The govt's levelling up paper falls short on pensions

As you would expect, this covers a multitude of important topics from education and skills to broadband and transport, with targets for improvements around pay, employment, productivity and health and life expectancy. Here, I’ve picked out a few themes from the 332-page white paper that could have a direct or indirect impact on pensions and retirement savings.

Productivity and private sector investment

A key theme in the plan is a bid to level-up productivity across all parts of the UK. The government is keen to increase private sector investment to support local research and development, innovation and productive growth. While committing to higher public sector investment outside the greater South East, it hopes this will lead to at least twice as much again from the private sector.

We have already seen a number of government and regulatory initiatives seeking to remove barriers that currently stop or discourage institutional investors, be they pension schemes or others, from investing in long-term, often illiquid investments and other productive finance.

These include the Financial Conduct Authority’s new long-term asset funds, which it is hoped will encourage greater institutional investment in illiquids. Alongside this, there is the drive to encourage ‘smaller’ trust-based pension schemes to consolidate into a larger scheme with the scale to invest in illiquids.

The Department for Work and Pensions also recently consulted on removing performance fees from the auto-enrolment charge cap, which might open up new investment options to defined contribution pension schemes. And references in the paper to removing restrictions from "outdated EU rules" may be a nod to a review of Solvency II.

In the paper, the government asks Local Government Pension Scheme funds to invest 5 per cent of their funds in local projects rather than outside the UK.

While investing for UK growth may deliver better investment returns, it is important that trustees make pension scheme investment decisions with the interests of members as their top priority.

The LGPS is defined benefit so you could argue that the government as ‘employer’ bears the risk of investment returns failing to meet expectations. But in the wider world of private sector DC, it is the member who bears investment risks, so trustees will need to have the confidence to move into new fields of investment.

Pay and employment

A drive to level-up pay and employment opportunities across the country is an admirable goal in its own right. It also has an important knock-on benefit to pension savings. In a world of auto-enrolment, more continuous employment with higher earnings will flow into greater pension contributions and better retirement outcomes for the employed population.

However, focusing on geographical differences will not address all areas of pensions in need of levelling up. The white paper will not help tackle the very significant and growing gender pensions gap, which sees many women far behind their male counterparts in terms of retirement savings.

It also will not stop the self-employed falling further behind employed counterparts in pensions terms because they are excluded from auto-enrolment.

Healthy life expectancy 

The government also has ambitions to level-up healthy life expectancy, citing a huge 18-year difference here across the country. Staying healthy for longer can have a huge impact on an individual’s physical and mental wellbeing and overall quality of life. It can also flow through into their financial wellbeing. Avoiding ill health can lift a barrier to people, giving the choice to continue in employment longer, which can also make a big difference to their retirement prospects.

Social care

One topic missing from the white paper is social care. The availability, quality and cost of social care also varies across the country, with the ‘postcode lottery’ phrase often used here.

The government may feel its separate plans on social care funding will address this. But I would like to see a formal join up so we can look at as many aspects of levelling up in the round.  

Steven Cameron is pensions director at Aegon