The UK government last week launched the first phase of its planned pensions review, led by pensions minister Emma Reynolds.
The review was announced by the chancellor of the exchequer, Rachel Reeves, last month as part of the government’s mission to “boost growth and make every part of Britain better off”.
The review will focus on developing policy in four areas.
This includes driving scale and consolidation of defined contribution (DC) workplace schemes and tackling fragmentation and inefficiency in the Local Government Pension Scheme (LGPS) through consolidation and improved governance.
The review will also focus on the structure of the pensions ecosystem and achieving greater focus on value to deliver better outcomes for future pensioners, rather than costs, as well as encouraging further pension investment into UK assets to boost growth in the economy.
The government said that in developing its recommendations, the review will have regard for boosting the returns for pension savers and improving the affordability and sustainability of LGPS funds in the interest of members, employers and local taxpayers.
The review will consider the role of pension funds in capital and financial markets to boost returns and UK growth and any implications for wider government financial stability policy objectives such as concerning the Gilts market.
Fiscal impacts, which will need to be considered in the context of public finances, will also be taken into account when developing the recommendations as will the progress already made on in-train policy initiatives such as the Value for Money Framework and other live reform programmes.
In order to develop the recommendations, the review will also take into account a “wide range” of external viewpoints, including employers, trade unions, the pensions industry, financial services, local government and consumer voices.
The first phase of the review will focus on investment and report initial findings later this year and ahead of the introduction of the Pension Schemes Bill, the government noted.
It added that the second phase will start later this year and alongside investment will consider further steps to improve pension outcomes, including assessing retirement adequacy.
Patrick Luthi, chief executive officer of NOW: Pensions, said there is an “urgent need” for a strategic and consensus-driven approach to tackling some of the problems in the UK pension system.
He said that it is important that the government’s commitment to consulting widely and to the co-creation of policy with industry comes to fruition, pointing out that it will be “essential” that the full range of pension schemes and segments of the market are part of this process to ensure solutions work for the benefit of all members.
“It will be key for member outcomes to remain front and centre of initiatives, both in terms of investment policy, and also the delivery of initiatives such as Value for Money. Maintaining the primacy of fiduciary duty will help ensure that focus,” he noted.
“Creating a sustainable future for members must also remain a fundamental priority, and we are keen to see the integration of this imperative in any new investment policy developments,” Luthi continued.
He added that it is crucial that the outcomes from the Pensions Review provide “Flong-term solutions which tackle the key challenges that the pension system is facing now and also those which will impact over the next decade, including adequacy”.
Paul Waters, head of DC markets at Hymans Robertson, added that there are “significant opportunities” for the government to help the industry improve outcomes for DC pension savers.
“For example, building on the success of auto-enrolment to raise pension saving rates, leveraging the increasing scale of today’s DC schemes to access new investment opportunities, and enabling more sophisticated default retirement propositions to be introduced,” he explained.
He said that Hymans Robertson has worked with the LGPS since its inception. “Given the undeniable success of the LGPS delivering in alignment with local government, we’re disappointed in the premise of the pensions review in tackling ‘fragmentation and inefficiency’,” Waters said.
“The LGPS has a long history of continuous improvement and a ready enthusiasm to adopt best practice. We look forward to supporting the LGPS to leverage the review, and increased government attention, to continue to develop the scheme,” he said.
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