As 2018 draws to a close, there is considerably more clarity over the direction of travel for UK pensions, with the Pensions Minister announcing a Pensions Bill for 2019 and a number of consultations being initiated by the Department for Work and Pensions (DWP). Matthew Arends, Head of UK Retirement Policy at Aon, looks forward to what 2019 might have in store.
Consolidation
Matthew Arends said: “In December the DWP announced a consultation into defined benefit (DB) commercial consolidators. This gives us the first insight into the DWP’s plans for the regime under which this new type of vehicle will operate. Having said that, the DWP puts forward not one but four different potential models for financial adequacy, so there will be uncertainty for some time to come as to what level of security of members’ benefits these vehicles will provide. Until we get clarity on this, it is difficult to see many transactions taking place.
“Continuing the consolidation theme, 2019 will see DC mastertrust authorisation begin in earnest and I foresee that with it will come consolidation among DC mastertrusts themselves. This is unlikely to be completed in 2019 but ultimately we are likely to see a much smaller pool of larger mastertrusts. This has the potential to benefit members through greater scale and sharing of fixed costs.”
Collective Defined Contribution (CDC)
Matthew Arends continued: “The end of 2018 also saw the DWP’s consultation on Collective DC plans and with it the promise of the legislation to enable CDC plans appearing in the 2019 Queen’s Speech. We are – at last – seeing the advent of this version of DC which ensures an income for life from savings. Hopefully, we will begin to see employers in addition to the Royal Mail publicly showing their interest in CDC.
“2019 may also see DC mastertrusts and industry-wide bodies start lobbying to be allowed to introduce CDC funds into their schemes in response to member demand for incomes for life – a regular theme from our DC member surveys.”
Regulation
Matthew Arends said: “We know that Lesley Titcomb will step down as chief executive of the Pensions Regulator (TPR) in February 2019 and ideally we hope to know who her successor will be before that. No doubt the change in leadership will bring further change to TPR’s style of regulation.
“That said, there has been a noticeable switch in approach to regulation over the last year. In my view, TPR is already in a transition from being a regulator to being a supervisor. We have seen this with TPR’s approach to DC mastertrust authorisation and the likely way forward for DB consolidators follows the same pattern. It seems to me that conventional DC and DB pension schemes will be supervised rather than regulated in due course, meaning that trustees can expect much more regular intervention from TPR in future.
“The issue this creates in the meantime is for TPR to ensure consistency of approach, both between different pension schemes and over time. Without this consistency, it is very difficult for trustee boards to have the correct governance models.”
Guaranteed Minimum Pensions
Matthew Arends concluded: “I wonder if 2019 will become known as the Year of the GMP – not only will GMP reconciliation exercises be coming to a close but DB schemes will also begin to tackle GMP equalisation in earnest.
“Typically, in 2018, companies and trustee boards will have dealt with the immediate issues of accounting for the additional equalisation cost and with the way forward for individual member calculations. But in 2019, trustee boards and companies will need to start ensuring that scheme data is in the right shape for equalisation, and that members are appropriately communicated with.
This will be the start of a long process with GMPs but it will be important to set off on the right foot.”
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