Here is your ‘bill’, sir
A few days after its publication, but before its second reading in the House of Lords on 28 January, the impact assessments for the Pension Schemes Bill 2019-2020 have been published.
Whilst quite lengthy, the assessments are worth a read because, in addition to providing assumptions and estimates around the costs to business and others of the Bill’s main measures, they provide some additional information and useful context not available elsewhere in the documents issued alongside the Bill.
Some of the headlines have already been reported in the pensions press, but here is a reminder and, hopefully, a bit more detail:
- The cost to pension scheme members is largely expected to be nil, as there is little or nothing for them to do.
- The main costs to businesses (employers and the pensions industry) relate to the ‘familiarisation stage’ of The Pension Regulator’s (TPR’s) new information gathering powers (£8.9 million) and changes to the Contribution Notice regime (£1.7 million).
- In addition, declarations of intent have an estimated familiarisation cost to businesses of around £0.71 million, with an ongoing cost of around £1 million.
- The requirement for a trustee and board statement (DB ‘Chair’s Statement’) also has an assumed cost of £1 million in terms of familiarisation. For ongoing costs, for the schemes that don’t already have a Chair, there will be an ongoing additional cost because of the higher pay associated with being a Chair rather than a trustee. The Impact Assessment estimates a scope of around 850 schemes that did not already have a Chair of the trustee board, this represents just over 15% of DB schemes. It is estimated that the ongoing costs incurred to businesses to be £19.5 million per year. The cost incurred to each scheme is, of course, assumed to vary depending on the size of scheme.
There is also a useful comparison of the current DC Chair Statement requirements and the proposed DB Chair Statement (reproduced below).
- For the new long-term funding and investment strategy, it is anticipated that there will be minor familiarisation and implementation gross cost to business, partially offset by savings associated with improved clarity of the requirements (illustrative cost estimate for familiarisation when regulations are published is £1.5 million).
- The proposed Pensions Dashboard is, not surprisingly given the infrastructure needed, the most expensive measure. There will be costs for the pensions industry to familiarise with new requirements and these costs are £2m in year 1 only. It is expected that there will be material costs for pension schemes and providers to invest in new software/IT architecture to be able to provide data to the dashboard(s). To provide data, ongoing governance, and regulatory compliance on an annual basis, one-off implementation costs and ongoing costs are estimated under three scenarios with different data requirements and coverage to highlight the potential range of impacts. Estimated one-off implementation costs range from £200m to £580m over 10 years and ongoing costs range from £245m to £1.48bn over 10 years.
- Most of the new measures, where assessed, are expected to be broadly neutral in terms of impact on TPR and it is anticipated that there will be limited impact to the Pension Protection Fund (PPF). Some measures, such as the introduction of the Declaration of Intent is intended to help protect DB pension scheme members’ benefits and, in turn, will (according to the assessments) reduce the likelihood that a scheme will enter the PPF, also reducing costs to the PPF (and potentially benefitting businesses indirectly through a reduction in the pension protection levy).
- The impact assessment does though note that there may be costs incurred to HM Prison service because of the new criminal sanction and custodial sentence for ‘Wilful or reckless behaviour in relation to a pension scheme’. It is estimated that the cost incurred to HM Prison Service is £26,274 in the first year and then £52,548 per annum thereafter.