On 17th July, King Charles set out the new government’s priorities during his State Opening of Parliament which included education, children’s social care and to the surprise of many at this stage, pension bills.
The new Chancellor, Rachel Reeves has further declared there would be a “landmark pension review” to strengthen audit and corporate governance, alongside pension investment as a component of the government’s mission to “boost growth”.
Pension Minister, Emma Reynolds explains “Over the next few months the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure our pension system is fit for the future.”
Some of the main goals of the Bill, from background briefing notes published by the government, are to tackle; poor performing default funds, how small pension pots are consolidated and retirement income solutions available under occupational pension schemes.
The Bill introduces what has been labelled by Labour as a Value for Money framework. This will aim to establish a standardised test for value from both the trust-based Defined Contribution (DC) schemes and contract-based arrangements. Having been worked on by both the Pension Regulator and FCA for a number of years before having been outlined in the former administration’s 2023 ‘Mansion House’ reforms, it is widely accepted that driving out under-performing schemes from the pension arena, leaving behind fewer, better-value, larger schemes through governance may also achieve higher returns.
With many occupational DC schemes simply providing members with a ‘savings pot’ upon obtaining retirement age, there are also plans to ensure all DC scheme trustees have a retirement-income solution, or a range of solutions available. This could even go as far as to have a default proposition should no action be taken. This could not just improve retirement outcomes for members, but also further boost economic growth if funds are invested in productive assets.
Many workers may also be familiar with the situation of various DC pension policies with various different providers, most likely from various former employers. The intention, to be included within the Bill, would be to automatically provide individuals with the option to consolidate deferred small pots so they are held together in one place. This was originally welcomed by most when first announced by the former Conservative Chancellor as ‘One Pension Pot for Life’ before being put into policy.
Another intended change is an update to the legislation defining ‘terminally ill’ which governs the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS) which can currently only make lump sum payments to pension policyholders with a life expectancy of 6 months or less. The proposed change could benefit many more by increasing this to 12 months.
It is easy to see why successive governments have viewed the £2trillion UK pension industry to drive economic growth while also crucially providing a better deal for future pensioners.
With much of the contents of the Bill seemingly continuing the work of the previous administration, many will be viewing the 30th October 2024 Autumn Statement to better understand the new government’s fiscal policy. We will, as always have same day reactive commentary available on our website with full analysis as further detail is provided.
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The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.
You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.
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Sources:
Government press release:
Government policy paper: King’s Speech 2024: background briefing notes:
https://www.gov.uk/government/publications/kings-speech-2024-background-briefing-notes
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