Pensions Insight: 15 July to 22 July 2024

This insight covers the pensions-related measures in the King’s Speech and the Government’s upcoming pensions review.

King’s Speech – Pension Schemes Bill to be introduced

The King’s Speech delivered at the State Opening of Parliament on 17 July 2024 put “economic growth at the heart of its [the new Labour Government’s] legislative agenda”. As part of this agenda, a Pension Schemes Bill was announced which will support savers “get better outcomes…and support the Government’s mission to deliver growth”.

Four of the six measures outlined in the background briefing notes progress elements of the preceding Government’s Mansion House reforms so it is very much a ‘continuity’ piece of legislation and there is nothing much new on the immediate horizon. The upcoming pension review should give us more detail about what other changes might be on the cards (see below for further details).

• Consolidation of deferred small pots: a facility will be introduced to allow automatic consolidation of deferred small pots. It is not yet clear whether the lifetime provider model previously mooted by the former Government will be adopted or whether another approach will be used such as pot follows member.
• Value for money (VfM) framework: a ‘standardised test’ will be brought in for trust based defined contribution (DC) schemes to evidence they provide VfM. The aim of this is to further consolidate the DC market where appropriate so that there are a “smaller number of well-performing, well governed schemes” which should improve member outcomes and result in ‘more productive investment’. The Financial Conduct Authority will be responsible for the new VfM framework for contract-based DC schemes.
• Decumulation options: schemes will have to offer a “retirement income solution or range of solutions, including default investment options, to their members”. As with the VfM measures, the Government hopes that providing this offering will improve outcomes for members and lead to increased productive investment.

It is estimated that the deferred small pots, VfM and decumulation initiatives will increase average earner’s pension pots at retirement over their career by 9%.

• Superfund consolidation: the Bill will cover superfunds – although the Pensions Regulator has been able to authorise and supervise superfunds for a while, the legislative framework for them has not yet been set up. The Bill will introduce the necessary legislation. There is no mention of the Pension Protection Fund (the PPF) acting as a public consolidator (nor on possible refund of surplus changes), but this does not necessarily indicate that Labour does not wish to pursue these initiatives.
• TPO to be confirmed as a competent court: The Pensions Ombudsman (TPO) will be ‘reaffirmed’ as a competent court so that schemes will no longer have to obtain a County Court order to enforce a TPO decision that a scheme can recoup overpayments where a member disputes recovery. TPO has noted its pleasure at this development. See our case summary for further background details of the Court of Appeal decision that TPO is not a ‘competent court’ for the purposes of deciding recoupment of overpayment complaints.
• Amendments to Special Rules for End of Life for PPF and FAS: the final measure mentioned in the background briefing note is that the definition of ‘terminal illness’ for the PPF and the Financial Assistance Scheme (FAS) will be amended to extend the life expectancy eligibility element from 6 months to 12 months so that members can take a lump sum at an earlier date.

Also of note were:

• the National Wealth Fund Bill which will set up a new National Wealth Fund;
• a Budget Responsibility Bill (introduced to the House of Commons on 18 July 2024) to implement a ‘fiscal lock’ requiring that ‘fiscally significant’ Government tax and spending measures be independently assessed by the Office for Budget Responsibility (addressing the issues that arose from the September 2022 mini-budget not having been assessed by the OBR); and
• an Audit Reform and Corporate Governance Bill which will introduce a new Audit, Reporting and Governance Authority in place of the existing regulator, the Financial Reporting Council to oversee financial reporting and audit and ensure there is “robust and rigorous scrutiny of large companies” to provide “an accurate picture of the health of a company”.

(The Monarch’s Speech is produced by the Government and denotes the start of a new parliamentary year or session. It is the forum in which the Government will usually say which bills it plans to introduce to Parliament in the upcoming parliamentary session together with other policy plans that do not need legislation. You can find out more about the King’s Speech here.)

Pension review to ‘boost growth’ on investment and savings

The Chancellor has revealed more details of the pensions review that the new Government will be carrying out to ‘boost’ investment in the UK economy and pension savings (the Government says by a possible £11,000 [per individual]) and ‘tackle waste’. It will be a phased review, starting with pension investment and concentrating on what “further actions to drive investment” might be “taken forward in the Pension Schemes Bill” (including consolidation and schemes improving returns via wider investment strategies). Subsequent stages will consider the pensions system on a wider scale and what changes might be needed to support retirement security. The review will also encompass the £360bn Local Government Pension Scheme. It is headed by Emma Reynolds (the first joint Treasury and DWP Minister) and began with a pension industry roundtable on 22 July 2024.