In her first Mansion House speech,UK’s chancellor of the exchequer Rachel Reeves announced a number of different measures in what she dubbed as the biggest pensions reform in decades, however, the lack of defined benefit (DB) reforms has been branded a “missed opportunity” by industry commentators.
Ian Mills, partner and head of DB endgame strategy at Barnett Waddingham, said the chancellor’s speech was “an enormous missed opportunity”, adding that if the chancellor wants capital investment into the UK then the corporate DB pension sector is the obvious place to focus on.
“There are literally hundreds of billions of pounds sat in these pension schemes doing very little, and without reform this will simply be passed to the insurance sector,” he said.
“Instead, the chancellor could have enabled these funds to be directly reinvested in British businesses by enabling scheme sponsors to access a fair share of it. Pensioners could have benefitted too, by allowing their share of it to be used to uplift pensions. Instead, it appears this will simply find its way to insurance company shareholders,” he added.
Mills noted that the impact on the Gilts market will, in the long run, be “profound”.
“UK DB schemes have supported government finances by buying vast quantities of Gilts over the last 20 years or so. Without reform, these Gilts will simply be dumped over the next decade or so, pushing up the interest cost for the taxpayer.”
Morten Nilsson, chief executive officer of Brightwell, also expressed his disappointment.
He said the current regulatory and legislative regime incentivises trustees and sponsors to pursue insurance buyouts as soon as possible and more needs to be done to support those well-funded schemes with strong covenants who want to run on.
“Schemes that run on can invest in a wider range of assets for longer, retaining value for the benefit of members, sponsors and UK plc. The government shouldn’t overlook this important part of the market,” he explained.
Calum Cooper, head of pension policy innovation at Hymans Robertson, said that private sector DB pension regulations have played a big part in sucking the investments, risk culture and life out of the economy.
These regulations have been designed to eliminate risk in paying past pensions, at the expense of adequate pensions and investment for future generations, he said.
However, he added that while the Prudential Regulation Authority and the Financial Conduct Authority got a mention in Reeves’ speech, there is no mention of writing to The Pensions Regulator to shift their mandate to support better pensions and economic growth.
He said: “It would be great to see that happen, just as the Work and Pensions Select Committee asked of the prior government too.”
Cooper added that while for pensions DC and Local Government Pension Schemes (LGPS) may be at the “forefront tonight”, the “clock is ticking” on DB.
“Over 50% of the schemes that we surveyed are waiting to decide whether to run on to share surplus or move on with insurance. Regulatory clarity is key. Government cannot delay taking action much longer to empower surplus sharing to improve outcomes for members, employers and the economy,” he noted.
Cooper said Hymans Robertson previously called on the government to set TPR a new objective focussed on improving pension outcomes for workers.
He said: “The Pensions Regulator should be moved away from just protecting past generations of pensions as this has effectively unplugged our £1.4trn of private DB pensions from the economy.”
Cooper added that the regulatory goal should be to enable all pensions to plug back into society, economy and future generational prosperity in retirement.
“Beyond that, clarity on surplus sharing and fiduciary duty is essential,” he added.
Read the digital edition of IPE’s latest magazine
No comments yet