Pension plans included in a “financial growth” manifesto published by the UK’s Labour Party largely represent continuity with the government’s initiatives, according to industry commentators, although an intention to strengthen the regulator’s powers to force consolidation among some defined contribution (DC) schemes was branded “interesting”.
In the manifesto, the opposition party outlined commitments including a review of the current state of the pensions and retirement savings landscape and seeking to enable greater consolidation across all pension and retirement schemes with a view to increasing their investments in long-term illiquid assets.
Labour said that the review would look at all types of pensions and retirement savings plans, corporate sponsors, asset managers, and at venture capital and private equity.
On consolidation, it said it planned to give The Pensions Regulator (TPR) new powers to bring about consolidation where DC schemes failed to offer sufficient value for their members, and would ask TPR to provide explicit guidance around fund and strategy suitability, and their expectation of a default cohort investment approach.
It said it would keep the minimum thresholds for scheme performance under review to ensure continued improvement in returns where possible.
For the local government pension scheme (LGPS), Labour said it would evaluate different models for pooling, including increasing in-house fund management capacity at the pool level.
Another manifesto commitment includes taking inspiration from the French ‘Tibi’ scheme to set up an opt-in scheme for DC funds to invest a proportion of their assets into UK growth assets.
‘Slightly more interventionist’
Steve Webb, partner at LCP, said that a large part of the Labour agenda – as set out in its manifesto – represented continuity with the current government’s agenda rather than a radical change of direction.
He said: “The main difference seems to be a slightly more interventionist approach.
“In particular, a Labour government would strengthen the powers of TPR to force consolidation among smaller DC schemes and would take a closer interest in the investment strategy of the LGPS.
“But if the government had produced today’s document rather than the Labour Party, it would have represented further evolution rather than revolution”.
In a similar vein, Iain Campbell, senior investment consultant at Hymans Robertson, added that while much more detail was needed on Labour’s full plans for LGPS, it was “clear” that the general plans for the growth and acceleration of pooling and the LGPS’s role in investing in the UK would be continued if there was a change of government in the next general election.
“Now, more than ever, a cross-party consensus and roadmap would be welcome to ensure the industry is well positioned for the long term”
Laura McLaren, head of DB actuarial consulting at Hymans Robertson
David Brooks, head of policy at Broadstone, said that Labour’s plan to continue the journey of encouraging more investment in long-term illiquid assets is “interesting”.
“The continuity in pensions policy, despite any potential change in government, will please the industry and is to be welcomed,” he said.
However, Brooks said that scepticism will remain around the speed of change required to reach the government’s goals, given the pace of consolidation needed as a pre-requisite for releasing the required levels of investment.
He said: “Labour is proposing stronger regulatory powers to force the wind-up of under-performing DC pension schemes. This is an interesting development which could increase the pressure on TPR to become more ‘hands on’ with underperforming schemes.”
Gaps
David Robbins, director in WTW’s retirement business, was disappointed that the paper did not go into detail on what the in-government review, and greater consolidation across pensions industry, would mean for private sector defined benefit (DB) schemes.
He said: “For example, if a Labour government took forward current plans to create a public consolidator by 2026, it would need to decide the exit price that sponsors should have to pay, how benefits would be harmonised, and how security should be provided – for example, through using PPF reserves or through a taxpayer guarantee.”
He pointed out that when the legislation that facilitates extension of automatic enrolment went through Parliament, the DWP said it hoped to consult on the timing during 2023, but that had now been pushed back to ‘in due course’.
He said: “If the chancellor does not factor the tax cost of more pension contributions into his Budget arithmetic on 6 March, it looks unlikely that Labour would commit to a specific timetable – and therefore a policy costing – ahead of the election.”
Laura McLaren, head of DB actuarial consulting at Hymans Robertson, said it was “good to see” a commitment for the party to undertake a pensions and retirement savings review if elected at the next general election, focusing on improving outcomes for the many millions of pension scheme members.
She said: “Now, more than ever, a cross-party consensus and roadmap would be welcome to ensure the industry is well positioned for the long term.”
Tim Middleton, director of policy and external affairs at the Pensions Management Institute, said that the establishment of a UK counterpart to the French ‘Tibi’ scheme would facilitate greater investment in illiquid assets by DC schemes and so improve longer-term returns for members.
However, he said that while the Labour party recognised the need to close the advice gap in its paper, he would have liked to see bolder suggestions for helping members manage decumulation effectively.
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