UK Election: the King’s Speech – employment and pensions changes employers need to know

In the King’s Speech yesterday, King Charles announced the new Labour government’s legislative priorities. The speech unveiled 40 new Bills (see here for further details), which all aim to achieve the new government’s goal of governing in a “mission led” manner, “based upon the principles of security, fairness and opportunity for all”. Of the 40 new Bills, three key Bills for employment and pensions were announced: the Employment Rights Bill, the Draft Equality (Race and Disability) Bill, and the Pension Schemes Bill. 

In this blog post, we will take a closer look at each of these three new Bills.

Employment Rights Bill

The Employment Rights Bill, labelled by the new government as “the biggest upgrade to workers’ rights in a generation”, will be introduced within the government's first 100 days. The King’s Speech reiterates the government's commitment to introducing a new deal for working people and banning exploitative practices and enhancing employment rights (see our in depth briefing on the employment proposals in the New Deal here). Details of the Bill can be found in the background briefing notes (here). The government intends for the Bill to deliver on policies set out in the government’s Plan to Make Work Pay, which include by:

• banning “exploitative” zero-hour contracts in order to ensure workers have a right to a contract that reflects the number of hours they regularly work, and that all workers get reasonable notice of any changes in shift with proportionate compensation for any shifts cancelled or curtailed;
• ending ‘Fire and Rehire’ and ‘Fire and Replace’ practices (there is no detail on how this will be achieved other than an intention to reform the law to provide effective remedies and replace the previous statutory code);
• making parental leave, sick pay and unfair dismissal rights available from day one on the job for all workers (the briefing document reiterates the ability of employers to continue operating probationary periods to assess new hires);
• making flexible working the default from day one for all workers, with employers required to accommodate this as far as is reasonable (again, no further details on this yet);
• establishing a new Single Enforcement Body, also known as a Fair Work Agency, to strengthen enforcement of workplace rights;
• establishing a Fair Pay Agreement in the adult social care sector and, following review, assessing how and to what extent such agreements could benefit other sectors; and
• updating trade union legislation – including the previous government’s approach to minimum service levels – and simplifying the process of statutory recognition (see our blogpost on these proposals here).

Notably, there is no express reference to the creation of a single worker status, nor is there reference to strengthening rights and protections for self-employed workers, both of which were trailed in the New Deal.

Draft Equality (Race and Disability) Bill

The Draft Equality (Race and Diversity) Bill intends to:

• enshrine in law the full right to equal pay for ethnic minorities and disabled people, making it much easier for them to bring unequal pay claims; and
• introduce mandatory ethnicity and disability pay reporting for larger employers (those with 250+ employees) to help close the ethnicity and disability pay gaps.

Despite it being trailed in the Plan to Make Work Pay, the background briefing notes make no mention of measures to prevent the use of outsourcing to avoid paying equal pay.

Pension Schemes Bill

In addition to the two employment-related Bills discussed above, the King’s Speech also announced the Pension Schemes Bill. This Bill reflects some of the Labour manifesto pensions commitments, which included adopting reforms to ensure that workplace pension schemes take advantage of consolidation and scale, deliver better returns for UK savers and increase productive investment for UK PLCs. Labour also promised in their manifesto a wider review of the pensions landscape to consider what further steps are needed to improve pension outcomes and (again) increase investment in UK markets. 

While the King’s Speech did not go into great detail regarding the contents of the Pension Schemes Bill, the Bill will introduce, amongst others, 

• provisions to continue to push consolidation in defined contribution (DC) pension schemes, specifically focusing on individual deferred small pension pots; 
• a new standardised test under the Value for Money framework that trust-based DC schemes will be required to meet in order to demonstrate that they deliver value to their members, with the FCA tasked to bring the standard across to contract-based DC schemes; 
• new duties for trustees of occupational pension schemes to offer members a range of retirement income solutions; 
• proposals to encourage consolidation in defined benefit (DB) pension schemes through the use of Superfunds (we anticipate these proposals will be carried out through a statutory framework, although this isn’t entirely clear);
• minor changes to the Pensions Ombudsman’s jurisdiction; and
• a proposal to extend the definition of ‘terminal illness’ in the Special Rules for End of Life (Pension Protection Fund and Financial Assistance Scheme) to allow members to receive the relevant lump sum payments at an earlier stage.

There was no mention of measures regarding changes to automatic enrolment, trustee investment duties, or pensions tax relief. Notably we have no information about any continuing plans to act on the previous government’s proposals to make it easier for employers to access scheme surplus, nor are there any updates regarding the PPF’s role as a state-sponsored consolidator for DB pension schemes. 

Additionally, we assume that the stated intention not to reverse the Conservative abolition of the lifetime allowance will continue, so there is still opportunity to consider options for wrapping unfunded unapproved retirement benefits scheme (UURBS) benefits into a registered pension scheme. 

While we reserve judgement until more detail is available, we are not convinced that the measures outlined in the King’s Speech alone will have a transformative effect on pension scheme investments. 

We will continue to monitor key developments in the employment, benefits and pensions space as they happen. If you would like to discuss in further detail any of the points raised in this blog post, please contact your usual Freshfields contact.