The King’s Speech – All change for the rail industry, no change for pension schemes

In a short and focussed 12-minute speech, revealing the Labour Government’s plan to introduce forty bills over the next year, the King said his government's legislative programme would be "mission-led" and based upon the principles of "security, fairness and opportunity for all".

Stability will be the "cornerstone" of economic policy and "securing economic growth will be a fundamental mission", with all "significant" tax and spending changes subjected to an independent assessment and fiscal rules.

There was only one reference to pensions – namely a Pension Schemes Bill. According to the accompanying background briefing notes, this bill will support “better outcomes from their pension assets” for the fifteen million people who save in private sector pension schemes. It will “increase the amount available for pension savers and could help an average earner, who saves over their lifetime in a defined contribution scheme, to have over £11,000 more in their pension pots with which to secure their retirement income.”

The Bill’s measures maintain the direction of travel set by the Conservatives last year with the Mansion House Reforms, including:

• Consolidation of individual defined contribution deferred small pots, freeing schemes from the cost burden of managing them. We understand a small pot is less than £1000 of pension savings.
• Value for Money framework – introducing a standardised test that trust based defined contribution schemes will need to meet to demonstrate they deliver value. A standardised test would be extremely helpful, as long as it is clearly drafted as schemes and employers spend a disproportionate amount of time and money on working out what the current value for money test means.
• Requiring pension schemes to offer a range of retirement products – “so people have a pension and not just a savings pot when they stop work.” This show’s the Government’s move towards Professional Master Trusts which are generally best placed to offer a full range of at retirement options.
• Consolidating the Defined Benefit market through commercial Superfunds (but no mention of the PPF’s role).
• Reaffirming the Pensions Ombudsman (TPO) as a competent court. This would remove the need for pension schemes to apply to the courts to enforce TPO decisions in relation to the recovery of overpayments. This will alleviate pressures and cost for courts, schemes, and members, ensuring recovery costs are kept to a minimum. This is a technical point which will please both TPO and pension lawyers.
• Amending the Special Rules for End of Life (Pension Protection Fund and Financial Assistance Scheme (FAS)) extending the definition of 'terminal illness', allowing eligible members within the Pension Protection Fund and the Financial Assistance Scheme to receive a lump sum payment at an earlier stage. This is hugely important for the people it affects.

Labour takes the view that “A private pensions market that encourages consolidation and focuses on value and outcomes for members will not only enable security in retirement, but also enable pension schemes to invest in a wider range of assets, driving growth.”

As explained in the key facts section about the Pensions Bill “Pension schemes can, and do, play a significant role in supporting the UK economy but there is potential for them to play a more significant role. Defined Contribution (Trust) schemes hold around £158 billion in assets across around 1,080 providers. Defined Benefit schemes hold around £1.4 trillion in assets across around 5,000 pension schemes. The measures in this Bill will enable consolidation and more productive investment of funds.”

Comment

This is very much maintaining the direction of travel started by the previous government with the Mansion House Reforms and pension lawyers in particular will be relieved that the Labour Government have not yet made any pronouncements about pensions tax. 

Forty pieces of legislation in their first year to steer through Parliament, including wholesale change for the rail industry, which could in turn result in the taxpayer ultimately footing any bill for the generous railways pension scheme, is ambitious.

We hope that work on the manifesto promise of a pensions review will commence or continue in the background, alongside HMRC continuing to publish all the regulations that are required to complete the abolition of the Lifetime Allowance.

We also note that there was no mention of the Pensions Protection Fund’s proposed role as a public sector consolidator. This would require primary legislation and may have been pushed into next year given the current pressure on the Parliamentary timetable. Also, and more radical, there is nothing yet on Collective Defined Contribution Schemes – might this require more thinking time?