Labour takes over at Number 10, and the pensions industry has many questions for the new government. What should be in the review the party announced during its campaign? Do we need a new Pension Schemes Act? And: when will a pensions minister be appointed? 

 

Sir Keir Starmer’s Labour party has won the 2024 general election in what is widely described as a ‘landslide’ victory, comfortably gaining more than the 326 seats needed to have a majority in the House of Commons. Former Work and Pensions Committee chair Stephen Timms has been re-elected for East Ham, and the former Resolution Foundation chief executive Torsten Bell is now the MP for Swansea West, with some speculating that he could be the next pensions minister. 

 

Whoever takes on the post, their inbox will be full to the brim – and the industry is not short of ideas on what to prioritise. 

 

The Pensions and Lifetime Pensions Association’s outgoing director of policy and advocacy, Nigel Peaple, urged the government to resolve two issues, what Peaple called the inadequacy of current pensions savings, and how to attract pension fund investment to support goals on climate change and UK growth. 

 

“Labour’s planned pensions review provides the opportunity to consider these issues in depth. Whatever the outcomes, it is important that the solutions are right for scheme members and savers,” he said. 

 

The Pensions Regulator simply highlighted future collaboration. A spokesperson said: “We look forward to working with the government to protect savers, improve the pensions system and support innovation.” 

 

That the pensions system needs improving seems to be a consensus view. How it should be improved, many in the pensions industry also agree on – increase auto-enrolment contributions. However, it might not be that straightforward, suggested Laurence Edmans, pensions lead of the Financial Inclusion Commission.

He said there should be “a thorough ‘drains up’ review - as comprehensive as Turner, looking at both saving for retirement and what happens at retirement”. 

 

More should be done to improve the public’s understanding of what they need to do for retirement, he argued. 

  

“The biggest issue is not just adequacy, but uncomprehended inadequacy,” he said, with the majority not saving enough for the retirement they expect, yet believing they will have it.  

  

An increase in minimum contribution rates to 12% would just be seen as a tax rise or added burden on overheads unless employees value it, he thinks. 

 

“A review needs to look at what measures – in concert with the industry, which stands to gain – can be taken to bring the population at large into an understanding of what is needed for a secure retirement in the 21st century, when beliefs and attitudes remain rooted in the 20th,” Edmans added.  

  

A further area of focus should be advice and guidance, he suggested. Edmans thinks it is unlikely the industry will be prepared to sell products with less than full advice, despite the advice/guidance boundary review.  

  

“Unless some ‘safe harbour’ provisions are made, what is needed is a neutral source of advice and guidance which can recommend products and services which can then be sold without a ‘suitability’ liability,” the former non-executive director of the Money Advice Service proposed.  

 

“This is what the last Labour government set up the Money Advice Service to do as the major part of its purpose. This has largely been lost as the [Money and Pensions Service] remit is predominantly focussed on debt,” he added. 

 

The defined contribution sector of pensions is clamouring for a plan to improve savings levels, as auto-enrolment has been rolled out since it started in 2012, while reforms passed last year remain theoretical to date. An increase in minimum contributions, which remain at 3% for employers and 5% for employees, seems far off.

Master trust provider the People’s Partnership is hoping Labour’s review might change that. Chief executive Patrick Heath-Lay said: “I hope that Labour’s pensions review will help revitalise the consensus that drove forward the success of automatic enrolment and create a roadmap for the future.”  

Heath-Lay would welcome a pension schemes bill in the King’s Speech on 17 July, saying that “there is a need for legislation on value for money and on small pots consolidation that should not wait”.   

In addition, he said the pensions dashboard is a ‘day one’ challenge for the new ministerial team: “Ministers must address key project documents which still require approval, and this must happen quickly if larger schemes are to connect to the dashboards’ infrastructure in April.”  

Others are hoping a Labour government could turbocharge the evolution of collective DC schemes. TPT Retirement Solutions CEO David Lane hopes the pensions review will “include a closer examination of the benefits of creating multi-employer collective defined contribution schemes".  

The size of the Labour majority means their proposed pensions review could “be more radical and grasp some of the thornier pensions issues”, noted Iain McLellan, a director at consulting firm Isio.  

“The government may feel it has clear licence to pursue the most ambitious form of its vision for UK pension schemes and their members. That could include sweeping changes to improve member outcomes, ensure schemes take advantage of consolidation and scale, and increase productive investment in UK markets,” he believes. 

“In the meantime, it will be interesting to see who is appointed as pensions minister and what existing pensions policy developments they look to accelerate, put on the back-burner or bin altogether,” such as the reintroduction of the lifetime allowance, he noted.

Despite Labour saying it has no current plans for further changes to pensions taxation, McLellan observed that this falls short of an outright commitment to leave pensions tax alone.  

He said: “Pensions might be seen as a convenient target for ‘stealth’ taxes when fiscal circumstances are tight.” 

The country’s fiscal situation is expected to continue to influence how pensions policy develops. Some believe Labour could even accelerate the previous government’s push to get pensions capital into ‘productive’, mainly UK, investments to try to improve economic performance. 

This would be welcomed by the Investment Association. Chief executive Chris Cummings said such a drive would help “more individuals to benefit from the higher pension and savings levels that investing can build, and fostering excellence in our industry with a highly skilled workforce that can continue to provide the best possible service.”   

 

What should a pensions review include?