Who will be responsible for pensions in the new Labour Government?
Shortly after taking the keys to Number 10, Starmer began selecting his Cabinet, which included appointing Liz Kendall as Secretary of State for Work and Pensions. Before the election, Kendall stressed Labour would have a “relentless focus” on championing decent pensions for all and confirmed the party’s commitment to pension reforms.
Labour has been focused on addressing pension reform for some time. In January, it released its 'Plan for Financial Services' paper, outlining plans to review the current pensions and retirement savings landscape if they come into power. The review would examine all types of pensions and retirement plans, including corporate sponsors, asset managers, venture capital, and private equity. The goal is to find ways to benefit both UK companies and retirees. A Labour spokesperson said, "Our pensions review will consider what further steps are needed to improve security in retirement, as well as to increase productive investment in the UK economy."
For defined contribution (DC) pensions, Labour plans to give The Pensions Regulator (TPR) new powers to merge schemes that do not provide good value to members. TPR would also provide guidance on fund and strategy suitability and enforce a default investment approach for groups of members. Scheme performance would be regularly reviewed to ensure returns improve. For the Local Government Pension Scheme (LGPS), Labour would explore different pooling models, including boosting in-house fund management, to deliver better returns and increase investment in productive assets. Labour also aims to consolidate all pension schemes to give them the resources and expertise needed for investing in long-term assets that are not easily sold.
What has Labour’s manifesto promised?
In its manifesto, Labour reaffirmed its commitment to undertaking a full review of the pensions landscape. It also said it would increase pension fund investment in UK markets by adopting reforms to ensure that workplace pension schemes take advantage of consolidation and scale, deliver better returns for UK savers, and increase productive investment for UK plc. In addition, Labour confirmed it would retain the State Pension Triple Lock.
PLSA recommendations
Meanwhile, the Pensions and Lifetime Savings Association (PLSA) has identified the five areas of pension reform it would like to see the Labour Government implement within its first 100 days of office. The five areas it highlighted are:
- Supporting adequate pension saving
- Helping savers navigate choices at retirement
- Supporting well-run defined benefit schemes
- Bridging the pensions and growth gap
- Supporting the Local Government Pension Scheme (LGPS).
Supporting adequate pension saving
According to PLSA research, without policy intervention, more than 50% of savers will fail to meet the retirement income targets set by the 2005 Pensions Commission. The PLSA wants the Government to take actions such as extending automatic enrolment, publishing a roadmap for raising automatic enrolment contributions over the next decade, and bringing forth an ‘Employment Bill’ to reclassify gig economy workers, giving them the ability to start saving into a pension.
Helping savers navigate choices at retirement
According to the PLSA, there is ‘still much work to do to ensure people are able to negotiate the path from saving to drawing their pension successfully.’ It wants the Labour Government to act quickly to introduce legislation that will place a statutory duty on trustees to offer decumulation support and guidance for savers, and to follow its proposed Guided Retirement Income Choices framework as the basis for reform, to give pension providers ‘the confidence they need to innovate and to ensure savers are supported.’
Supporting well-run Defined Benefit schemes
The PLSA believes nearly 10 million people with access to a Defined Benefit (DB) pension are more likely to be on track for an adequate income in retirement. It insists, ‘Government and regulators should therefore ensure a sensible regulatory environment for DB schemes that can help ensure the sustainability of open DB schemes and help closed DB schemes run off more efficiently and ultimately secure member benefits.’ It also urges the new Government to legislate for the introduction of Superfunds ‘to ensure the final Superfund regime offers at least the same level of protection to scheme members as the DB funding regime.’ It should also support surplus sharing among DB schemes with robust protections of member benefits.
Bridging the pensions and growth gap
The PLSA notes that while UK pension funds invest over £1 trillion in the UK through a mixture of UK shares, corporate bonds, Government debt and other asset classes, policymakers are facing calls to encourage pension funds to play a bigger role in providing additional capital to support growth in the UK economy, through increased direct investment in infrastructure, private markets and venture capital. It wants to see the Government encourage investment in the UK economy in several ways, including supporting the ongoing Value for Money regime, working ‘in close partnership with the pension industry’ to identify a pipeline of investible UK growth opportunities with the right risk-return and cost characteristics, and using the first Budget to introduce fiscal incentives that make investing in UK growth more attractive than competing assets.
Supporting the Local Government Pension Scheme (LGPS)
Finally, the PLSA wants to see Labour implement recommendations from the LGPS Scheme Advisory Board’s ‘Good Governance Project’ to develop a common standard on governance and foster effective relationships between pension funds and asset pools, with a focus on the type and quality of outcomes administering authorities should aim to achieve.
Summary
After achieving such a decisive election victory, Labour will have its hands full in terms of prioritising areas when it can start to deliver on its pre-election and manifesto promises. Clearly, the topic of pension reform is one where the new administration has demonstrated an awareness and commitment to delivering change. Its first 100 days will be busy, but it has already identified several areas to focus on, and it has the support of the regulators and the broader pensions industry to help achieve its ambitions.