Chancellor fires starting gun on Pensions Review

The anticipated Pensions Review kicks off this week after the government announced plans for a “big bang of reforms” for the sector over the weekend.

Late on Saturday, chancellor Rachel Reeves unveiled plans to unlock “billions of pounds of investment” from defined contribution (DC) pension schemes as part of the first phase of its review of the UK pension system.

A joint statement from the Treasury, the Department for Work and Pensions (DWP) and the Ministry for Housing, Communities and Local Government claimed that its planned investment reforms could boost savers’ pension pots by £11,000 – although it did not specify how this would be achieved.

In line with the aims of the Mansion House Compact – introduced last year by the previous chancellor, Jeremy Hunt – the first phase of the Pensions review will explore ways to encourage DC funds to invest more in “productive investments”.

The government said even a one percentage point shift in asset allocation could add £8bn of investment into the UK economy and infrastructure assets. This is based on a forecast of DC schemes reaching £800bn in total assets by 2030.

The Value for Money Framework for DC schemes will “promote better governance and achieve higher returns”, the government said. The Financial Conduct Authority and the Pensions Regulator (TPR) are currently working to develop this framework.

Nausicaa Delfas, chief executive at TPR said: “There are more than 20 million workplace pension savers and each one deserves the best possible retirement. Pension investment in a diverse range of assets has the potential to improve savers’ outcomes and support economic growth.”

Saturday’s announcement also mentioned the prospect of further scheme consolidation and major reforms to the Local Government Pension Scheme.

No time to waste
“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners,” Reeves said.

“There is no time to waste. That is why I am determined to fix the foundations of our economy so we can rebuild Britain and improve people’s lives.”

Pensions minister Emma Reynolds – who reports jointly to the Treasury and DWP – added: “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.

“There is so much untapped potential in our pensions markets, with an industry worth around £2 trillion. The measures we have already set out in our Pension Schemes Bill will help drive higher investment and a better deal for our future pensioners.”

Industry engagement begins
Today (22 July), Reeves and pensions minister Emma Reynolds will co-chair an industry roundtable to begin “intensive industry engagement” for the review.

This will be followed on Tuesday by the first meeting of the Growth Mission Board, established with the intent of making the UK the fastest growing member of the G7 group of nations.

It follows the first meeting of a working group for a planned National Wealth Fund, which included senior members of the Universities Superannuation Scheme and Brunel Pension Partnership.

The second phase of the review, which the government said would start later this year, will focus on improving pension outcomes and retirement adequacy.

Many in the pensions industry have called for the new administration to enact legislation expanding the scope of auto-enrolment by removing earnings and age limits, while others have also called for minimum contributions to be increased.

Industry backing
Several major pension providers have been involved in initial discussions about the review and featured heavily in the government’s release on Saturday evening.

Senior leaders at Legal & General, Aviva and Phoenix Group all welcomed the review and pledged to work closely with ministers throughout.

Andy Briggs, Phoenix Group CEO, said: “With only one in seven people in the UK saving enough for a decent standard of living in retirement, we are happy to see that this review will expand to look at pension adequacy. This is vitally important for people across the UK and we hope this will include a commitment to increasing auto-enrolment contributions.”

Nest CEO Ian Cornelius said: “Nest members represent a third of the UK workforce. Why wouldn’t we want to help invest in their jobs, their communities, and the infrastructure they use?

“Nest already invests more than £8.5 billion into the UK. As one of the world’s biggest economies, there are further great investment opportunities available to pension schemes like Nest and we welcome the opportunities being announced to explore increasing investment in the UK.”

Michelle Ostermann, chief executive of the Pension Protection Fund (PPF) said consolidation could “unlock billions in new UK growth-supporting investments and support the UK gilt market while securing the retirement incomes of many more pension members”.

The Pension Schemes Bill is expected to include measures to support commercial consolidation options, but there was no mention of the PPF, which had previously expressed its willingness to act as a consolidator alongside its existing functions.

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, praised the government for initiating the Pensions Review.

“With the right regulatory framework and government action to ensure a healthy pipeline of investible opportunities, we look forward to working with ministers to create a pension system that works for the country and for savers,” he said.