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What This Year’S Spring Budget Means For The UK Pensions Industry

What This Year’s Spring Budget Means For The UK Pensions Industry

Thursday, 21 March 2024

On 6 March, Chancellor Jeremy Hunt delivered his second Spring Budget to the House of Commons. It was also quite possibly the last fiscal event to take place before UK voters take to the polls later this year, or no later than January 2025.

While most of the headlines following Jeremy Hunt’s speech were devoted to the 2p cut in National Insurance Contributions (NICs) or plans for a new UK-focused Individual Savings Account (ISA), his Budget did announce some important updates relating to pension reforms that built on previous Mansion House proposals and last year’s Autumn Statement. 

Value for Money consultation

One of the announcements covered in Mr Hunt’s speech – and expanded upon in the accompanying ‘Red Book’ Budget report – was that the Financial Conduct Authority (FCA) will shortly begin a new consultation that will explore the new ‘Value for Money’ framework for Defined Contribution (DC) workplace pension schemes.

The framework is the next step following a 2023 consultation exercise conducted jointly with The Pensions Regulator (TPR), with proposals aimed at improving long-term outcomes for all DC schemes. The proposals include new disclosure requirements for DC schemes and increased powers for TPR and the FCA in dealing with schemes that are underperforming or offering poor value for their members.

The FCA consultation paper is expected to be published in spring and will explore plans for contract-based schemes to publicly disclose both the asset allocations and historical net investment returns for their default funds. The consultation paper will also cover issues such as benchmarking, with schemes having to compare their performance with other schemes, at least two of which must have assets in excess of £10bn (although this level is “expected to increase significantly over time”).

As Jeremy Hunt explained during his speech,


We will give new powers to The Pensions Regulator and Financial Conduct Authority to ensure better value from Defined Contribution schemes by judging performance on overall returns, not cost.

The new Value for Money rules are expected to come into force for both occupational and contract-based arrangements from 2027.

The Value for Money framework will shine a spotlight on pension schemes that seem to be focusing on short-term cost savings at the expense of long-term investment outcomes, and where the scale of schemes is likely to be preventing them from offering value to savers.

The Red Book noted Government plans to prevent underperforming schemes from taking on new business, and also warned that


Where schemes are persistently offering poor outcomes for savers, the FCA and The Pensions Regulator will have the full range of regulatory powers available, and the Government expects them to use the powers; these include closing a scheme to new employer entrants and, where necessary, winding up a scheme.

"...Australia generate better returns for pension savers"

Improved disclosures on UK equity holdings 

During his Budget speech, the Chancellor stressed the need to ensure that UK pension schemes were invested in the growth of the UK economy, confirming that the Government “will build on the Edinburgh and Mansion House reforms to unlock more pension fund capital.” The Red Book noted that across the pensions industry as a whole, ‘the best data suggests’ investment into UK equities has fallen to around 6%.

In his Budget speech, the Chancellor noted his concern that “other markets, such as Australia, generate better returns for pension savers with more effective investment strategies and more investment in high-quality domestic growth stocks.” 

In response to this underwhelming allocation to UK equities, and to improve currently available data, the Chancellor announced the Government plans to bring forward requirements for Defined Contribution (DC) pension funds to publicly disclose the breakdown of their asset allocations, including their level of international and UK equity investments. Again, a consultation on this will begin in the spring.

The Government also intends to introduce equivalent requirements for Local Government Pension Scheme (LGPS) funds in England and Wales as early as April 2024. LGPS funds will need to provide a summary of asset allocation, including UK equity investment, as well as provide greater clarity on the progress of pooling through a standardised data return, also taking effect from April 2024.

The Government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing, and if the UK is “not on a positive trajectory towards international best practice.”

Long-Term Investment for Technology and Science (LIFTS)

In conjunction with plans to ensure pension schemes publish their allocations to UK equities, the Chancellor made it clear his Government wanted “to make it easier for pension funds to invest in UK growth opportunities.” From the despatch box, he announced the winners of the Long-term Investment for Technology and Science (Lifts) competition. 

Lifts was launched in 2023, with the goal of fostering longer-term investment into UK-based technology and science companies. Schroders Capital was named as having been awarded £150m by the British Business Bank, and ICG was awarded £100m, with Phoenix Group matching both investments. The Lifts investment mandates are said to be subject to ‘ongoing commercial discussions’ as well as internal governance processes at the companies involved.

Potentially one pension pot for life?

The Chancellor also used his Budget speech to confirm that the Government remains committed to exploring a ‘lifetime provider’ model for DC schemes, stating, “We will continue to explore how savers could be allowed to take their pension pots with them when they change job.” The Red Book noted that the Government will undertake continued analysis and engagement to ensure the lifetime provider model would improve outcomes for pension holders and will look to build on the other pension reforms – such as the Value for Money framework – that are already underway.

Pension Triple Lock confirmed

Other areas of interest for pensions will include the Chancellor’s stated affirmation to support pensioner incomes by guaranteeing the pension ‘triple lock.’ This is the Government’s commitment to uprate basic and new State Pensions already in payment annually by the highest of earnings growth, inflation, or 2.5%.

According to the Red Book, the full yearly amount of the basic State Pension in 2024-25 will be £3,700 higher in cash terms than it was in 2010. This means the current basic State Pension is worth £990 more than if it had been uprated by prices, and £1,000 more than if it had been uprated by earnings growth (since 2010).

Also, and more broadly, the Chancellor announced that the Treasury would begin regulating ratings relating to environmental, social and governance (ESG), after a one-year consultation period that began after the 2023 Spring Budget. The new regulatory regime will see the Treasury overseeing ESG ratings specifically where ‘assessments of ESG factors are used for investment decisions and influence capital allocation.’ The Treasury’s full response on plans for this and the legislative timeline are expected to follow shortly.

The Government also confirmed that it will introduce legislation in the Spring Finance Bill 2024 to ensure that HMRC commissioners can accommodate the detailed provisions necessary for the treatment of funds transferred from a collective money purchase (CMP) scheme in the process of winding up.

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