Chancellor Rachel Reeves has confirmed that the first phase of the landmark pensions review will focus on four areas.
These include driving the scale and consolidation of defined contribution (DC) workplace schemes, tackling fragmentation and inefficiency in the Local Government Pension Scheme (LGPS), refocusing the pensions ecosystem on value rather than cost, and encouraging further pension investment into UK assets.
Jamie Jenkins, director of policy at Royal London, said: “As widely trailed, the first phase of this review is primarily concerned with how pension assets can be invested in a way that helps grow the economy.
“However, there is a clear statement about how this must focus on the broader value delivered to savers, rather than just cost. It’s imperative that people’s retirement outcomes form the cornerstone of any proposals that emerge.”
Success of auto-enrolment
Paul Waters, head of DC markets at Hymans Robertson, welcomed the focus on DC workplace schemes and the LGPS.
“There are significant opportunities for the government to help the industry to improve outcomes for DC pension savers,” he said.
“For example, building on the success of auto-enrolment to raise pension saving rates, leveraging the increasing scale of today’s DC schemes to access new investment opportunities, and enabling more sophisticated default retirement propositions to be introduced.”
LGPS improvement
But Waters said that as his firm has worked with the LGPS since its inception, and given the undeniable success of the LGPS delivering in alignment with local government, he was “disappointed in the premise of the pensions review in tackling ‘fragmentation and inefficiency’.”
He said: “The LGPS has a long history of continuous improvement and a ready enthusiasm to adopt best practice. We look forward to supporting the LGPS to leverage the review, and increased government attention, to continue to develop the scheme.
“We note that a terms of reference for defined benefits (DB) will follow separately and look forward to seeing this in due course.”
Investment in UK PLC
Tom Selby, director of public policy at AJ Bell, said: “The new government has made no secret of its desire to harness the trillions of pounds of assets held by UK pension schemes to help drive greater investment in UK PLC and, ultimately, spur long-term economic growth.
“The initial phase of this landmark pensions review is focused squarely on workplace pension schemes and local government schemes, with ministers hoping consolidation of this fragmented landscape will both improve outcomes for savers and boost investment in UK assets, with a particular emphasis on private equity.”
He added: “Given the stagnant growth the UK economy has experienced since the 2007/08 financial crash, the increasing desperation of policymakers to solve the productivity puzzle is understandable. If stable, long-term economic growth can be achieved, that means more money for public services and potentially less need to bring forward unpopular tax hikes.
“However, it is vital that the interests of savers, whose money is ultimately being used here, are not sidelined as a result.”
Investment risks
Selby said that successive governments have made “dangerous claims” that a shift to riskier investments will deliver larger pension pots for people, despite the inherent uncertainty that exists in this area, particularly when considering investment returns over decades.
“It is, of course, entirely possible that investing more in the UK will yield better returns and bigger pension pots – but it could also go the other way,” he said.
“Trustees and those responsible for looking after members’ interests therefore have a crucial role to play in ensuring investment strategies are designed with the aim of delivering good outcomes for the people who will ultimately rely on those pensions in retirement. The risk in conflating government economic goals with those of pension savers is that the latter will be sacrificed in order to deliver the former.”
