For the third time in five years, voters in the UK will be heading to the polls in a general election. If you add 2014's referendum on Scottish independence and 2016's referendum on the UK's membership of the European Union, Britain has been through an extraordinary period of political turbulence that shows no sign of abating in the short term.
What does this mean for workplace pension schemes in the UK? What do trustees and sponsoring employers need to consider as they steer their schemes through this period of political uncertainty? What will this mean for their schemes' members?
What are the key impacts of the general election on pensions?
1. The Pension Schemes Bill 2019 - 20 is lost (but probably not forgotten
The Pension Schemes Bill is dead. Long live the Pension Schemes Bill! At the dissolution of parliament, all legislation that has not been enacted will fall. This means the Pension Schemes Bill 2019 - 20 (the Pensions Bill) will be lost, but it is likely that the next government will introduce a replacement pensions bill covering the same policy goals in the new year.
2. TPR's consultation on a new code of practice for DB scheme funding will be delayed
The Pensions Regulator (TPR) announced earlier this month that it would delay the publication of its consultation on a new code of practice for defined benefit (DB) scheme funding. It is likely to publish its consultation if and when legislation is introduced covering scheme funding and TPR's powers (i.e. replacing the provisions set out in the Pensions Bill).
3. Brexit will be delayed
The general election means that Brexit will be delayed. Again. Originally the UK was scheduled to leave the European Union (EU) on 28 March 2019. This was delayed to 31 October 2019 and has now been delayed at least until there is a new parliament. The EU has extended the Article 50 exit period until 31 January 2020 unless a deal is agreed sooner. Whether the UK will actually leave the EU on this date (or earlier) will depend on the results of the general election and whether a parliamentary majority for a particular course of action is available.
4. Pensions policies will be rehashed from 2017
There is likely to be a strong sense of policy déjà vu when the UK's political parties launch their manifestos. Much, if not all, of their platform on pensions will be based on the commitments set out in their manifestos for 2017's general election. In the intervening time, a lot of political energy has been focused on Brexit - leaving pensions policy in limbo (but, unlike Brexit policy, not in purgatory). The main focuses from 2017 were pledges on retaining the state pension 'triple lock', providing greater powers to TPR to secure workplace pensions and increasing the number of people saving for retirement by focusing on the gig economy and the self-employed.
5. More uncertainty for pension scheme trustees and sponsoring employers
Pension scheme trustees and sponsoring employers have been dealing with political uncertainty in the UK for the second half of this decade. This looks set to continue into 2020. If the general election produces a government able to command a majority, a degree of stability may return as the year unfolds.
What are the main parties promising on pensions?
Each of the UK's main political parties will set out their policies in manifestos. It is likely that their starting point will be the manifestos they published in 2017 (click here for our summary of the pension promises in the 2017 manifestos), updated to take into account policy developments and, for the Conservative Party and the Liberal Democrats, the priorities of new leaders.
The positions set out below are subject to new policy announcements. We will update this Insight when these documents are published.
What have the Conservative Party said on pensions?
In their 2017 manifesto, the Conservative Party pledged to:
- build on existing powers to give pension schemes and TPR the right to scrutinise, clear with conditions or in extreme cases stop mergers, takeovers or large financial commitments that threaten the solvency of the scheme;
- give TPR new powers to issue punitive fines for those found to have wilfully left a pension scheme under-resourced and, if necessary, powers similar to those already held by the Insolvency Service to disqualify the company directors in question;
- consider introducing a new criminal offence for company directors who deliberately or recklessly put at risk the ability of a pension scheme to meet its obligations;
- continue to support the successful expansion of auto-enrolled pensions. Continue to extend auto-enrolment to small employers and make it available to the self-employed;
- maintain the Triple Lock until 2020. After 2020, introduce a new Double Lock, meaning that pensions will rise in line with the earnings that pay for them, or in line with inflation - whichever is higher; and
- ensure that the state pension age reflects increases in life expectancy, while protecting each generation fairly.
What has the Labour Party said on pensions?
In 2017, the Labour Party's manifesto pledged that the party would:
- amend the takeover regime to ensure that businesses identified as being 'systemically important' have a clear plan in place to protect workers and pensioners when a company is taken over;
- end "rip-off hidden fees and charges";
- enable the development of "large efficient pensions funds";
- give members of the Local Government Pension Scheme "full trustee status to help control investments, and reduce fees and charges";
- guarantee the state pension 'triple lock' for the lifetime of the next parliament;
- provide redress for women born in the 1950s who have been adversely affected by changes to the state pension age;
- introduce legislation to protect 'accrued rights' in state pensions so that changes can only affect benefits accrued after the change; and
- commission a new review of the state pension age.
Since the general election in 2017, the Labour Party's Work, Pensions and Equality Policy Commission has published two papers that include policy ideas on pensions:
- Rebuilding a just social security system - creating a new Department for Equalities to deal with inequality and discrimination in work and pensions; and
- State Pension Consultation - the Labour Party is looking at how to help low income groups make higher contributions into occupational pension schemes and extending auto-enrolment to excluded groups including self-employed and other low-paid workers and to get carers' contributions recognised towards their state pension.
What have the Liberal Democrats said on pensions?
The Liberal Democrats look set to replicate their 2017 manifesto commitments on pensions by pledging to:
- aim in the long-term, and as resources allow, to raise the employee National Insurance threshold to the Income Tax threshold, while protecting low earners' ability to accrue pension and benefit entitlements;
- maintain the 'triple lock' of increasing the State Pension each year by the highest of earnings growth, prices growth or 2.5% for the next parliament; and
- establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and which would be set more generously than the current 20% basic rate relief.
What should trustees and employers do now?
Other than in rare cases (such as if an employer is mid-way through the process of introducing a collective defined contribution (CDC) scheme, there are no immediate actions that trustees and sponsoring employers of occupational pension schemes need to take. For now, awareness of these developments is sufficient.
The main headline for pension scheme trustees and sponsoring employers is that the development of pensions policy has, for the time being, been put on hold. The Pensions Bill will fall and this will have a knock on impact on TPR's plans to consult on a new code of practice for scheme funding. However, the policy grounds for legislating are as relevant today as ever - primary legislation is still needed if a future government wants to:
- give TPR additional powers as outlined in the White Paper on securing DB pensions;
- amend the scheme funding regime to introduce new governance requirements;
- put in place statutory frameworks for the development of:
- CDC schemes; and
- pensions dashboards.
It therefore seems likely that if the dust settles on political wrangling over Brexit, a new pensions bill will be introduced covering a similar set of policies.