The Chancellor has launched the initial phase of a significant pensions review, led by Minister Emma Reynolds MP, to improve investment, returns, and efficiency in defined contribution schemes and the Local Government Pension Scheme (LGPS).
This initial phase will focus on developing policies around the consolidation of defined contribution schemes, tackling fragmentation and inefficiency in the Local Government Pension Scheme, the structure of the pensions ecosystem and the prioritisation of value in the pensions system as well as encouraging UK investment through pension funds.
The review will take into account recommendations around fiscal impacts, government stability, ongoing policy initiatives, and insights from various stakeholders, including employers, unions, and the pensions industry.
Industry and stakeholder consultations are expected, and preliminary results are anticipated later this year before the Pension Schemes Bill is introduced.
Meanwhile, defined benefit schemes will be addressed separately in the second phase, which will investigate other ways to enhance pension outcomes.
Royal London director of policy Jamie Jenkins says: “As widely trailed, the first phase of this review is primarily concerned with how pension assets can be invested in a way that helps grow the economy. However, there is a clear statement about how this must focus on the broader value delivered to savers, rather than just cost. It’s imperative that people’s retirement outcomes form the cornerstone of any proposals that emerge.”
Hymans Robertson head of DC markets Paul Waters says: “We welcome today’s update and the launch of the government’s landmark pensions review with a focus on DC workplace schemes and the Local Government Pension Scheme (LGPS). There are significant opportunities for the government to help the industry to improve outcomes for DC pension savers. For example, building on the success of auto-enrolment to raise pension saving rates, leveraging the increasing scale of today’s DC schemes to access new investment opportunities, and enabling more sophisticated default retirement propositions to be introduced.
“As a firm we have worked with the LGPS since its inception. Given the undeniable success of the LGPS delivering in alignment with local government, we’re disappointed in the premise of the pensions review in tackling “fragmentation and inefficiency”. The LGPS has a long history of continuous improvement and a ready enthusiasm to adopt best practice. We look forward to supporting the LGPS to leverage the review, and increased Government attention, to continue to develop the scheme.
“We note that a Terms of Reference for Defined Benefits (DB) will follow separately and look forward to seeing this in due course.”
AJ Bell director of public policy Tom Selby says: “The new government has made no secret of its desire to harness the trillions of pounds of assets held by UK pension schemes to help drive greater investment in UK Plc and, ultimately, spur long-term economic growth. The initial phase of this landmark Pensions Review is focused squarely on workplace pension schemes and local government schemes, with ministers hoping consolidation of this fragmented landscape will both improve outcomes for savers and boost investment in UK assets, with a particular emphasis on private equity.
“Given the stagnant growth the UK economy has experienced since the 2007/08 financial crash, the increasing desperation of policymakers to solve the productivity puzzle is understandable. If stable, long-term economic growth can be achieved, that means more money for public services and potentially less need to bring forward unpopular tax hikes.
“However, it is vital the interests of savers, whose money is ultimately being used here, are not sidelined as a result. Successive governments have made dangerous claims that a shift to riskier investments will deliver larger pension pots for people, despite the inherent uncertainty that exists in this area, particularly when considering investment returns over decades. It is, of course, entirely possible that investing more in the UK will yield better returns and bigger pension pots – but it could also go the other way.
“Trustees and those responsible for looking after members’ interests therefore have a crucial role to play in ensuring investment strategies are designed with the aim of delivering good outcomes for those who will ultimately rely on those pensions in retirement. The risk in conflating government economic goals with those of pension savers is that the latter will be sacrificed in order to deliver the former.”