The measures contained in the Pension Schemes Bill announced today in the King’s Speech have already generated reaction from experts across the pensions’ sector.
The Pension Schemes Bill represents ‘business as usual’ for pensions policy according to LCP partner Steve Webb as he comments: ” Legislation in areas such as commercial superfunds or consolidation of ‘micro’ pension pots comes after years of consultation and discussion under the Conservative administration and would have been implemented whichever party had won the election. Similarly, measures to drive out small, under-performing DC schemes through a ‘value-for-money’ framework had been under preparation before the Election and are simply being carried forward by the new government.
“One initiative which might have been expected in the new Pensions Bill but appears to be missing is legislation to allow the Pension Protection Fund (PPF) to act as a ‘public sector consolidator’ of small Defined Benefit pension schemes. However, it may simply be that the necessary legislation could not be prepared in time rather than that the new government has dropped this idea.
Commenting, former pensions minister and LCP partner Steve Webb said: “This Pension Schemes Bill very much represents ‘business as usual’ when it comes to pensions policy. There appears to be nothing in the legislation that so far represents a distinctively ‘Labour party approach’ to pensions, and a Conservative minister could happily have brought forward this legislation. Perhaps inevitably, it will take time before we see how the new government’s agenda differs from that of its predecessor. But this does mean that any distinctive policies will have to await legislation later in this Parliament and may take time to have effect”.
On the subject of using ‘value for money’ measures to drive out under-performing schemes, Steve Webb added:
“Whilst the government understandably wants to drive out the smallest pension schemes, some of which may not be well run or delivering a good return, it is important to remember that the vast majority of people are not saving in small pension schemes. What matters to most savers is the performance of the largest schemes, including industry-wide Master Trusts, and the new VFM framework is unlikely to change much for those schemes, at least in the short-term”.
“One area where the new government may need to take further action is on the consolidation of small deferred pension pots. The measure included in the Pension Schemes Bill was designed to deal only with ‘micro’ pension pots under £1,000. But this will still leave millions of people with slightly larger pension pots which will remain fragmented and scattered across the pensions landscape. Unless the consolidation of micro pots is radically expanded, fresh policy thinking will be needed to tackle the issue of pension fragmentation.”
Following the Speech, Kate Smith, Head of Pensions at Aegon, comments on surprise Pensions Schemes Bill saying: “With so much of Labour’s pre-election talk centring on their desire to complete a full review of the UK’s pensions landscape, we had expected the new government to skip the inclusion of a Pensions Bill in today’s King’s Speech. To our surprise, that’s exactly what we ended up getting.
“The new Pensions Schemes Bill looks like a sign of continuity, adopting many pensions policies already in motion from the previous government. Labour will be moving fast to make this happen, improving saver outcomes and supporting investments by enabling schemes to invest in a wider range of assets.
“The measures proposed include the consolidation of small, deferred DC pensions pots and progress on the Value for Money framework, both of which allow for consolidation and leading to better member outcomes. In addition, trust-based schemes will be legally required to offer retirement products in-house or in partnerships, as well as a default solution for those unable or unwilling to make their own choices.
“We also welcome the National Wealth Fund Bill, and look forward to seeing more detail on both this and the Pensions Schemes Bill going forward.”
Tom Selby, director of public policy at AJ Bell, comments: “The Pensions Bill will put millions of people’s pension pots at the heart of the new government’s drive to boost investment in the UK and ultimately drive long-term economic growth. The claim that the measures in the Bill could deliver bigger pensions needs to be taken with a pinch of salt, as ultimately this will depend on the performance of your investments. It is, of course, possible that this package of reforms will result in better investment returns for members – but this is never guaranteed. Investing in private equity, in particular, can come with significant costs and risks, so it is crucial trustees choosing to move in this direction are focused on delivering good retirement outcomes above all else.
“Savers rightly expect to receive good value for money from their schemes, so the emphasis on fund performance – in particular the difference between the best and worst performing default funds – effectively puts the worst performers on notice that they need to up their game.
“The government is also intent on pushing forward with greater consolidation of pension schemes, in part to improve the value members receive and in part to help deliver greater levels of investment into UK Plc. For individuals, there can also be benefits to taking control and combining your retirement pots, including potentially lower charges, more choice and easier administration. AJ Bell has a free tool (Find My Pension | How to Find Old & Lost Pensions | AJ Bell) which can help you find and combine your pensions. Reforms not mentioned in the Bill to create Pensions Dashboards in the next few years will make it considerably easier for people to track down lost pensions, and we need the government to get fully behind this initiative to make it a reality. At the last count, there was over £26 billion sitting in pension pots that had become disconnected from their owners*, meaning savers could potentially have thousands of pounds they are completely unaware of.
“When it comes to turning your pension into a retirement income, the government says it plans to require all occupational pension schemes to offer a retirement income solution to members. While we don’t have detail on exactly what this will mean, there are many occupational schemes that do not offer drawdown to their members, meaning lots of people will need to transfer in order to take a flexible income.
“With many of these measures, the development of new guidance options is going to be essential, to provide the superglue binding these together to be able to effectively communicate changes to pension savers. It’s important therefore the FCA and Treasury continue apace with their development of targeted support and reform of the advice guidance boundary.
“One key thing missing from this Bill is any mention of scaling up automatic enrolment. There is wide agreement that minimum contributions under auto-enrolment will need to rise, and a 2017 review recommended removing the lower earnings band and reducing the minimum qualifying age to 18 as a starting point. The legislation for these changes is already in place – but the big question is when will it be put into practice? By removing the lower earnings band, savers will benefit from an extra £500 a year into their pension, which would make a big difference over the course of a person’s lifetime.”
Nausicaa Delfas, Chief Executive of The Pensions Regulator said: “The millions of people saving for a pension deserve the system to work as best as it can to give them security and value in retirement. “We welcome a new pensions bill and will work with government to make sure any reforms not only deliver value for savers but could also grow the UK economy too.”
Claire Trott, Divisional Director of Retirement & Holistic Planning at St. James’s Place, comments: “We welcome the focus on this important issue and understand that small pots of pensions are an issue for an increasing number of savers. As this policy is developed, careful consideration must be given to encourage people’s engagement with their pension savings. There is a risk that automatically moving funds to consolidate them and mandating retirement options could reduce engagement and may not lead to the best outcomes for savers, with people not necessarily considering if they are invested correctly for their personal circumstances, retirement plans, retirement age and risk profile.”
Tom McPhail, Director of public affairs at the lang cat, said: “The measures announced in the new Pension Scheme Bill had already been initiated by the previous government. But the proposals to consolidate small pension pots, implement a value-for-money framework, and legally require trust-based schemes to offer retirement income solutions, including default investment options, should enjoy support from employers and the pensions industry.
“It does appear any more radical reforms to the pension system will wait until the government has completed the review it promised during the election campaign”.
Rory Marsh, Customer Life Stage Director, Royal London said: “The Pensions Scheme Bill announced as part of today’s King’s Speech is largely a continuation of changes that were already underway. What will be key is the Government’s promised pensions review. This review must focus on building on the success of automatic enrolment, as this will have the greatest impact on people’s retirement outcomes and support the level of investment available to finance UK economic growth.”
Alastair Black, Head of Savings Policy at abrdn, said: “Reviewing the pensions landscape was one of Labour’s key savings policy commitments in its manifesto, and it’s reiterated its ambition with the Pension Schemes Bill today. The proposals in this bill (which focus on driving better member outcomes through consolidation, requirement to provide retirement options and ultimately more freedom to invest) were in progress under the last government and so pressing ahead demonstrates both stability in approach and a desire to have an immediate impact. We welcome anything that improves participation in retirement saving and delivers better outcomes for savers.
“What wasn’t covered was a wider review that we were hoping would be announced. The steps covered in the Bill all have potential to make a difference, but more could be done. We still hope to see a wider pensions review to ensure stability on pension and other long term savings policy. Reform needs to be approached with consensus and the long-term view in mind and as an industry we are keen to support such an agenda.
“While the proposed bill covers the requirement for Trustees to offer retirement solutions and default investment options, we know that people will get better options if they engage with making decisions appropriate to them. So alongside this Bill we need to progress at pace on the Advice Guidance Boundary to support providers and advisers alike to provide efficient and effective support to all.
“However, the omission of social care from today’s speech was notable. We urgently need action to help manage the cost of care and to provide more clarity for savers on the costs. It’s something that can end up being astronomical, but that’s currently incredibly hard to predict and plan for. The social care cap, announced by the last government is a start, but it’s already been kicked down the road to 2025. This can have the biggest impact on those that have worked hard and saved just enough. We can’t afford any more delay – this issue is only getting more pressing by the day.”
Pete Glancy, Head of Policy, Scottish Widows said: “This Bill helps make it possible to conclude worthwhile initiatives started by the previous Government which will help crack the retirement crisis in the UK, where the level of pension saving is significantly less than our international peers and millions of people still put nothing aside for later life.
“The big steps required will need a broad consensus, like that achieved by the Pensions Commission which brought the game-changing Auto Enrolment. What we now need is a ‘Lifetime Savings Commission’ that can consider how to bring better retirement outcomes for the nation by looking at broader savings challenges including financial resilience together and not as separate parts.“
Simon Kew, Head of Market Engagement at leading independent consultancy Broadstone, said: “The Pensions Bill was a surprise inclusion in the Kings Speech but largely continues the direction of travel from the previous government in various areas such as the consolidation of small pots and a Value for Money framework.
“The problem of small pots is likely to take years to solve so it is good to see that there is an urgent desire to fix this issue. While there is a mention of commercial superfunds, which have already completed their inaugural deals, the public sector consolidator idea is conspicuous by its absence.
“The Bill also contains measures for the trustees of pension schemes to offer savers retirement products so they have a pension and not just a savings pot when they stop work which can help drive up engagement. The challenge of retirement income from Defined Contribution funds is massive and adding some paternalism back into the system seems to be the only way forward.
“The government’s analysis suggests that it will increase pot size at retirement by as much as 9% for the average earner contributing to a pension over the course of their career which will be a major boost for savers. There is a strong focus, as expected, on the productive investment of pension capital but that may be a tougher nut to crack in the short term.”
“The legislative direction of travel outlined in the Kings Speech is understandable as a smaller number of larger pension schemes brings efficiencies for providers, investment opportunities for the government and easements for regulators. The hope is that the combination of these will lead to better outcomes for members while these goals clearly remain consistent with the terms of any deeper review of financial services and pensions.
“It may clear the way for the wide-ranging Pensions Review to tax reliefs, the state pension and advice/guidance – all areas which could benefit with from longer and considered consultations.”
A PPF spokesperson said: “We welcome the announcement of a Pension Schemes Bill in today’s King’s Speech. We recognise the opportunity to consolidate the UK’s fragmented pensions landscape and enable pension investments to secure the best outcomes for members whilst supporting UK economic growth.
“We look forward to working with the new government to support delivery against its goals, including potential new solutions. We also support the proposed change seeking to help terminally ill PPF & FAS members through earlier compensation payments than current rules allow.”
Steve Watson, Director of Policy & Research, Cushon said: “It’s fantastic to see the new Labour government is pushing through the work carried out by the previous government. These issues, like value for money and consolidation of small pots, are largely uncontroversial and it can only be good news that the change in regime hasn’t interrupted the progress of this Bill.
“Of course, we’ll need to see the precise detail of how all this will be implemented, but the headlines are promising. To get this Bill started before the summer recess is the best result savers and the pensions industry could have hoped for. “We’ll likely have to wait for the Labour’s pensions landscape review to see what positions this government will take on more challenging matters, such as pushing more pension money towards UK productive finance and pensions adequacy.”
Andy Briggs, CEO of Phoenix Group, responds to today’s King’s Speech saying: “I hope that the next steps the government takes will include a timeframe for implementing the broader pensions review and that it will be announced sooner rather than later.
“This should include both the private and state pension system to ensure it is fit for purpose and a plan for increasing auto-enrolment minimum contributions should be part of this. People are at risk across the UK of thinking they are saving at the right rate for their future when they are not. Saving at the statutory minimum isn’t enough. The single biggest lever we can pull to secure savings adequacy is raising minimum contributions, which we’d like to see the government move towards as part of an adequacy review.”
Paul Leandro, Partner at Barnett Waddingham commented: “We welcome the new Pensions Scheme Bill announced in the King’s Speech today, particularly the increased focus on pension schemes to offer retirement income products or a range of products. Since the full freedoms were introduced in 2015, the retiring and retired populations have been underserved. This is a positive step towards addressing that gap.
“However, the industry shouldn’t just fixate on building new products. Investment is needed into how the options are communicated to people. Retirement products are essentially pointless if people are not informed about them or engaged with them. Supporting people in how to make choices now and on their retirement journey is crucial.
“The elephant in the room is the inadequacy of current DC contribution levels. The new bill is silent on this. This is disappointing as it’s clear people are not saving enough for retirement, and even with new initiatives around consolidation and value for money, people will still be left with inadequate pension pots unless they save more during their working lives. This is exacerbated by gender and ethnicity gaps, which frustrating do not seem to be covered in the bill and which is a significant concern in the current pension landscape.”
Liam Mayne, Partner also at Barnett Waddingham commented: “From the Pension Schemes Bill announced today in the King’s Speech, it is clear that the new government’s agenda will take time to unfold. The bill’s potential to boost UK investment and drive economic growth is promising, but we must remember that the ultimate impact on pensions will depend on investment performance.
“The focus should remain on ensuring good retirement outcomes for members, particularly when considering investments in areas such as private equity, which carry significant costs and risks.
“We had anticipated a full review of the UK’s pensions landscape based on Labour’s pre-election discourse, so the inclusion of a Pensions Bill was unexpected. However, this could be a sign of a swift move towards improving saver outcomes and diversifying investment options.
“The urgency to address the issue of small pots is welcome, and the introduction of measures to transform savings pots into pensions is a step in the right direction.”
