Pension consultants, trustees and legal experts and have welcomed the new Pension Schemes Bill, introduced by the government today.
Consultants highlighted the measures to introduce new default retirement solutions as being beneficial for workplace savers in the DC market.
Isio head of DC pension Richard Birkin says: ”Mandating default decumulation solutions is an excellent way to respond to a long-standing challenge in pensions and provide savers with the structured, accessible support they need at the point of retirement, where individual decision-making becomes most complex.”
He described this bill as “a pivotal moment” in the evolution of the UK retirement system. “We are pleased the Bill allows flexibility to innovate. By creating a space for innovation within a clear regulatory framework, the Bill paves the way for solutions that can deliver greater consistency and security for savers, while still allowing for new approaches that will address member needs.”
Aon partner and head of UK retirement policy Matthew Arends says: “One of the most intriguing measures is the introduction of Default Pension Benefit Solutions (DBPS) – meaning DC default decumulation options.
“This extends the concept of defaults within DC pensions from joining (via auto enrolment), accumulation (via default funds) through to retirement with the new DPBS. Along with measures to allow consolidation of DC pots of less than £1,000 and the creation of megafunds, we are seeing the DC market maturing, which will be welcome news to the millions of typically private sector workers relying substantially or entirely on DC savings.”
Arends also highlighted changes to the funding of the PPF: “While there are no true surprises in the Bill, it is very welcome to see a resolution at last to the strange situation of the PPF being unwilling to reduce levies further because, up to now, it has had a restricted ability to increase levies thereafter should conditions require it. Hopefully PPF levies will now be able to reflect fully the very significant PPF surplus.
The Society of Pension Professionals president Sophia Singleton says: “Our members are pleased to see the Pension Schemes Bill published today, which gives us a clear line of sight on the many policy initiatives that have been in the pipeline.
“The Bill creates the foundation for changes that should positively impact members, sponsors and trustees. We will support policymakers with the considerable work that lies ahead to develop the regulations and guidance that must underpin and deliver these initiatives.
“As well as considering the impact the changes will have, it will be crucial to get the sequencing right. The next few years will be exciting!”
Pension legal experts also said that this ‘blockbuster bill’ will pave the way for significant change and work across the industry in the years ahead.
Sackers senior partner David Saunders says: “Described by the Government as a ‘game changer’, the Bill paves the way for some very major pensions developments. But a Bill’s passage through Parliament is a long and winding road, and there could be several twists and turns along the way. With detailed regulations to follow in many cases, there is therefore still a lot of ground to cover before the Bill’s provisions reach their ultimate destination as law.”
“New obligations included in today’s Bill represent the culmination of many years’ work in some instances. But the scale of some of the changes, coupled with ambitious Government timescales, means that the pensions industry should take a collective deep breath to ready itself for the weeks and months ahead.”
LawDeb Pensions managing director Sankar Mahalingham adds: “Any reforms that simplify pensions governance and deliver real benefits to savers should be applauded – however, further scrutiny of the Pension Schemes Bill is needed to check it fits those criteria.
“Schemes need to ensure the interests of their members are the centre point of any decisions, which is why it’s positive to see that the Government will challenge schemes delivering poor returns. Overhauling small pots, reducing management requirements and making performance crystal clear should also encourage more savers to take notice of their pensions; removing barriers that so often contribute to inertia when it comes to governance.
“However, while the creation of ‘megafunds’ may be an effective way to lower costs and streamline asset options, the Government must ensure that, at its core, this is a driver for increased performance for savers – and not, as may be thought by some, just another tool to serve their agenda for economic growth.”
There was also support from consultants on changes to the DB market. Tom Froggett, head of run-on solutions at XPS Group says: “The flurry of Government announcements and regulatory guidance over the last few weeks has made one thing clear – both the Government and TPR are aligned with the principle of giving well-funded DB schemes more flexibility to build and use surplus where it is safe to do so. We support this principle, and are pleased to see the Regulator’s recent guidance give a balanced overview of the different strategy options available to trustees and employers, including running on to build and use surplus.”
“The focus now turns to getting the details right. We need a clear blueprint for trustees and employers who are seriously considering running on, so that they can develop with confidence the strategic and operational frameworks to deliver the benefits of running on to members and employers. We are already seeing well-designed run-on strategies introduce a number of the disciplines used by other financial institutions such as insurers, providing both safety and upside for members.”
Looking at decumulation in the DC market Birkin set out views on what innovation should like like. “First and foremost, we believe default decumulation solutions should provide a stable and sustainable income for life. That means predictable, inflation-adjusted income net of fees. Secondly, we want to see residual death benefits maintained so that members do not forfeit their ability to pass on their pension simply because they have moved from accumulation into decumulation.
“Thirdly, we want revocability. Members should be able to exit their default decumulation strategy if their circumstances change and the product is no longer suitable. And finally, we want flexibility and believe solutions should adapt over time to individual lifestyle needs, rather than locking members into rigid or inappropriate structures.”
Birkin adds: “Trustees have a burden of responsibility that will now include ensuring robust governance, member-focussed design and the capacity to accommodate life changes, which will be essential to delivering the retirement outcomes the Bill’s default decumulation policy intends, and their members deserve.”
