This year has been busier than expected for pensions professionals after several years of relative quietness, according to specialists.
Steve Webb, partner at consultancy LCP and a former pensions minister, told FT Adviser that a combination of an active former pensions minister in Laura Trott, a desire to see pension money invested in more productive ways, and a “bombshell Budget” has resulted in a busy year.
He argued that the biggest shock of the year came from the March 2023 Budget when it was announced the lifetime allowance would be abolished.
Webb said: “The main driver seems to have been the continuing flow of senior doctors leaving the NHS as they bumped up against pension tax limits.
“Whilst the abolition of the LTA must have seemed like a huge potential opportunity for those with spare cash to pump into their pensions, the immediate announcement by the Labour party that they would reinstate the LTA has created huge uncertainty.
“Abolishing the LTA has proved to be more complicated that the government expected, and reinstating it would be no easier, but either way it seems very unlikely we will see the sort of stable long-term tax environment on which long-term pension planning would ideally be based.”
Mansion House reforms
Another theme from the past year was the desire of the government to get pension funds invested more ‘productively’.
“By this, the government means invested more in things like unlisted equities, start-up companies, illiquid investments and the infrastructure needed to support the transition to a net zero economy,” Webb explained.
The Chancellor’s ‘Mansion House’ speech in July 2023 set out a range of measures including a pledge by many of the big workplace pension providers to invest at least 5 per cent of default fund assets in unlisted equities by 2030.
Jamie Jenkins, director of policy at Royal London, said the Mansion House speech “elevated the discussion on pensions in political terms”.
He said that linking pension investments with growth in the economy made sure there was plenty of attention on the role that people’s savings could make in powering the companies of tomorrow.
“This continued as a central theme in the Autumn Statement, with various announcements aimed at increasing the scale of pension schemes, with a view to improving their ability to invest in illiquid assets,” Jenkins said.
“While there is general consensus on this link, there are serious concerns about proposals to fundamentally change the way that pensions operate in the UK, with a consultation now underway as to how a ‘pot for life’ would work in practice.
What matters is that it undergoes proper scrutiny and debate, before we embark on a programme of changeJamie Jenkins, Royal London“Time will tell whether this will ever materialise. What matters is that it undergoes proper scrutiny and debate, before we embark on a programme of change.”
Small pots problem
Aegon’s head of pensions, Kate Smith, said the government is “determined to solve the problem of small pots.
“The government has confirmed that it will be progressing with an authorised default consolidator model to hoover these up. This was followed up by an Autumn Statement call for evidence on a ‘pot for life’ model."
Initially this was designed to give engaged employees the right to ask their employers to pay their pension contributions into a scheme of their choice, then later, to introduce a default model using the principles of both inertia and choice.
She added: “This has the potential to disrupt the current employer-centered pension system, and while it may appeal to those who prefer to manage their own retirement savings, it risks diminishing employer engagement and support in workplace pension schemes.
The pensions dashboard programme was ‘re-set’.Kate Smith, Aegon"This potential impact warrants careful consideration alongside other pension policy priorities.”
However, some government initiatives faltered in 2023, one of these being the pensions dashboard.
Webb said: “The pensions dashboard programme was ‘re-set’ when proposed deadlines for pension schemes to connect to the dashboard were seen to be unrealistic.
"The revised timetable envisages a go-live to the public no later than October 2026, but much will need to be done even to reach that date.”
Aegon’s Smith said work will still being going on behind the scenes to get up to speed with this programme.
She said: “In June we heard the final connection date for all schemes would be 31 October 2026, and that scheme’s individual connection dates will be set out in guidance and not legislation.
"These dates have still not been published, but a lot of work has been going on behind the scenes at the Pension Dashboard Programme.
“Maintaining momentum and providing clarity and certainty will be important as we enter 2024 – hopefully the year schemes start connecting to the pension dashboard ecosystem – a year later than previously expected.”
amy.austin@ft.com
