The further measures are intended to deliver on a vision for a pensions market in 2030 which will ensure suitable retirement options for savers and a streamlined pension provider market that is continually challenged to deliver value for every member. They also align with the Chancellor’s three golden rules of securing the best possible outcomes for pension savers, prioritising a strong and diversified gilt market and strengthening the UK’s competitive position as a leading financial centre.
The measures announced are the government’s response to the various consultations with the industry that launched in July as part of the Mansion House proposals. They include:
- a solution to the problem of individuals having lots of small pension pots with different providers. The government’s preferred solution is for small pots to be automatically consolidated into schemes that are authorised to act as a consolidator. The government will establish an industry delivery group to support it in working through complex implementation issues;
- the establishment of a public sector consolidator for defined benefit schemes that are unattractive to the buy-out or superfund market. The government has expressed the view that the PPF would be well placed to run a public sector consolidator. A consultation on the detail is expected to be launched in the next few months;
- the introduction of measures to make it easier to extract surplus from defined benefit schemes, with appropriate safeguards for members in the expectation that this could incentivise schemes to invest in assets with higher returns. The consultation on the public sector consolidator is also expected to deal with these proposals around surplus; and
- duties on trustees of all occupational pension schemes to offer a decumulation service with products to members at the point of access at an appropriate quality and price, and to require schemes to devise a default decumulation service based on the general profile of their members. These duties will be introduced ”at the earliest opportunity“with schemes encouraged to do this voluntarily in the meantime.
In addition to these announced measures, the government has issued a call for evidence on a suggestion that individuals should be able to nominate the scheme into which they are auto-enrolled, with the intention that an individual will have a lifetime provider rather than a succession of providers and small pots.
There is also a £320 million plan to drive innovation and unlock pension fund investment in diverse assets. Subject to contract, £250 million will be allocated to two successful bidders as part of the Long-term Investment for Technology and Science (LIFTS)initiative. This funding is projected to stimulate more than a billion pounds worth of investments from pension funds and other sources into UK companies specialising in science and technology.
Alongside this, a new growth fund will be established within the British Business Bank (BBB). Leveraging the bank’s solid history and a permanent capital base exceeding £7 billion, the growth fund will “give pension funds access to investment opportunities in the UK’s most promising businesses”. This initiative has been positively received by eight pension schemes and fund managers, who view it as a potentially valuable enhancement to the market, and the BBB has released a supportive statement.
The government is also expanding on the recent BVCA Venture Capital Investment Compact. The government will be developing a fellowship course targeting mid-career science and technology Venture Capital (VC) investors, similar to the Kauffman Fellowship in the US, to be operational in 2024.
The original Mansion House proposals and these further announcements signal a clear direction of travel towards greater consolidation in the defined benefit and defined contribution pension markets which, in turn, is expected to produce the scale that the government believes is needed to support more innovative investment and better outcomes for members.