There was a lot on pensions in the Autumn Statement. At this stage, I’m still processing some of it.
Some of what’s been discussed follows on from what we heard back in the summer as part of the Mansion House reforms.
But within the detail, there were quite a lot of specific policy proposals and initiatives that the Treasury is pursuing.
The headline proposal was around the idea of a pension ‘pot for life’ or, as it is currently being dubbed in the latest consultation, a ‘lifetime provider’. There’s too much to this to go into detail here, but I’m busy penning a separate article on this which we’ll bring you as soon as it’s ready.
Raising the bar
In the meantime and away from pot for life, there were a couple of other pensions developments that are worth flagging.
We had the government response to a consultation on trustee skills and culture, which is pushing towards the creation of a register of pension scheme trustees, and possibly trustee accreditation. This would essentially raise the bar on the governance of pension schemes.
It’s interesting to contrast this what we had with pension freedoms.
Back in 2015, you had the Treasury pulling a lever through taxation to change the rules around retirement income and to encourage a change in people’s behaviour. What we’re seeing now is a change through regulation.
Alongside this, there is the issue of value for money.
The FCA put out a statement on the day of the Autumn Statement which pointed to an upcoming consultation on “detailed rules for a new value for money framework for DC workplace pensions.” This is expected at some point next spring.
The FCA’s paper on value for money will follow earlier work by the Department for Work and Pensions and The Pensions Regulator, and the emphasis among policymakers seems to be on driving a very competitive marketplace.
In extreme cases, this will mean regulators telling schemes: “Look, if you consistently find you’re not offering value for money relative to your peers, we’ll expect you to wind yourself up. You have to be good, or you don’t get to play.”
So we’ve got more to come on value for money. The government is also talking about putting more responsibility on pension scheme trustees to help their members move into retirement.
Bigger and better
Another thing I want to flag is collective defined contribution (CDC) schemes, which really still exist more in theory than in practice.
We’ve got the Royal Mail looking to develop a single employer CDC scheme for its employees, but at the moment that’s still lost in the post *insert comedy drum roll here*.
The government wants to see multi-employer CDC schemes developed. This could either be as a whole of life vehicle, i.e. from when you first join a pension all the way through until you die, or possibly just for decumulation.
I think there’s real merit in the idea of a pension scheme that takes on responsibility for the investment risk and longevity risk in retirement: two things that people really struggle to manage effectively for themselves. If you had a big collective scheme that said: “Don’t worry, we’ll deal with all of that for you”, that’d be great news.
Across a number of the Autumn Statement papers is this recurring theme of fewer, bigger, better run pension schemes. In fact, in one paper there is speculation as to whether they should require schemes to offer collective defined contribution. That’s a reflection of the thinking around all this.
So I don’t see a world where we don’t end up with bigger and better run pension schemes, as well as collective defined contribution schemes being part of the pensions landscape in a way that doesn’t exist today.
We need to talk about politics
It’s quite interesting that chancellor Jeremy Hunt has been the beneficiary of higher than expected tax receipts, thanks in part to inflation and the fact that generates higher tax revenue on things like VAT and wages.
He has chosen to largely spend all of that windfall money. There was the big giveaway on National Insurance, and the big giveaway to businesses on the ‘full expensing’ concession.
Encouraging businesses to reinvest will help grow the economy. It’s all about bootstrapping the British economy by getting businesses to invest, and by getting pension scheme money to invest in the UK economy too.
But these giveaways are also quite a gamble.
If the numbers turn against the government as we go into next year, Jeremy Hunt has got very little room for manoeuvre. The risk is the government finds itself heading rapidly towards ground, rushing towards a general election having already spent everything that was in the piggy bank.
That gamble may come off, it may not. It’s nowhere near as reckless as the Liz Truss/ Kwasi Kwarteng mini Budget of a year ago. But the price that gets paid for all this is there’s going to be a real squeeze on departmental spending. So public services are effectively going to be paying for the tax cuts we saw in the Autumn Statement.
The election question
There are now various initiatives in train, and some will need legislation. Everything’s all fairly joined up, but not moving at the same time. There is some uncertainty about what bits should be done first, which is where the consultation process will come in.
The other unanswered question on all of this is what will the Labour party do if it were to get into power next year?
On pensions, I’d actually be surprised if they would change that much of what’s been trailed. Getting the pension sector to invest more in the economy is something shadow chancellor Rachel Reeves and Jeremy Hunt are singing from the same hymn sheet on.
We are moving away from the pension freedoms of the last near decade, and towards more collective type solutions. I can’t see Labour pushing back on any of that either.
So while there is some quite radical, long-term strategic stuff in everything we’re hearing from the government in terms of pension evolution, I can’t see anything that will deflect that trajectory.