Nigel Peaple: A new government has the opportunity — and responsibility — to secure a robust financial future for all savers
Workplace pensions stand as a cornerstone of financial security for millions, offering vital retirement income and driving growth by investing over £1trn into our economy.
But, while the landscape of pension saving has seen remarkable improvements in the last decade and a half, with greater freedom and more participants, significant challenges remain.
A new government has the opportunity—and responsibility—to secure a robust financial future for all savers. If they want to move things forward quickly, here's the PLSA's list of actions for the first 100 days in office.
Support adequate pension saving
Auto-enrolment (AE) has been a game changer, bringing 19.4 million new savers into the fold. However, the system is far from perfect. Many workers, especially in the gig economy, remain outside its benefits, and those enrolled often save insufficiently. Our research shows that more than half of savers will fall short of the Pension Commission's retirement income targets. The government must act decisively to:
- Bring Forth an Employment Bill to reclassify gig economy workers so they can start saving into a pension.
- Implement the Pensions (Extension of Automatic Enrolment) Act 2023 to introduce first pound saving and contributions from age 18.
- Launch a pensions review to set out a roadmap for raising contributions over the next decade to increase contributions to 12%, evenly split between employers and employees.
Help savers navigate choices at retirement
The 2015 pension freedoms have empowered savers but also introduced complexity and risk. There is still much work to do in order to ensure that people manage to negotiate the path from accumulation to decumulation successfully. The PLSA's Guided Retirement Income Choices framework proposes a blend of cash, drawdown, and annuity products to ease this transition. The next Government should act quickly - legislative support is essential:
- Mandate trustees to offer decumulation solutions: Ensure that retirees receive guidance and access to safe, effective retirement products.
Support well run DB schemes
Defined benefit (DB) schemes remain of critical importance in the provision of pensions in the UK. We find that 9.6 million people with access to a DB pension are more likely to be on track for an adequate income in retirement. A balanced regulatory environment is needed to sustain open DB schemes and manage closed ones efficiently. Superfunds present a viable, cost-effective solution for employers aiming for self-sufficiency without the high costs of buyouts. The government should:
- Legislate for superfunds: Guarantee protection for scheme members.
- Allow investment flexibility, especially for open DB schemes: Enable funds to take appropriate risks to secure member benefits.
Bridge the pensions and growth gap
Pension funds manage nearly £1trn in home-grown assets, but there's pressure to increase their investment in UK infrastructure, private markets, and venture capital. While consolidation has been suggested, simpler, faster solutions exist. The PLSA has identified ways in which government action could promote greater investment by pension funds in the UK.
- Support the value for money regime: shift focus from cost to net performance.
- Ensure a supply of high-quality investment assets: task the British Business Bank with identifying suitable UK investments and encourage the use of LTAFs.
- Introduce fiscal incentives: make UK growth investments more attractive with tax-free dividends and initiatives like the LIFTS scheme.
Support the LGPS
The Local Government Pension Scheme LGPS, with assets over £369bn and 7.1 million members, is a global giant but operates under complex regulations. Streamlining governance could enhance its efficiency and outcomes. The new government should:
- Implement the ‘Good Governance Project' recommendations: Establish common standards for governance and improve the quality of outcomes.
Delays and uncertainty of frozen pension policies
Although the Prime Minister's unexpected announcement of a summer election provides an opportunity to address the above issues, it also disrupted the timeline for many important initiatives, leaving key policy and regulatory work on hold, including:
- DWP consultation delays: The DWP's views on the DB Surplus and Public Sector Consolidator consultation are now postponed until at least 2025.
- Defined benefit funding code: A delay could push implementation to late 2024 or spring 2025.
- Lifetime allowance (LTA) tax changes: HMRC's planned adjustments had not been fortified before Parliament dissolved, which could lead to potential financial penalties and legislative uncertainties.
- Lifetime provider model response: Delayed, causing uncertainty, especially regarding default consolidators.
- Value for money (VFM) consultation: Postponed, but this delay could help ensure the necessary full alignment between FCA and DWP/TPR proposals.
We hope that the new government will quickly provide clarity and guidance on these "in flight" initiatives. By addressing these key areas, the government can ensure a more secure retirement for millions and a robust, growth-oriented economy.
Nigel Peaple is director of policy and advocacy at the Pensions and Lifetime Savings Association
This article comes as part of Professional Pensions' PP Pensions Commission – which is looking to bring together industry opinion and ideas on the future of pensions ahead of the general election on 4 July.
Send your thoughts and ideas to the PP Pensions Commission via email to [email protected]
