NORTH EAST & YORKSHIRE: An introduction to Pensions
Pensions Top Five (rather than Top 20!)
With the new Labour government having announced a ʺlandmark pensions reviewʺ, it is clear that change is afoot in the pensions world. But what are the key areas likely to be affected? Let’s count down the top 5.
In at five: pensions tax
There has been a collective sigh of relief with the announcements made in the Autumn statement, as there was concern it could have been a lot worse, with many fearing that pension contributions would be subject to employer National Insurance contributions. The steps the government has proposed (and is consulting on) for unused pension funds and death benefits to fall within the inheritance tax net shows an appetite to tax what might have been seen as “untouchables”. There is still time in this parliamentary term for a Labour government to look at reversing the abolition of the lifetime allowance (which has turned out to be incredibly complicated to implement) or look at tax free pension lump sums. For that reason, pensions tax comes in at five!
Down two at four: DB Funding Code
The Pensions Regulator’s new DB Funding Code was laid before Parliament in July 2024 and is expected to come into force in late November 2024. The Pensions Regulator has said that schemes with actuarial valuations with effective dates on or after 22 September 2024 should refer to the new DB Funding Code. This has been highlighted as a ʺmilestone momentʺ for the pensions industry, because it replaces the previous Funding Code that has been in place for a decade. The Pensions Regulator has published templates and themes to help with the statement of strategy and the new digital submission platform is expected to be launched in Spring 2025. Coupled with the requirement for DB schemes to have a long-term funding strategy, we therefore expect this to remain a hot topic for the foreseeable future as the final details are ironed out and the new DB Funding Code beds in as schemes begin to apply it. One to keep an eye on, and well deserving of its spot in the top five.
Non-mover at three: dashboards
With the first connection date of 30 April 2025 for the largest occupational pension schemes fast approaching, things are really hotting up in both the world of pensions dashboards and our chart. The Pensions Regulator has shared its new pensions dashboards compliance and enforcement policy, which makes clear both the expectations on trustees and scheme managers to comply with their pensions dashboards duties and the actions that can be taken against those who do not. In addition, the Pensions Dashboards Programme has updated its technical standards and code of connection, which are to be used by pension schemes and providers when preparing for connection. The key message being given on all fronts is that all schemes need to get ready to connect in the right way, which will require trustees to review and improve the quality of their member data, or face regulatory action. The Pensions Regulator’s own words on this in a blog post were ʺAct now on pensions dashboards so we don’t have toʺ.
Up one place at two: consolidation, consolidation and more consolidation
Consolidation is one of the current buzzwords in pensions, bringing it up to second place in our chart. Below are just three of the examples on offer.
Collective defined contribution (CDC) schemes
The aim behind CDC schemes is to pool investment and longevity risk among a large number of workers, so that a target retirement income can be provided (but not guaranteed). Royal Mail have now launched the first CDC Scheme in the UK, and the government has consulted on the extension of CDC schemes beyond single or connected employer schemes to unconnected multi-employer schemes.
Defined benefit (DB) superfunds
The consolidation route for defined benefit schemes is by way of superfunds, which again aims to provide better benefits for members by pooling risk and sharing costs. The Labour government has committed to enacting legislation in relation to DB superfunds, although this legislation has been promised for some time. In the meantime, the Clara superfund has begun to operate under the Pensions Regulator’s interim regulatory regime and guidance, which has recently been updated.
Consolidation of small pension pots
We are no closer to reaching an answer on the small pot issue, but perhaps this will change following the government’s pensions review. Whilst automatic enrolment has been hugely successful in encouraging people to save into a pension, the Pensions Policy Institute’s 2024 edition of the Lost Pensions Survey found there are an estimated 3.3 million lost pension pots, containing GBP31.1 billion worth of assets. The three main contenders that have been put forward over time for solving the small pot issue are: ʺpot for lifeʺ, where the pot stays put and contributions from future employments are directed to it; ʺpot follows memberʺ, where an individual’s pot automatically transfers with them to join their new employer’s pension when they change jobs; and the catchily named ʺmultiple default consolidatorʺ proposed by the Conservatives, where a small number of authorised schemes would act as consolidators for small deferred pension pots.
New in (or is it back in again?) at one: investment in the UK economy
This has been the core message emerging from the government in relation to pensions, as they look to drive investment from UK pension funds into UK growth, and therefore nabs the top spot on our chart. Many see this as harking back to the ʺgood old daysʺ of UK pensions investing heavily in the UK economy, so perhaps we should see it as a ʺre-releaseʺ rather than a new entrant in our chart. Pensions Minister, Emma Reynolds, has made clear her desire to harness the trillion-pound pensions industry to drive more investment into high-growth sectors, infrastructure projects and innovative enterprises, to boost the UK economy and improve returns for pension savers. This is a noble aim, but one which faces challenges from within the pensions industry, not least in the form of pension scheme governance and trustees’ fiduciary duties. Certainly one to watch.