British Pensioners Should Benefit from British Business Success

This is to be achieved through an agreement with pension providers to put 5% of their investments into early-stage businesses, regarded as potential high-growth companies, in the biotech, fintech, life sciences and clean technology sectors by 2030. The reforms are estimated to provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18.

Commenting on the reforms, Mr Hunt stated,

Implications for pension schemes and trustees

In addition to committing many of the UK’s largest Defined Contribution (DC) pension providers to allocating a minimum of 5% of their default funds to unlisted equities within seven years, as part of the reforms, the government published responses to earlier consultations. Many UK pensions market reforms featured, many of which are likely to impact trustees as consultation proposals are legislated and implemented over the coming months. Some key elements include:

Defined Benefit (DB) Superfund schemes – the government has published a consultation outcome on a permanent Superfunds regulatory regime for DB schemes. Developments include enabling trustees and sponsoring employers to have an alternative to buy-out, in order to manage DB liabilities, and enabling Superfunds to use their scale to invest in assets that support the UK economy. Primary legislation is required, which will provide a new compulsory framework applicable to Superfunds.

DB schemes options – the government has issued and recently closed a call for evidence (5 September 2023) on the role of the Pension Protection Fund and the part DB schemes play in productive finance. The government is looking to support the development of innovative policy options, which it believes has the potential to offer more choices for DB scheme trustees and sponsoring employers, potentially increasing DB member protection, while supporting ‘wider economic initiatives’.

Value for Money (VFM) Framework for DC schemes – the government has published a joint consultation response on VFM with The Pensions Regulator (TPR), the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA). One of the aims of the new framework is to shift the focus from costs to value, and to ensure a quality level of service is provided. In addition, where schemes are not delivering VFM, the Regulator will have the ability to enforce wind up and consolidation. The framework requires primary legislation and will be implemented in phases. Trustees need to tune in to this regulatory advancement and change in the Regulators enforcement powers.

Pension scheme trustees – the government has published a new call for evidence (now closed) applicable to DB, DC and CDC scheme trustees, aimed at supporting the development of policy options for advancing the knowledge, skill set and capability of pension scheme trustees, in addition to support the removal of barriers hindering trustees’ ability to make effective investment decisions.

In addition, a consultation recently closed (5 September) on helping savers understand their pension choices, together with a consultation on a DC decumulation framework to support individuals at the point when they access their pension saving, the outcomes of which are likely to impact trustees, who may need to introduce services or partner with a provider of these support services.

TPR – “these reforms support our ambition”

TPR has welcomed the reforms, with Chief Executive Nausicaa Delfas commenting, 

She continued, “The value for money framework will shine a light on schemes that consistently underperform, and new powers will allow us to enforce consolidation where necessary. Similarly, the expansion of collective defined contribution (CDC) schemes and introduction of a permanent regime for pensions superfunds all represent a welcome boost for innovation in savers’ interests.”