A new pension schemes bill has unexpectedly been included in today’s King’s Speech, which opens the new session of Parliament.
This speech sets out the legislative agenda of the new Labour government. The pension schemes bill largely continues the direction of travel set out by the previous government when it comes to pension policy.
The bills aims to tackle the ‘lost pots’ problem by automatically bringing together smaller deferred pots into one place. Pension schemes will also be required to offer a retirement income solution or range of solutions to their members.
There was also provision to introduce a value for money tests for trust-based workplace schemes with the FCA expected to ensure this framework extends to contract-based schemes.
These various measures are expected to drive further consolidation in the industry, and assist the government’s aims of getting larger scheme to invest in private assets and productive finance in the UK with the aiming of helping boost economic growth.
Commenting on the inclusion of this bill, in the King’s Speech Broadstone’s head of market engagement Simon Kew said: “The Pensions Bill was a surprise inclusion in the Kings Speech but largely continues the direction of travel from the previous government in various areas such as the consolidation of small pots and a Value for Money framework.
“The problem of small pots is likely to take years to solve so it is good to see that there is an urgent desire to fix this issue. While there is a mention of commercial superfunds, which have already completed their inaugural deals, the public sector consolidator idea is conspicuous by its absence.
“The Bill also contains measures for the trustees of pension schemes to offer savers retirement products so they have a pension and not just a savings pot when they stop work which can help drive up engagement. The challenge of retirement income from DC funds is massive and adding some paternalism back into the system seems to be the only way forward.”
Aegon head of pensions Kate Smith said: “With so much of Labour’s pre-election talk centring on their desire to complete a full review of the UK’s pensions landscape, we had expected the new government to skip the inclusion of a Pensions Bill in today’s King’s Speech. To our surprise, that’s exactly what we ended up getting.
“The new Pensions Schemes Bill looks like a sign of continuity, adopting many pensions policies already in motion from the previous government. Labour will be moving fast to make this happen, improving saver outcomes and supporting investments by enabling schemes to invest in a wider range of assets.
“The bill will mean that trust-based schemes will be legally required to offer retirement products in-house or in partnerships, as well as a default solution for those unable or unwilling to make their own choices.”
She said she also welcomed the inclusions of the National Wealth Fund Bill in the Speech. “We look forward to seeing more detail on both this and the Pensions Schemes Bill going forward.”
Phoenix Group CEO Andy Briggs adds: “I hope that the next steps the government takes will include a timeframe for implementing the broader pensions review and that it will be announced sooner rather than later.
“This should include both the private and state pension system to ensure it is fit for purpose and a plan for increasing auto-enrolment minimum contributions should be part of this. People are at risk across the UK of thinking they are saving at the right rate for their future when they are not. Saving at the statutory minimum isn’t enough. The single biggest lever we can pull to secure savings adequacy is raising minimum contributions, which we’d like to see the government move towards as part of an adequacy review.”
LCP partner Steve Webb added that this bill showed its was “business as usual” for the government when it comes to pension policy. He said legislation in areas such as commercial superfunds or consolidation of ‘micro’ pension pots comes after years of consultation under the Conservative administration, and would have been implemented whichever party had won the election.
He noted there were some notable omissions though, legislation to allow the Pension Protection Fund (PPF) to act as a ‘public sector consolidator’ of small defined benefit pension schemes.
Webb adds: “There appears to be nothing in the legislation that represents a distinctively Labour party approach to pensions. Perhaps inevitably, it will take time before we see how the new government’s agenda differs from that of its predecessor. But this does mean that any distinctive policies will have to await legislation later in this Parliament and may take time to have effect”.
Hargreaves Lansdown head of retirement analysis Helen Morrissey adds: “Today’s Pensions Bill heralds positive news for people’s pensions, with simplicity and greater flexibility, something HL has long been calling for.
“Boosting retirement outcomes through a leaner, more efficient system is at its heart. Government estimates that the introduction of these measures could boost the average person’s pension pot by 9 per cent over the course of their career. With recent data from HL’s Savings and Resilience Barometer showing only 38 per cent of households are on track for a moderate retirement such changes are vital.”