In today's Autumn Statement (22 November 2023) (the Autumn Statement), the Chancellor set out the next steps for key Mansion House pension reforms. These have been collected as the Autumn Statement Pensions Reform 2023 and are part of 110 measures that are intended to "help grow the economy". The pension proposals aim to "increase the flow of capital to [the UK's] most promising high growth companies". This promises to unlock £75 billion of extra capital by 2030.

We discuss the key proposals, what the Mansion House pension reforms are and provide a round-up of other significant announcements in today's Autumn Statement.

What are the key pensions proposals?

The key pensions proposals include:

  • Defined contribution (DC) deferred small pots – a pot for life – The Chancellor unveiled proposals for individuals to have a pensions 'pot for life'. This is a departure from the policy set out in the recent Department for Work and Pensions (DWP) consultation ('Ending the proliferation of deferred small pots (11 July 2023)' (Small Pots Consultation)). In July, the DWP proposed the automatic consolidation of deferred DC small pots through a small number of authorised consolidators. Under the pot for life proposals, workers will have the right to nominate a workplace pension scheme of their choice.
  • Consolidation of DC schemes – The Chancellor announced that the Government expects that, by 2030, the majority of the UK's DC savers will belong to schemes with assets of at least £30 billion. Currently, only one UK DC scheme has assets under management of over £30 billion. DC consolidation will be driven by introducing the new Value for Money Framework.
  • Consolidation of Local Government Pension Scheme (LGPS) investment pools – By 2040, the Government expects all LGPS investments will be in pooled investment funds with assets of at least £200 billion. Currently, there are eight LGPS pooled funds, with assets ranging from £22.5 billion to £60 billion.
  • Pension Protection Fund (PPF) as a consolidation vehicle for smaller defined benefit (DB) schemes – The Chancellor confirmed that legislation would be made that will allow the PPF to be a consolidation vehicle for smaller DB pension schemes.

In addition, the Chancellor confirmed that the 'triple lock' on state pension increases will be applied in full from April 2024. This means an increase of 8.5% to the basic State Pension, new State Pension, and the Pension Credit standard minimum guarantee. The full State Pension will increase from £203.85 per week in 2023-24 to £221.20 per week in 2024-25.

What are the Mansion House pension reforms?

The Mansion House pension reforms are a collection of pensions policies that were set out by the Chancellor at the Mansion House speech on 11 July 2023. The reforms included policies for private sector DC and DB pensions and the Local Government Pension Scheme. The key theme was how to incentivise pension schemes to invest in 'productive finance' (i.e. longer-term, less liquid investments, such as infrastructure, private equity and high growth start-ups).

More information on all of the policy announcements is set out in our guide to the Mansion House reforms.

DC deferred small pots – what is a 'pot for life'?

The Government will consult on giving pension savers a "legal right to require a new employer to pay pension contributions into their existing pension". This 'pot for life' policy marks a departure from the position set out in the DWP's Small Pots Consultation. In the Autumn Statement, the policy is referred to as the 'lifetime provider model'. This is set out in the DWP's consultation response ('Ending the proliferation of deferred small pension pots (22 November 2023)') and in a new open call for evidence ('Looking to the future: greater member security and rebalancing risk (22 November 2023)').

A pot for life would mark a material shift in workplace pension provision, with workers being given the right to nominate a pension scheme. The proposed move from 'employer choice' to 'member choice' has been described as 'ground-breaking' and a 'seismic' shift in approach.

It is expected that the policy will be modelled on the approach taken by countries such as Australia. The first step in introducing it will be the Government's publication of a call for evidence ('Looking to the future: greater member security and rebalancing risk (22 November 2023)').

Consolidation of DC schemes

The Government has long argued that larger schemes can offer better value for members by reducing costs and providing diversified investment options. The Autumn Statement states that the Government "expects to see a market in which the vast majority of savers belong to schemes of £30 billion or larger by 2030". Currently, only one UK DC scheme has assets under management that exceed £30 billion.

The Government will encourage consolidation of DC schemes by moving forward with the new Value for Money Framework. The next steps for this key Mansion House proposal will be a consultation in spring 2024 led by the Financial Conduct Authority (FCA).

Consolidation of LGPS investment pools

By 2040, the Government expects all LGPS investments will be in pooled investment funds with assets of at least £200 billion. Currently, there are eight LGPS pooled funds with assets under management ranging from £22.5 billion to £60 billion.

The next steps in LGPS pooled fund consolidation will be a March 2025 deadline for the accelerated consolidation of LGPS assets into pools. The Government will also set a direction towards fewer pools exceeding £50 billion of assets under management.

The Autumn Statement confirms that guidance for the LGPS will be revised to implement a 10% allocation ambition for investments in private equity.

PPF as consolidation vehicle for smaller DB schemes

The Government will launch a consultation this winter on how the PPF "can act as a consolidator for schemes unattractive to commercial providers". This is part of a broader push to increase the opportunities for private sector DB schemes to invest in productive finance.

In addition, the consultation will look at scheme surpluses and how rules can be changed to permit the repayment of surpluses to employers. As part of this, it will look at enabling 100% PPF coverage for DB schemes that opt to pay a higher PPF levy. The authorised surplus repayment charge will also be reduced from 35% to 25% from 6 April 2024.

What else was announced?

In addition to the key policies outlined above, the Autumn Statement covered:

  • Lifetime allowance abolition – The Government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance. The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. This will take effect from 6 April 2024.
  • Solvency II reforms – Confirmation that the Government will legislate to give effect to the Solvency II reforms. These aim to "to deliver a more tailored, clearer and simpler regulatory regime for the insurance sector".
  • DC decumulation options – The DWP has published a consultation response on DC decumulation options ('Consultation outcome - Helping savers understand their pension choices: supporting individuals at the point of access (22 November 2023)'). The response proposes placing duties on occupational pensions trustees to offer decumulation services and products at an appropriate quality and price when savers access their pension assets – either themselves or through a partnership arrangement.
  • DC value for money – The Autumn Statement confirms that the Government will engage with the pensions industry on "prioritising long-term pension investment performance over low fees". As part of this, the Pensions Regulator (TPR) will provide further information for employers on what factors should be assessed when they are selecting a pension scheme.
  • Trusteeship – The Government announced its support for TPR's plans to implement a register of trustees to aid engagement with trustees and to update the trustee toolkit to include further information on productive finance.
  • Master trust review – The Government published its review of the master trust market ('Evolving the regulatory approach to Master Trusts (22 November 2023'). This comes five years after the introduction of the authorisation and supervision regime for master trusts under the Occupational Pension Schemes (Master Trusts) Regulations 2018.
  • The Long-term Investment for Technology and Science (LIFTS) initiative and the Growth Fund – The Government confirms that it will commit £250 million to two successful bidders in the LIFTS initiative. The LIFTS initiative aims to create new investment vehicles tailored to the needs of pension funds. This aims to facilitate investment from pension funds and other sources into UK science and technology companies. In addition, the Government will establish a Growth Fund within the British Business Bank. The Growth Fund aims to enable pension scheme investment in the British Business Bank's pipeline of opportunities.
  • Collective defined contribution – The Government has set out its intention to further explore the development and wider use of collective DC schemes as part of its long-term vision for pension saving in the UK.