Election called: Key issues for the pensions industry

Prime minister Rishi Sunak has called a general election for 4 July 2024, kicking off six weeks of campaigning for the UK’s political parties.

Polls suggest Sir Kier Starmer’s Labour Party will win, with the Conservatives facing a fight to add to their 15 years in government.

For the pensions industry, the election means that multiple consultations will be at least put on hold, if not shelved altogether. Most of these emanate from chancellor Jeremy Hunt’s Mansion House speech last year.

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, was clear in setting out his organisation’s priorities.

He said: “Whoever wins the forthcoming general election, we ask that the new government does three things: firstly, it sets out a plan for increasing workplace pension contributions so more people have an adequate pension in retirement; secondly, it ensures people approaching retirement receive more support and the right products; and, thirdly, it works in partnership with the pensions sector on how to attract pension fund investment to meet policy goals such as UK growth and the transition to net zero.”

Here is a rundown of the status of some of the major consultations and policy directives.

“Pot for life”
Jeremy Hunt seemed set on shaking up the entire pension system with his proposal for a “lifetime provider” as a way of reducing the number of small and deferred pension pots.

However, the concept has faced significant opposition from within the pensions industry since it was announced last year. Many pointed out that the ongoing pensions dashboard project should help people reconnect with ‘lost’ pension pots, and so should be allowed to run its course before further substantial changes are made.

In the Budget in March, Hunt indicated that the government would “continue to explore how savers could be allowed to take their pension pots with them when they change job” – something former pensions minister Sir Steve Webb said hinted that the chancellor was reconsidering the idea.

With parliament set to be suspended from 30 May, and the Labour Party’s thoughts on the concept unclear, could the “pot for life” be consigned to history before it’s even off the ground?

Surplus rules
There has been much talk over the past 12 months about changes to surplus rules in the wake of the Mansion House proposals.

With more defined benefit schemes now operating with a surplus, the government had announced plans to overhaul rules and give trustees more power to refund employers or pay discretionary increases to members.

However, the suspension of parliament means this policy is unlikely to make progress before 4 July. The Labour Party has made it clear that it wants to carry on the current government’s reforms aimed at boosting UK growth, but so far surpluses have not been mentioned in this regard.

Value for money
The Financial Conduct Authority and the Pensions Regulator (TPR) are expected to jointly launch a consultation on the value for money framework for defined contribution pension schemes.

This has been promised for arrival “in the spring”, and Pensions Expert has asked both regulators whether the election could affect this timeline.

The framework is set to contain measures to require the reporting of UK assets, and could also introduce new powers for the regulators to shut down poorly performing schemes.

On UK investment, Labour has made it clear that it intends to conduct its own review of the pensions system, in part to “tackle the barriers to pension schemes investing more into UK productive assets”.

Expanding auto-enrolment
This has been a major talking point this year, with calls growing for action on lowering the age and earnings limits for auto-enrolment eligibility.

The government already has the power to do this, having formalised the legislation last year. However, the cost-of-living crisis has apparently dissuaded policymakers from enacting the legislation.

Many in the industry want to see a plan for higher default contributions, but this will be difficult to achieve quickly.

Tim Middleton, director of policy and external affairs at the Pensions Management Institute (PMI), called for the auto-enrolment regime to be expanded in line with the legislation.

He added: “When the coalition government came to power in 2010, one of their first reforms was to the drawdown rules. I would hope that an incoming government would consider reforms to the ‘freedom and choice’ regime as a priority.

“There is clear evidence that members are making poor decumulation decisions and an initiative to address this would be most welcome.”

Scheme consolidation
This is a clear policy directive but may not be significantly affected by the election. Recent data from TPR indicates that consolidation is happening steadily, and the regulator has been clear on its desire to see “fewer, larger schemes”.

The Labour Party has been clear on its support for consolidation too. In its plan for the financial services sector, it explicitly stated that it wanted to enable “greater consolidation of all types of schemes”.

Collective defined contribution schemes
The election may well have set back the planned consultation on multi-employer collective defined contribution (CDC) schemes, which had been delayed until the start of this year but has yet to emerge.

Royal Mail is due to launch its long-awaited CDC scheme this year, but so far no other employers have come forward in support of the approach.

With just over six weeks to go before the country goes to the polls, there remain many questions about the Labour Party’s pension strategy.

As the PMI’s Middleton highlighted, the party currently does not have a shadow pensions minister as Gill Furniss, MP for Sheffield, Brightside and Hillsborough, stepped down from the role.

“This is something that must be rectified as a matter of urgency,” Middleton said.