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A pension schemes bill is among more than three dozen the government plans to take forward, and will implement several of the reforms already in train. With the King's Speech making no mention of a pensions review, some in the industry are calling for this to start soon.
The King’s Speech at the state opening of parliament on Wednesday referred, among others, to pension investment. Despite the word ‘investment’, the measures the government intends to take forward in the pension schemes bill only regard this indirectly – mainly via measures encouraging consolidation, and by assets remaining invested for longer.
The pension schemes bill will:
propose legislation to automatically consolidate small defined contribution pots;
introduce a test for trust-based DC schemes on value for money, with the Financial Conduct Authority doing the same in the contract-based space;
require pension funds to provide decumulation, including default options, either in-scheme or by partnering with a third party;
legislate for superfunds;
reinstate the Pensions Ombudsman as a ‘competent court’, following a Court of Appeal judgment last year which meant pension funds needed to get a court’s permission to recoup overpayments; and
allowing terminally ill people in the Pension Protection Fund and Financial Assistance Scheme to receive a lump sum sooner.
The bill does not appear to include anything about a wide-ranging pension review that was part of the Labour party's manifesto, or about auto-enrolment reforms.
Requirements for pension funds to have transition plans in line with the Paris Agreement were missing, and the speech did not mention any measures to change how the surplus in the Mineworkers’ Pension Scheme is treated, another of Labour’s manifesto pledges, nor anything about adult social care aside from a fair pay agreement.
Pension schemes bill is 'a sign of continuity'
The pensions industry appears pleased about the bill, although some were surprised that one featured at all.
Kate Smith, head of pensions at provider Aegon, said: “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 bill picks up some of the many strands left by the previous government, with Smith saying it looked “like a sign of continuity”.
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, observed that no time has been wasted in bringing forward existing regulatory initiatives.
He particularly welcomed requirements on schemes to offer decumulation solutions and legislation for defined benefit superfunds, adding: “It’s good to see a way forward for small pots and the value for money framework being prioritised too.”
Plans to consolidate the pensions sector, require default retirement products and benchmark pension schemes for value for money have been discussed “for some time”, Patrick Heath-Lay, the chief executive of master trust provider the People’s Partnership, also observed.
Despite this lead-in time, he argued that “moving them forward quickly will be challenging for the industry, and we expect the pensions sector to change rapidly over the course of this parliamentary term” but acknowledged that “these measures could be very positive for savers”.
DC providers call for pensions review and AE reforms
Although it did not mention the pensions review, David Lane, CEO of TPT Retirement Solutions, thinks the bill will allow the government to quickly implement any changes required once it has completed the pensions review it proposed before the election, adding: “Hopefully, the launch of this review will happen soon.”
As well as starting the review, he urged the new government to implement “much-needed pension reforms” that do not require new primary legislation – namely reducing the age for automatic enrolment to 18 and abolishing the lower earnings limit for contributions. Lane said this could significantly increase the retirement savings of thousands of workers.
Nearly a year since the Extension of Auto-Enrolment Act was passed, a timeframe for implementing this legislation would be “a relatively quick win” for the new government, believes Standard Life’s retirement savings director, Mike Ambery.
While “longer-term, the single biggest lever we can pull to secure savings adequacy is raising minimum contributions" he said that progressing this existing legislation would be “a positive step” in the meantime.
The Institute and Faculty of Actuaries' pensions board chair, Debbie Webb, welcomed the bill, but said the IFoA also remains concerned that many UK households are not saving enough for later life, with many ill-equipped to deal with the risk of running out of money in retirement.
"Innovations such as increasing auto-enrolment contributions, [collective defined contribution] schemes and pensions dashboards provide good opportunities for progress during this parliament. The IFoA urge the government to pick up on vital reforms needed within the planned ‘pensions review’ to improve workplace pension contributions and to secure better outcomes for savers.”
Which other bills could impact on pensions?
Several other bills in the King’s Speech will affect pensions or investment in one way or another. Along with planning reforms, the creation of a £7.3bn National Wealth Fund will provide new investment opportunities, and the government’s appointment of two pension executives to the NWF's advisory group speaks to its desire to make investing attractive for pension funds.
The Investment Association pointed to the billions of additional investment needed over the next decade to deliver the UK’s net zero ambitions.
“There is an urgent need to build the pipeline of investible infrastructure projects in the UK to support this. We strongly support this ambition to channel much needed capital into British businesses and infrastructure projects to cement the UK as a leader in sustainable finance," said CEO Chris Cummings.
The government is looking like it will harness every pot of money available to do this. Less noticed, the King’s Speech also contained a bill on giving the Crown Estate the option to borrow from the Treasury and expanding its investment powers. The Crown Estate owns the seabed of England and Wales and leases out plots to offshore wind developers; the bill intends to let it do this faster, while also expanding into new technologies and infrastructure. Any additional boost to the pipeline of domestic renewables infrastructure from this could provide further investment opportunities for pension funds looking to reach net zero.
Elsewhere, pensions dashboards could potentially benefit from a digital information and smart data bill. This will give a legal framework to the creation of digital verification services, which can underpin the creation of digital identity products. Correct identification is a key requirement for making dashboards work and maintaining the trust of the general public.
A bill to strengthen workers’ rights, meanwhile, will abolish zero-hours contracts among others, and is expected to make more people eligible for automatic enrolment.
Actuaries will want to see what is in the audit reform and corporate governance bill announced in the speech, which comes six years after a review of the Financial Reporting Council. The FRC sets technical actuarial standards and oversees regulation of the profession by the Institute and Faculty of Actuaries, among others. The bill would replace the FRC with a new regulator, the Audit, Reporting and Governance Authority.
IFoA president Kalpana Shah said: “We await its publication with interest to see how the regulatory framework for actuaries will be affected, as well as the proposed legislative timetable.”
