Consultations on illiquids, small pots, CDC and VfM welcomed
30 January 2023
The Pensions and Lifetime Savings Association (PLSA) comments on the defined contribution pension consultations published today by the Government.
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 reforms proposed today 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.”
Commenting on each of the policy areas covered by the consultations, Alyshia Harrington-Clark, Head of DC, Master Trusts and Lifetime Saving at the PLSA said:
Value for Money
“The PLSA and our members have engaged with government and regulators over the past year while they have been developing a new Value for Money framework. Further consultation to refine the approach ahead of finalising proposals is welcome. In a regime where most workers are defaulted into saving, it is paramount they can be confident of receiving good value, irrespective of the type of scheme they find themselves in. With this in mind, we are pleased to see the scope includes ensuring legacy products also provide value for money.
“We will continue to work with government in creating a framework which considers different aspects of value, including net investment performance, costs, and quality of service, which is both workable for schemes, enables a meaningful assessment of value for those overseeing them, and avoids any adverse consequences, such as providers ‘herding’ towards an average rather than striving to outperform.
Illiquids and Charge Cap
“The Government clearly recognises the important role that pension funds can play when it comes to boosting economic growth, while allowing savers to benefit from greater investment growth that certain illiquid assets can afford. The regulations announced today, including the exempting of some fee structures from the charge cap, will remove some of the barriers DC schemes face when investing in assets such as infrastructure and private equity, so we may now see trustees giving greater consideration to these assets, while of course prioritising the best interests of – and their fiduciary duty to – their members.
“The Government has rightly recognised that efforts need to be made to address the small pots issue, which is detrimental to savers, and causes market inefficiencies. If unaddressed this could lead to over 20 million small pots by the end of the decade. We are pleased to see many of the recommendations from the PLSA and ABI-convened Small Pots Co-Ordination Group – which comprised of a range of pension providers, industry, regulatory and consumer bodies and stakeholders – progressed today.
Industry has and will continue to work hard to support Government efforts to resolve to these complex problems for the future of consolidating small pots and implement mass market automatic enrolment solutions.
“CDC schemes have the potential to boost retirement incomes for savers, so we welcome this consultation which considers extending the regulatory regime to multi-employer and decumulation-only models. These are complex developments though, with challenges, including fairness between generations and member communications around the variability of benefits, so we look forward to close cooperation between industry and government as we seek overcome these and establish a framework which leads to better retirement outcomes.”
Mark Smith, Head of Media Relations
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