Steven Cameron Pensions Director at Aegon comments:
“We are pleased the Pensions Bill included within the Queen’s Speech confirms critical pensions changes are a post-Brexit priority for the current Government. While it remains to be seen if the Speech or its constituent Bills will be approved by Parliament, we call on other parties to support the Pensions Bill as pensions dashboards and added protections for defined benefit scheme members should have cross-party support.
“The aspect of the Pensions Bill of greatest and most wide importance is that concerning Pension Dashboards. Millions of individuals have multiple pensions in which they’ve built up benefits over their working lives and Pension Dashboards will for the first time allow them to see all of these, online at the touch of a button. This offers a huge opportunity to help millions of individuals better engage with their retirement planning, understanding if they are on track for the retirement they aspire to, and if not, to take action accordingly.
“For many their state pension is a significant proportion so while the Queen’s Speech did not refer to this, it is vital state pensions are also included in pension dashboards from day one.
“Pension providers and schemes, working with the Money and Pensions Service Delivery Group, are pressing ahead with many aspects of dashboard preparation, but legislation is needed to compel all pension schemes and providers to supply comprehensive data and state pension information must also be included.”
Other pension priorities
“There are other pressing pension priorities which need urgent Government attention and we hope some may feature in the planned Budget on 6 November. These include ensuring non-taxpayers in ‘net pay’ schemes receive the 20% tax relief on their pension contributions to which they are entitled. The lowest earners deserve every help they can get to save for their retirement.
“At the other end of the earnings spectrum, it’s important to ensure tax rules and retirement savings incentives are fit for the future and work together without unintended adverse consequences. Issues with highly paid health professionals in the NHS scheme have shone a light on the sheer complexity of rules around pension lifetime and annual allowances. These are penalising an increasing number of people saving for retirement, encouraging some to refuse extra work or to retire early.
“We also need to maintain momentum on improving the pension prospects of the growing army of self-employed.”
Wayne Segers, Partner at XPS Pensions Group said: “We hope to see a consultation from the Pensions Regulator on proposed funding changes soon. There is a real need for clear insights into expected new approaches to funding and targets and the power to enforce these. The Pensions Regulator has done its best to signal what the changes may be and taken clear steps in its Funding Statements. But in the absence of detail the market is currently having to guess where the benchmarks lie.”
Rail reform must bring pension reform
The speech also signalled expected reform of rail franchising. Currently there is large uncertainty of rail pension costs, exacerbated by the fact that current employees share the cost of any shortfalls.
Wayne Segers, Partner at XPS Pensions Group commented: “To balance the impact of pension cost on members a very small part of all future ticket prices over the long term could be secured to meet pension deficits. Doing this upfront will bring clarity to any new operating model going forward, remove the current significant uncertainty on rail pension funding, be affordable and secure pensions without pushing the cost onto current employees.”
We also welcome the environmental initiatives ensuring environmental principles are enshrined into law. This will help support pension schemes pursuing improvement in Environmental, Social and Governance aspects for the long-term benefit of pension scheme members.
Laura McLaren, Partner at Hymans Robertson responds to the inclusion of stronger powers the Pensions Regulator in the Pensions Bill: “Today’s announcement will come as no surprise to DB pension schemes and trustees having been well trailed. TPR has been making increasingly clear statements on its regulatory expectations for DB schemes and has proven it is willing to intervene when this standard is not reached. Further legislation will strengthen TPR’s arsenal of powers and penalties to take tougher action. With it widely anticipated the Pensions Bill will trigger TPR’s first consultation on a new funding code of practice, trustees and sponsors will be watching closely as a stronger more directive code begins to take shape. It is more important than ever for a scheme to understand how it may be perceived by TPR, to prioritise any required changes and to identify where it might be taking unacceptable levels of risk. By addressing this as early as possible trustees and sponsors will be in a stronger position and more likely to avoid intervention. Schemes should act now to avoid being caught on the back foot by a reinvigorated and stronger regulator.”
Rob Harper, Partner at Hymans Robertson comments on the Government’s inclusion of CDC in the Pensions Bill: “Attaining an adequate, sustainable retirement income continues to challenge many UK workers since the shift in the balance of risk across from employers to individuals. Providing a framework for collective money purchase schemes (commonly known as CDC) will offer the clear benefits that can be derived from pooling of these risks across individuals. CDC could potentially deliver higher and more sustainable retirement incomes as an alternative option to annuitisation and drawdown, pooling risk for members, particularly in the later stages of their retirement. However, the advantages of CDC in the pre-retirement ‘saving’ phase compared to current DC schemes remain less clear.
“Ensuring clear member communications and strong governance will be vitally important if CDC is to succeed. Pension provision is already far too complicated for many savers to fully understand. Employers and providers must offer clear explanation and transparency to help members understand what CDC really means for them.
“CDC is not a ‘one size fits all’ solution. The sheer scale of assets and membership required to pool risk safely will limit this option to only the very largest schemes such as the Royal Mail or other arrangements that can achieve sufficient scale.”
Commenting on the Bill’s inclusion of plans for a legislative framework for a Pensions Dashboard, Scott Finnie, Solutions Architect, Hymans Robertson says: “We fully support the Dashboard initiative that is outlined in the Pensions Bill. The benefits that consumers will undoubtedly experience are clearly at the heart of the government’s proposed legislation with the assertion that good consumer outcomes are the main purpose. Data standards and security are paramount to the Dashboard’s successful delivery. We are very pleased to see the Government’s desire for data accuracy with its intention to legally compel providers to supply accurate information. Standardising data access and security is a pre-requisite to for the Dashboard. Unless an unambiguously defined data standard is uniformly adopted and implemented by all, the initiative will simply not be able to succeed. So it is great to see that with the architectural design principles proposed, standardised data access and security is being implemented. This will certainly create the platform that will be needed for ongoing innovation.
“Overcoming the difficulty consumers face in viewing their aggregate position is the obvious benefit of a Dashboard. There is an endemic lack of understanding and engagement pervading society around retirement provision and the Dashboard is a very welcome move to tackle this. It will guide consumers to make decisions that will inevitably improve their incomes in retirement. As industry moves to embrace the PLSA’s proposed savings targets, due to be published imminently, the Dashboard will play an integral part in helping people see their holistic long-term savings position and so help them reach these goals. It will be a significant portion of retirement income for many people, so its incorporation is critical to a meaningful view. The Dashboard will also enable financial firms to develop commercial models that help allow consumers to access exactly the support and guidance they’ll need.
“The recent appointment of such a wide range of experts to the Industry Delivery Group is a sure sign of how committed the Government is to the Dashboard’s success. Now the Government is doing its part in making the dashboard a reality, it is back to the industry to respond in kind. Rapid development of the data sharing technology that is needed and ensuring all member records are clean and up to date, is the big task for pension providers ahead.
“It will be vital for both the Government and industry to now keep momentum going, ensuring the pace of progress continues and that tangible milestones of progress are achieved within meaningful timescales.”
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