PLSA supports introduction of landmark Pension Schemes Bill

DC funds

A default method to consolidate small pots will help savers manage their retirement savings more easily and reduce costs. The Value for Money framework will help employers and schemes focus on overall value, rather than just cost.

Additionally, we support the Government’s decision to legislate requiring schemes to offer default retirement income solutions, and that they have acknowledged the importance of communications and guidance to help members navigate their options. This means savers will no longer face a lottery on whether their scheme offers good value access options, and will provide more regulatory certainty to schemes themselves. Guided retirement income solutions were first recommended by the PLSA in 2021.

It is positive the Government has taken a pragmatic approach to the DC scale test. Pathways to enable schemes to take more time to scale and to bring in new entrants recognise the benefits smaller schemes can – and do – offer their members. However, we are mindful of the continued risk of market distortion between now and 2030 and will be exploring ways to mitigate this with Government.

The introduction of a reserve power to allow Government to direct how DC schemes invest will require very close scrutiny. Current drafting acknowledges the need to limit the use of the power, which is positive. However, how this would work needs further consideration. The PLSA is particularly concerned that the sunset clause extends beyond the current Parliament, for example, and contains very broad discretions for the Secretary of State to direct investments or set targets.

Fiduciary duty in its current form has worked well to ensure savers’ interests are protected and it does not prevent schemes from investing in the UK. Indeed, UK pension funds already invest almost £1 trillion in the UK through a mixture of asset classes. To increase this, the best route is industry working in partnership with Government and voluntarily increasing UK allocations in a way that is consistent with member interest.

That was the objective of the Mansion House Accord – and PLSA is hopeful that, as the industry delivers on that, Government will see no need to exercise this power.

LGPS

The Pension Schemes Bill also paves the way for further consolidation of the LGPS through the transfer of assets to investment pools. Funds and pools are working hard in the background to make a success of this process. However, the timeline for delivering and implementing the changes is overly ambitious, especially in the context of wider local government reforms, and recent elections. The PLSA encourages government to continue engaging with funds and pools to develop a roadmap for delivery that is more practical and realistic.

The PLSA also questions the need for new powers to direct an authority to a specific pool as well as to merge funds. Such decisions require highly specialised and localised knowledge of the funds’ specific circumstances and these powers should only be used as a last resort and after dialogue with the affected funds.

DB funds

The PLSA welcomes powers to enable surplus release and legislation for DB superfunds. Taken together, these will give pension trustees a wider array of options, increasing the likelihood that well-funded DB schemes will run on for longer and providing an ‘endgame’ option for funds who would otherwise find a buyout with an insurer unaffordable. The superfund concept was first proposed by the PLSA’s DB Taskforce in 2017.

Changes to the rules governing the Pension Protection Fund (PPF) levy removes the barrier that has thus far prevented it from being lowered to zero. This levy represents a significant cost for pension schemes and their sponsors, and we welcome this change, which we have championed on behalf of our members. The PPF, which protects pension members in case of employer insolvency, is in a strong financial position with over £13 billion in surplus and low claims.

Zoe Alexander, Director of Policy and Advocacy at the PLSA, said: “The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry. This includes small pots consolidation, the Value for Money regime, decumulation options and changes to give DB funds more options for securing member benefits over the long-term. Once fully implemented, these measures should reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide members.

“The Bill also includes a broad reserve power to enable Government to direct how savers’ money is invested. We believe that the best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not a mandatory basis. We also note powers being taken to specify required investment capability for schemes, and to direct LGPS funds to merge with specific pools. All of these powers will require careful scrutiny.

“The PLSA looks forward to working with the Government to make sure this Bill delivers on its full potential to improve outcomes for savers over the next decade and beyond.”

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, Senior PR Manager
020 7601 1761 | [email protected]