Pension Schemes Bill will soon receive Royal Assent

Powers to impose climate change regulations on pension schemes, including requirements to have net-zero carbon emissions by 2050, have taken a step closer to reality as the long-debated UK Pension Schemes Bill is about to be given Royal Assent.

The final parliamentary stage of the Pension Schemes Bill was completed in the House of Lords last week. It should soon become the Pension Schemes Act 2021 and come fully into effect next year.

It contains the legal right to force pension schemes across the UK to adopt and report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

These TCFD obligations largely focus upon trustees assessing and understanding climate-related risks and opportunities to pension scheme assets, liabilities, and investments.

Pensions minister Guy Opperman has previously said that pensions play a vital role in shaping the UK’s commitment to be net zero by 2050, and that the measures included in the bill will create a greener pensions system.

The Pension Schemes Bill also expands The Pensions Regulator’s powers, introducing criminal and civil offences for pension funding negligence.

However, pensions consultancy LCP said large sections of the bill are not likely to come into force for many months and that further regulations on climate change governance will be needed. Also, key provisions on pension scheme funding may not be implemented until well into 2022.

LCP warned that the Department of Work and Pensions would not have the capacity to produce all of these regulations at the same time, and many of them will require parliament to consider them. 

David Everett, partner and head of research at LCP, said: “Although this feels like the end of a long journey, in reality it is more like half-time. To put a new act of parliament into effect requires a large amount of secondary legislation. Codes of practice and guidance and this needs time to be drafted, consulted on and implemented. 

Everett said he expected to see a phased implementation of the new Pension Schemes Act, with the scheme funding powers almost certainly not biting until well into 2022.

“There will be much for the pensions industry to do in terms of engaging with this process to make sure that everything is fit for purpose,” he said.