The Chancellor Jeremey Hunt’s Mansion House speech took place last night, with the changes announced being guided by three golden rules, including seeking to secure the best possible outcomes for pension savers.
Partner Helen Ball comments: “Following the Chancellor’s speech, pension schemes and their advisers are now busy digesting the avalanche of pensions developments that have been announced. With eight documents, including analysis, consultations and consultation responses to consider, there will be plenty of reading material to keep people occupied over the summer. Whilst some of the changes were expected, such as value for money, expanding CDC schemes, and options for dealing with small, deferred DC pots, many were not. And the Chancellor is setting an ambitious timetable, with all final decisions to ‘be made ahead of the Autumn Statement later this year’.”
“While it is good to see that pensions have risen up the agenda, so many changes seemingly happening everywhere, all at once, may not be universally welcomed by already busy trustees, employers and pension providers. Those who rise to the challenge will be giving some serious thought in the coming days and weeks to how the changes could impact on their own plans and projects.”
The three golden rules
- firstly, everything the Government does “will seek to secure the best possible outcomes for pension savers, with any changes to investment structures putting their needs first and foremost”
- secondly, it “will always prioritise a strong and diversified gilt market. It will be an evolutionary not revolutionary change to our pensions market. Those who invest in our gilts are helping to fund vital public services and any changes must recognise the important role they play”
- thirdly, the Government’s decisions “must always strengthen the UK’s competitive position as a leading financial centre able to fund, through the wealth it creates, our precious public services”.
Highlights of key proposals include:
DB
- designed to “improve outcomes for savers in a highly fragmented market”, given the 5,000 plus DB schemes, the Government will set out its plans for “introducing a permanent superfund regulatory regime” to support trustees and sponsoring in managing DB liabilities
- a new call for evidence is being launched on the possible role of the PPF and the part DB schemes could play in productive investment, whilst securing members’ interests and protecting the sound functioning and effectiveness of the gilt market
- an LGPS consultation is launched, suggesting a deadline of March 2025 for all LGPS funds to transfer their assets into LGPS pools and setting a direction that each pool should exceed £50 billion of assets
- the Government has also announced a “LIFTS” initiative (Long-term Investment for Technology & Science) and is seeking investment from across the investment community.
DC
- the “Mansion House Compact”, which involves the CEOs of many of the largest DC pension schemes (such as Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pension, M&G & Mercer) committing to allocating at least 5% of their default funds to unlisted equities by 2030. With the Government seemingly hoping that the rest of the UK’s DC market follows suit, “this could unlock up to £50 billion of investment into high growth companies by that time”
- facilitating “a programme of DC consolidation, to ensure that funds are able to maintain a diverse portfolio of bonds, equity and unlisted assets and deliver the best possible returns for savers”. As “funds can only optimise returns from a balanced portfolio if they have the scale to do so”, the Government will facilitate “a programme of DC consolidation, to ensure that funds are able to maintain a diverse portfolio of bonds, equity and unlisted assets and deliver the best possible returns for savers”
- the DWP’s, TPR’s and the FCA’s response to its joint consultation on the Value For Money framework is therefore published today, “clarifying that investment decisions should be made on the basis of long-term returns and not simply cost”. As we know from its January consultation (see our Alert: The DC Deluge) and general direction of travel in this area, “schemes which are not achieving the best possible outcome for their members will face being wound up” by TPR
- the Government will also “set out a roadmap” to encourage and expand the use of CDC, which we have been expecting given its consultation in January this year on making CDC available to unconnected employers and exploring its possible use as a decumulation-only vehicle (see our Alert above)
- there is also a consultation on ending the proliferation of small, deferred DC pots, which again we have been expecting following its call for evidence back in January.
Trustees
- finally, a Call for evidence on how to support trustees to “improve skills, overcome cultural barriers and realise best outcomes for their schemes and subsequently their members” is also launched.
Consultation published so far
Consultation response: Consolidation of Defined Benefit Pension Schemes
Analysis: The impact of Private Pension measures on member outcomes
Consultation response: Value for Money: A framework on metrics, standards, and disclosures
Consultation: Helping savers understand their pension choices
Call for evidence: Pension trustee skills, capability and culture
Call for evidence: Options for Defined Benefit schemes
Consultation response: Extending Opportunities for Collective Defined Contribution Pension Schemes