actuary is very much at the centre of a pension scheme and the advisor, generally speaking, who goes to all meetings, who is the closest to the trustees. To achieve good outcomes, the mindset of all actuaries needed to broaden out, so that they can strategically help trustees see who else they needed advice from to be able to achieve their objectives. Kick the tyres on their objectives and update them from time to time to make sure they are heading in the right direction.”

“And ultimately, if the mindset of actuaries is to be more strategic and they bring in other parties, that includes administrators, governance advisors and lawyers, at the right time, then that would improve the chances of members getting the best outcome which is what they were promised.”

In respect of the small pots problem, which has been largely agreed it has to be a form of consolidation in one form or another, but has not been solved yet Jane commented:

“The law doesn’t help with this, but the law is correctable. I think the problem is the practicalities. There’s a piece around trying to maintain confidence of members and a feeling that taking peoples’ choices away from them once they have got a pot is not a good idea. As people often have very little choice in getting the pot in the first place, trying to give them choices once they’ve actually got it doesn’t seem to make a lot of sense or be logical. And then there are issues around who is going to pay for maintaining the pots. You have got to pay to keep it and pay to get rid of it. Then what’s the right solution as to where it should go to and whether that’s a good option or not? Could someone be criticised for putting money from the existing pot into another one especially if there’s a charge differential.”

“But the reality is members are losing out as a consequence of their pots not following them around or being consolidated. I think we just need to create a world where that happens. I agree that if it’s down to the member to choose. They don’t choose to go in, generally, they don’t choose investment options, they shouldn’t have any choice on the end destination of their small pots.”

“If they want the pot they should be able to get it, but they shouldn’t have a choice on it leaving it with their initial employer’s arrangement.”

Read Jane’s comments in Pensions Expert here and listen to her full commentary here.