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A new government: what changes can we expect for occupational pension schemes?
A new government: what changes can we expect for occupational pension schemes?
5 July 2024
Series
Blogs
5 July 2024
Following Labour’s landslide win in the UK general election, new Prime Minister Keir Starmer has said that "change begins now". But what can we expect to change in terms of pensions policy?
The Labour manifesto was relatively quiet on the future of pensions policy, but it did contain several proposals which are likely to set the agenda for the next few years. These proposals covered four key themes:
We consider below what this could mean for sponsoring employers and trustees of occupational pension schemes.
The idea of using pension scheme assets to support growth in the UK is not a new one: the Mansion House reforms marked the start of this theme, with proposals including reforms to the current rules around surplus refunds for defined benefit (DB) schemes and a new value for money assessment framework for defined contribution (DC) schemes. This was taken a step further at the Spring Budget 2024, with plans announced to require DC schemes to publicly disclose their levels of investment in UK equities.
We expect the new Government to take forward many of the Mansion House reforms. The question is whether a more interventionist approach is now likely.
Many of the Mansion House reform proposals were also linked to this theme, including developing a legislative framework for the regulation of DB “superfund” consolidation schemes, the possibility of a public sector consolidator, extending collective defined contribution (CDC) provision beyond single or connected employer schemes to accommodate unconnected multi-employer schemes, and a proposed automated consolidation solution to the problem of small pots.
As above, we expect the new Government to continue exploring these areas, with legislative change likely in due course.
The Labour manifesto promised a review of the pensions landscape to consider what further steps are needed to improve pension outcomes, as well as to increase investment in UK markets.
This review is likely to build on existing policy developments, such as the proposed new decumulation framework to support individuals at the point when they access their DC pots. We also expect the new Government to bring forward regulations to implement already existing auto-enrolment legislation. This would reduce the lower age limit at which otherwise eligible workers must be automatically enrolled and re-enrolled into a pension scheme by their employers from 22 to 18, and remove the lower earnings limit from the qualifying earnings band so that contributions are calculated from the first pound earned. Reforms to auto-enrolment could be taken a step further, with increases to minimum employer contributions likely to be under consideration.
The Labour manifesto said that UK-regulated financial institutions (including pension funds) will be required to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement. This will represent a step change in the existing approach to climate change, which currently focusses on ensuring proper governance and disclosure.
It is possible that we will also see a renewed focus on other elements of ESG, such as nature-related risks and social factors.
Pension scheme trustees and employers will be keen to understand the future of several other pensions developments which have been on the agenda for some time but remain incomplete. The Labour manifesto was silent on these, but we expect the position to be as follows:
The future of other initiatives, such as the long-awaited new notifiable events regime, is less clear. However, we will monitor developments and keep you updated as and when we know more.