The Labour party has said if it wins the next election, it plans to review pensions to understand if the current framework will deliver sustainable retirement incomes. The plans it has outlined for pensions so far focus mainly on nudging schemes to invest in UK equities and productive finance.  

The opposition party’s ‘Plan for Financial Services’ mirrors much of the current government’s ambitions when it comes to pensions, and remains silent on what could be seen as traditional left themes like higher minimum contribution levels, a pensions commission or collective defined contribution. It also does not mention the current government’s mooted ‘lifetime pension’.  

While Labour says its pensions review would look at incomes in retirement, the current document focusses exclusively on the investment contribution to pension accumulation, steering clear of contribution levels or the tax treatment of pensions, including whether it would reintroduce the lifetime allowance. 

Labour states that it wants to “reinvigorate our capital markets by reviewing the pensions and retirement savings landscape, enabling greater consolidation of all types of schemes”, channeling money towards productive finance and the UK economy in particular.  

Any future government will likely have to rely on economic growth to finance some of its future spending, as tax take is currently at a postwar high for the country – though not in international comparison – and borrowing has become more expensive due to the higher bank rate. 

Sir Keir Starmer’s party maintains that “the de-equitisation of the UK capital markets has been partly driven by a decline in institutional investment in UK equities over the last two decades”. 

It cites figures of UK pension fund equity holdings, comparing them with the higher exposure that US pension funds keep to stock markets, of which the US stock market is a large segment. Whether higher equity exposure has helped US pension fund members is unclear. US public pension funds were about 77.1% funded in 2022, Public Plans Data found, compared with the Local Government Pension Scheme’s circa 107%. The same year, US corporate defined benefit funds reached an average funding level of about 95%, according to BlackRock. In the UK private sector, the aggregate Pension Protection Fund funding ratio is 142.8%.   

Labour blames accounting standards, regulation, tax treatment and an “emphasis on cost rather than value” for pension funds leaving the UK stock market.  

“The closure of defined benefit schemes to new members has shifted their risk profile to focus on guaranteed long-term cashflow rather than growth investments. But the result is that investment in UK companies has suffered, and UK pension savers are missing out on higher long-term returns from growth assets,” it said. 

To address the issue, it proposes launching a scheme like France’s Tibi initiative, which has the aim to “finance the fourth industrial revolution” by attracting institutional capital. In 2020, French insurers and pension funds pledged a combined €6bn (£5.1bn) over three years to a list of approved funds. In a second phase, €7bn has been committed by 2026.  

Consolidation – which has shaped the pensions landscape for some years – is set to see continued government support.  

For defined contribution schemes, Labour would even give the Pensions Regulator powers “to bring about consolidation where schemes fail to offer sufficient value for their members".

In addition, it "will ask TPR to provide explicit guidance around fund and strategy suitability, and their expectation of a default cohort investment approach”.  

A 2023 report by thinktank New Financial, which the party cites on other topics, also suggests gradually raising pension contributions, as well as setting up a pensions commission with cross-party support to establish the direction of pensions for the next 50 years. However, Labour remains silent on those points. Pensions bodies have been calling for minimum contributions to be increased from 8% to 12%, split evenly between employees and employers.

“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,” said director of public policy at investment platform AJ Bell, Tom Selby. 

“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.” 

While the party says that it will build on the last Labour government’s legacy – including on auto-enrolment – it would seemingly focus this on continuing the ongoing advice/guidance boundary review and using artificial intelligence to guide people’s decisions.
   

   

   

For the LGPS, the party says a Labour government would “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”. 

It said it would work with the LGPS to set out best practice for adopting cost-effective in-house fund management capabilities within pools “to deliver better returns for savers and create new jobs in regions and nations”. 

Pools differ in their structure, as some have larger in-house teams than others, who are more reliant on external management. LGPS funds are currently due to pool all listed assets by March 2025. The government has also raised the prospect of pools reaching at least £200bn, which could mean some pools having to merge. 
 

 

Labour notes that it would try to identify overlaps and gaps in regulatory mandates across the Prudential Regulation Authority, the Financial Conduct Authority, Competition and Markets Authority, the Pensions Regulator and the Payment Systems Regulator. 

A Regulatory Innovation Office would be set up “to improve accountability and promote innovation in regulation across sectors", including measuring progress on the FCA and PRA’s secondary objective to promote growth and competitiveness. 

The plans have been met with a mixed reaction. Some in the industry welcomed the prospect of a pensions review but regretted there was little mention of themes like decumulation or contribution levels. 

Director of policy and external affairs at the Pensions Management Institute, Tim Middleton, said the PMI is encouraged that the party shares the current government’s commitment to increasing investment in UK equities. 

 

“However, whilst the Labour party also recognises the need to close the ‘advice gap,’ we would have liked to have seen bolder suggestions over helping members manage decumulation effectively,” he said. 

 

Laura McLaren, head of DB actuarial consulting at Hymans Robertson, said it was “good to see” that the party would review pensions if it was elected. There is “a significant opportunity” for any future government to align pensions with wider societal aims, she argued, and stressed the need for cross-party consensus and a roadmap. 

  

Master trust Now Pensions is also positive about the prospect of a pensions review, emphasising the importance of the sector for people’s financial futures. 

Lizzy Holliday, director of public affairs and policy, added however that “to have the greatest impact on millions of savers we believe joint work on developing a roadmap for auto-enrolment, including tackling the challenging topic of pensions adequacy, will be key”.  

But not all were so positive about a pensions review. “I sigh at the prospect of yet another 'review’, particularly given how long recent funding code and scheme governance changes have taken to come to fruition,” said Alan Collins, managing director at consultancy Spence & Partners.