Measures to help close pensions inequality gap revealed at PLSA HQ

Minister for Pensions, Laura Trott MBE MP, revealed a package of measures intended to reform the private pensions industry to ensure that pensions are ‘fairer, more predictable, and better-run’ at the PLSA office in London on 30 January.

Speaking at the lunchtime session hosted by the PLSA and attended by key stakeholders and journalists, the minister outlined several initiatives to enhance security, as well as create better returns for savers. These are:

• The requirement of pension schemes to disclose the investment performance, costs and charges and quality of service through a transparent, comparable, and measurable Value for Money (VfM) framework.

• Charge cap reforms to provide schemes with more flexibility to invest in illiquid assets, which include areas such as renewable energy, infrastructure and start-up companies.

• Canvassing feedback to inform solutions to address the problems associated with Small Pots.

• Expanding of Collective Defined Contribution (CDC) schemes across the industry with multi-employer and decumulation-only models.

Commenting from the event, Nigel Peaple, Director of Policy & Advocacy at the PLSA, said: “The PLSA supports all efforts to improve the pension incomes of everyone in the UK, and so we welcome this package of reforms, which aims to boost the prospects for the growing proportion saving into DC schemes.

“The proposed reforms have the potential, over time, to enable savers to benefit from greater efficiency and value from the management of their pensions, including through the consolidation of small pots which people have accumulated through their careers.

“Generating greater investment growth is also a vital tenet of savers achieving better outcomes through the DC regime, something which may be made available to even more people, thanks to the proposals on extending the CDC regime, and with greater allocations to certain suitable illiquid assets.

“We look forward to engaging with government and regulators on these initiatives as we seek to develop and implement them in the most effective and appropriate way as part of a wider strategy to improve outcomes for the UK’s retirees.

“Of course, a further key component of any DC pension is the level of contributions. It is, therefore, very welcome that the Government still plans to introduce reforms of the automatic enrolment regime regarding saving from the first pound of earnings and from age 18. We hope that they set out a timetable for this soon.”

Consultations have been launched for the proposals around Value for Money, Small Pots and CDC schemes.

Value for Money

The proposed framework for VfM aims to ‘improve transparency, comparability and competition’ between DC pension schemes to ensure that they maximise value for savers. Upon roll-out, pension schemes will be required to provide key metrics and service standards, with the intention that those overseeing and governing schemes will be able to conduct a more holistic assessment of value. The Value for Money consultation is open from 30 January 2023 until 27 March 2023.

The PLSA will be holding a member roundtable to discuss the proposals and inform our submission on 28 February 2023 from 14:00 to 16:00 – please email Ruari Grant, Policy Lead: DC, PLSA, if you’d like to attend.

Illiquids and Charge Cap

The measures announced include charge cap reforms to ensure pension schemes have more flexibility to invest in illiquid assets. When the proposals begin to come into effect in spring 2023, pension schemes will be required to continue to improve the level of transparency offered to savers concerning their approach to investing, and allocation of, illiquid assets.

Small Pots

An average worker in the UK will have had approximately eleven jobs over their career with each producing a small pension pot, thereby increasing the costs and inefficiencies in the system. The call for evidence launched by the minister will seek feedback on solutions to this issue, which will then inform reform to ensure savers achieve better retirement outcomes. The Small Pots Call for Evidence is open from 30 January until 27 March 2023.

Collective Defined Contribution schemes

Collective Defined Contribution (CDC) schemes – already introduced as a single-employer model in the UK – represent a development in the pensions industry in which both the employer and employee contribute to a collective fund from which individual retirement incomes are drawn. Following several discussions with a broad range of relevant stakeholders, the minister has now launched a new consultation to determine how multi-employer and decumulation-only CDC could be structured to benefit savers.

The CDC consultation is open from 30 January until 26 March 2023.

The PLSA is holding a consultation roundtable on CDC schemes on 1 March 2023 from 14:00 to 16:00 to gather more information from interested stakeholders across the industry to help inform their development. If you would like to join, please contact Keegan Shepard, Senior Policy Advisor, PLSA, to request a place.