Taking the pensions and investment world by surprise, the new government has announced a pensions review, which presents the potential for faster implementation of ‘pro-growth’ reforms to pensions.
The review, promised in the Labour Party’s manifesto but not included in the King’s speech, meant many believed the Pension Scheme Bill, which was included in the King’s Speech, would be the main point of focus for pensions and investment.
The bill included a narrow range of measures.
But with the pensions review further measures could be introduced to drive investment. And these could also be included in this Pension Schemes Bill rather than waiting at least 12 months for another bill in another King’s Speech.
Two measures particularly stand out in the review.
One is the use of the Pension Protection Fund (PPF) as a ‘public sector consolidator’, bringing together potentially thousands of smaller defined benefit (DB) schemes and others deemed unattractive to the private insurance market.
The idea is that the PPF would be able to invest for the long-term and in assets which may not be open to small, mature pension schemes.
Two, the potential to encourage DB schemes to ‘run on’ rather than move to immediate de-risking with an insurer, including measures to allow sponsors to extract surplus from the best funded schemes.
This could have multiple attractions to the government, including slowing the sale of gilts, as schemes move to buyout, sustaining productive investment for longer and generating surplus cash to benefit corporate sponsors, DB members and potentially the defined contribution (DC) generation.
Commenting on the review, new pensions minister Emma Reynolds, whose role is based in the treasury and Department for Work and Pensions, pointed to the investment possibilities.
“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 pensions system is fit for the future,” she said.
Measure hunt
The ‘two-stage’ pensions review offers potential for faster implementation of pro-growth pension reforms, according to LCP partner Steve Webb, who is a former pensions minister.
“The limited measures listed in the King’s Speech for the forthcoming Pension Schemes Bill had seemed to suggest that the new government’s own agenda would be on a slow track to implementation, potentially awaiting future legislation in a future King’s Speech,” Webb said.
“But by operating a two-stage pensions review, with an early hunt for measures which could be added in to the current bill, the government has the potential for faster implementation of measures which it believes would promote the productive use of pension scheme finances,” he added. “As a result, we are likely to see significant legislative changes across the pensions landscape in the next 12 months.”
Patrick Luthi, CEO of Now Pensions, said there is “clearly a shared interest” for pension schemes and government regarding investment potential – for simultaneously supporting economic growth and achieving pensions outcomes.
“It will be key for member outcomes to remain front and centre of initiatives – both in terms of investment policy, and also the delivery of initiatives such as Value for Money.
“Maintaining the primacy of fiduciary duty will help ensure that focus,” he said. “Creating a sustainable future for members must also remain a fundamental priority, and we are keen to see integration of this imperative in any new investment policy developments.”
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, said the review has potential implications for the Mansion House reforms.
“We welcome the government’s pensions review and its potential to accelerate the trajectory of last year’s Mansion House Reforms, aimed at driving consolidation and economies of scale in DC pensions while boosting UK growth,” Ambery said.
“The reforms should enable greater diversification of investment for DC savers, including access to UK and global private markets rather than solely listed equities and bonds.”
Investment in private markets has the potential to stimulate growth across the economy as well as increasing people’s pots at retirement, Ambery added.
“It’s worth noting that some comparable overseas pension markets like Australia and Canada have greater investment diversification to private markets than the UK with positive outcomes,” he said.
Looking at it the situation through an LGPS lens, Iain Campbell, head of LGPS investment at Hymans Robertson, said: “Work has already begun on refining how funds should approach pooling and our recommendation is that it’s a good thing, but care needs to be taken that funds are allowed to continue to take an approach that suits their needs.”
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