Pensions industry questions scope of Labour's promised pensions review

The pensions industry has welcomed the sense of continuity on pensions policy seen in Labour’s 2024 manifesto, although industry experts have raised queries as to what will and will not be in scope of the party’s promised pensions review.

The Labour manifesto, which was published yesterday (13 June), confirmed the party's plans to conduct a pensions review if elected, to consider what further steps are needed to improve security in retirement, and increase productive investment in the UK economy.

And Spence & Partners managing director, Alan Collins, pointed out that while change is the headline of Labour manifesto, “we are likely to see little or no change when it comes to pension policy”.

“The current direction of travel to strive for consolidation and scale remains, and the pledge to reinstate the lifetime allowance has been dropped,” he said.

This sense of continuity has been welcomed in the pensions industry more broadly, as Broadstone head of policy, David Brooks, said that that "the pensions sector can prepare for welcome continuity over the next five years".

"This is pleasing given the huge number of policies that are already progressing through regulatory and legislative processes," he added.

The continued focus on consolidation has been particularly well received, as TPT Retirement Solutions chief executive, David Lane, said that it is “promising” that the Labour Party has recognised the benefits of consolidation in workplace pension schemes.

“Encouraging consolidation could provide better value to the schemes, incorporate the highest levels of stewardship and, ultimately, deliver better outcomes for pension savers,” he continued.

“Labour’s plan to review workplace pensions will be welcomed by voters and the pension industry.”

Barnett Waddingham partner, Richard Gibson, also welcomed the focus on defined benefit (DB) consolidation, stating: “The near-term focus of the Mansion House reforms is on defined contribution (DC) pensions, but Labour's manifesto is clearly committed to pursuing the plans first proposed by the Tony Blair Institute, to bring together hundreds of the smallest private sector DB pension schemes into a single fund, backed and overseen by the public sector"

"This is a sensible strategy. Those schemes could deliver economies of scale and improve asset returns"

LangCat director of public affairs, Tom McPhail, also highlighted the commitment to reform workplace pensions so there are fewer, bigger and better run schemes as “good news”.

However, McPhail noted that, where Labour talk about a review of the pensions landscape, it’s not yet clear how broad or independent this will be.

“Though the pensions industry would welcome an independent commission along the lines of the Turner review, to address the long-term challenges involved in providing a sustainable retirement income for all savers,” he added.

This was echoed by Pensions Management Institute (PMI) director of policy and external affairs, Tim Middleton, who said that "while it is unclear at this point what specific outcomes the review is going to achieve; it is important that a thorough review takes place.”

But industry experts have been quick to highlight their top priorities for the proposed pensions review, with auto-enrolment reforms high on the list for many.

Standard Life retirement savings director, Mike Ambery, said: "It’s vital that any review retains focus on the single biggest factor impacting people’s retirement outcomes – the relatively low levels of contributions they are making and what is currently required under automatic enrolment.

"We’d like to see a review of the minimum auto-enrolment contributions in the next parliament, considering the adequacy of the outcomes people are on track for.”

Echoing this, Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Nigel Peaple, said that the PLSA has "long argued" that automatic enrolment contributions should be increased and that more workers should be included.

“The proposed pension review is also intended to examine ways in which pensions can be supported in providing finance to promote UK growth," Peaple noted, continuing: "The PLSA has already set out how government can best attract pension fund investment via policy, regulation, fiscal incentives and consolidation.

"A key element is for government to establish a pipeline of investible assets, in particular through the mandates given to institutions like the British Business Bank, and through initiatives like the proposed National Wealth Fund."

This was echoed by Brightwell CEO, Morten Nilsson, who urged Labour to continue to work closely with the industry on the National Wealth Fund to ensure it is set up for success.

"While good progress has been made in many areas, other initiatives have stalled or hit the buffers," he stated. "Should Labour form the next government, a stock-take to make sure we set off in the right direction is sensible.

“UK pensions funds are natural investors in the UK economy and there’s strong appetite for sustainable investments. Public-private partnerships have worked effectively in other countries, but the key to success will be in the design and delivery."

The scope of the review was not the only uncertainty, however, as industry experts were quick to hone in on the key issues that were not mentioned in the Labour manifesto, particularly the omission of any plans to reinstate the lifetime allowance.

Whilst this is expected to be a relief for many, industry experts have warned that this doesn't rule out a change in pensions tax allowances once the new government is elected.

"Not committing to bring it back is not the same as committing not to bring it back," WTW senior consultant, David Robbins said.

In addition to this, Robbins warned that the wording on income tax leaves the door open to cutting tax relief on pension contributions for 40 per cent plus taxpayers, or to a lower annual allowance.

"But changes along those lines would constitute putting up taxes on some working people - it would be good to see them probed on whether this form of words precludes anything beyond the taxes they have explicitly ruled out," he added.

In addition to this, PensionBee director of public affairs, Becky O'Connor, argued that it was "disappointing" that further details on the next steps of the pot for life process have not been outlined in Labour's manifesto.

"The reality is people change jobs, pensions get left behind, some are forgotten and retirements suffer so having all of the pensions someone acquires in one place makes sense," she stated.

“This concept could be popular and relatively easy to introduce, ultimately allowing people to take greater control of their long-term finances."

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