Labour puts pensions, guidance and ISA reform front-and-centre of financial services agenda in its ‘Financing Growth’ plan

by | Jan 31, 2024

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Today’s announcement by Labour of it’s first ever plan for financial services, entitled ‘Financing Growth’. As part of it’s plan, the party says it plans to ‘simplify the ISA landscape to make it as easy as possible for people to feel the benefits of saving and investing their money’. A review of the pensions landscape is also promised, although no repeat of proposals to bring back the lifetime allowance. Labour has also given its backing to the FCA’s review of the Advice Guidance Boundary.

In response to Labour’s plan revealed today, the team at AJ Bell have clearly been looking at the detail and have shared the following synopsis with us as follows:

Tom Selby, director of public policy at AJ Bell, comments:

 
 

“Labour appears intent on a wide-ranging review of the pensions landscape if it wins power, with the aim of building on the automatic enrolment reforms initiated under Tony Blair’s government and introduced by the Conservative-Liberal Democrat coalition. While Sir Keir Starmer’s party seems focused on continuing the drive towards more ‘productive assets’ in people’s pension investments, it is critical the interests of savers are at the heart of any future reforms.

“Ensuring the investments held by auto-enrolment default funds are appropriate is clearly important, but ultimately the biggest driver of retirement outcomes is contribution levels. It is therefore likely the next government will need to think carefully about the question of pension adequacy and how to scale up minimum contribution rates beyond the current level of 8% of qualifying earnings.

“Given how important the state pension is to people’s retirements, setting a clear direction for how much this should be worth and when people should get it is also vital. That review will also need to consider at what point the triple-lock should be ditched.

 

“The fact the Labour document does not mention the party’s previous pledge to reintroduce the lifetime allowance, something which would create more complexity in an already complicated landscape, is hopefully a positive sign that policy will be quietly shelved.”

ISAs

“Labour has also said it will look to simplify the ISA landscape to make it as easy as possible for people to invest. This is a hugely encouraging move and something that AJ Bell has campaigned for consistently over a number of years. No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today.

 

“Many people find the array of choice on offer confusing, and a ‘back to basics’ approach would help build on the core feature of ISAs, which is their simplicity. A full review of ISAs should be seen as an opportunity to prevent them being suffocated by incremental complexity, which could eventually see ISAs turned into a political football in the same way as pensions taxation.

“Research we’ve conducted shows that the ISA ‘brand’ is widely recognised by the UK public. But once people are asked to identify the various different types of ISA available, knowledge levels plummet.”

Advice/Guidance

 

“It is hugely positive that Labour has indicated its support for the FCA’s review of the advice guidance boundary. Ensuring millions of Brits can get the support they need when making often complex financial decisions is critical to boosting people’s financial resilience. Promoting the value of regulated advice and reforming guidance rules so people who don’t take advice can receive more personalised help can both play a significant role in improving consumer outcomes in this area.”

What Labour’s plan for financial services says

Relevant sections of the paper are below – Financing-Growth.pdf (labour.org.uk)

 

Undertake an in-government pensions and retirement savings review

In government, Labour will review the current state of the pensions and retirement savings landscape following the reforms of the early 2000s and the welcome introduction of auto-enrolment in 2012 to evaluate whether the current framework will deliver sustainable retirement incomes for individuals. This will mean working with industry and consumer groups to ensure savers are getting the best possible returns, and to identify and tackle the barriers to pension schemes investing more into UK productive assets – including cultural and regulation-induced risk aversion. The review will look across the ecosystem – at all types of pensions and retirement savings plans (defined benefit, defined contribution, and public sector schemes including LGPS), at corporate sponsors, at asset managers, and at VCs and private equity, and set out proposals to bring about an approach that will benefit both UK PLC and UK retirees. Enable greater consolidation across all pension and retirement saving schemes This will enable schemes to have access, expertise, and risk profile to increase their investments in long-term illiquid assets and therefore deliver higher returns for savers.

In particular:

 

• For defined contribution (DC) schemes, Labour will give The Pensions Regulator (TPR) new powers to bring about consolidation where schemes fail to offer sufficient value for their members, and will ask TPR to provide explicit guidance around fund and strategy suitability, and their expectation of a default cohort investment approach. Labour will keep the minimum thresholds for scheme performance under review to ensure continued improvement in returns where possible.

• For LGPS, a Labour government will evaluate different models for pooling, including increasing in-house fund management capacity at the pool level, to deliver better returns for savers and increase investment in productive assets.

Reform of the advice and guidance boundary

In the UK, only 8% of adults have received advice from financial advisors. Labour recognises the need to close the advice gap which is limiting people’s ability to manage their finances. Labour supports the on-going consultation on the FCA’s three proposals35 to address the advice gap through the Advice Guidance Boundary Review, and will closely monitor the progress in closing the gap. Labour also recognises the importance of ensuring alignment between the new proposals and the statutory remit of the Money and Pensions Service to continue to provide free and impartial guidance on money and pensions. A Labour government will also work in partnership with regulators and industry to support FS firms to leverage data and emerging technologies like AI to produce widely accessible and affordable financial guidance tools with appropriate consumer protections in place.

Support increased retail participation in capital markets

Labour will look to deliver a modern ‘Tell Sid’ campaign for retail ownership to highlight the value of British people supporting British businesses. Labour will also look to simplify the Individual Savings Accounts (ISA) landscape to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of stocks and shares ISAs

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