By Dale Critchley, Workplace Policy Manager, Aviva
The industry feedback the government received, led them to conclude that it wasn't the right time to implement the proposals due to various reasons and complexities. Instead, it was decided that other initiatives should take priority, which leads well into one of the other major focuses for 2024.
The second big policy proposal was the common value for money framework. These proposals could require every defined contribution pension scheme to produce a set of key metrics, across charges, investment performance, and customer service. This data would be posted online, and independent governance committees and trustees will be asked to compare their data with three other schemes’ default arrangements. While the details are still to be worked through, there are clear benefits to providing data that can be compared on a like-for-like basis, to improve performance, and perhaps more importantly, increase the amount people have in their pension pots when they reach retirement.
The Department for Work and Pensions (DWP) and the regulators have continued to work on proposals to solve the small pots problem through a default consolidator model. This will initially see pots of £1,000 or less transferred to an authorised consolidator on an opt-out basis.
The DWP are also working on the concept of ‘guided retirements’ to help savers transition from pension saving to pension spending. The concept being considered will see members of occupational pension schemes offered decumulation solutions by their own scheme, or a scheme with which their trustees have a partnership arrangement. Those savers who don’t want to make a choice will be offered a default retirement income solution on an opt-out basis.
Providing a solution to the question of how to convert pension wealth into pension income is an issue now, but it will become increasingly important as defined contribution pension pots increase in value and make up a larger proportion of retirement income. Aviva’s ‘Planning for retirement in the 2050s’ report revealed that an average worker aged 32 to 40 might expect to have a pension pot of around £225,000 in 2050 .
The FCA’s consultation on Targeted Support also has the potential to play an important role in that journey from saver to spender. Investment performance is key to delivering the kind of pension pot that people need in retirement. This was the subject of the Pension Investment Review. A call for evidence has been followed by a consultation that proposes a minimum size for default funds and the introduction of non-consent transfers to enable consolidation of assets in group personal pension plans. The aim is to ensure that funds have the scale necessary to invest in assets like infrastructure and private equity, more efficiently.
The focus of policy change, on broadening investments, improving efficiency, value for money and member decision making, has continued following the change in government mid-year. Many of the policy proposals have seen government departments, the Pensions Regulator and the Financial Conduct Authority working together on solutions. This reflects the scale of the challenges facing UK pension savers, and the fact that they remain the same regardless of the party in power or the type of pension workers are saving into.
Looking into a new year, we can expect to see the second part of the Pensions Review, which will look at how we can deliver adequate pensions for today’s workers. We will also see the Pension Schemes Bill, which will set in place the primary legislation for many of the proposals, as well as possible consultations on the finer details. We may see regulations passed to allow multi-employer collective defined contribution pension schemes, and pension scheme administrators across the country could be connecting millions of records up to the pensions dashboard.
To all those involved in pension policy, enjoy a restful festive break, and be prepared for another busy year ahead.
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