The government has outlined the approach it will take in its landmark pensions review, which is aimed at boosting investment and enhancing returns for savers.
Chancellor Rachel Reeves launched the review last month and further details were shared on 16th August through a terms of reference notice.
The publication revealed that the review will be conducted in two phases. The first phase will focus on investment, targeting four key areas:
- Promoting the scale and consolidation of defined contribution (DC) workplace pension schemes
- Addressing inefficiencies in the Local Government Pension Scheme (LGPS) through consolidation
- Emphasising value over cost
- Encouraging increased investment in UK assets to stimulate growth
Initial findings will be reported before the introduction of the Pension Schemes Bill.
The second phase, commencing later this year, will explore additional measures to improve pension outcomes – including assessing retirement adequacy.
However, policy development related to defined benefit (DB) pension schemes will continue separately from this review.
The review will be led by Emma Reynolds, the joint HM Treasury-Department for Work and Pensions Minister.
Industry response to the update has been mixed so far: Paul Waters of Hymans Robertson expressed optimism about the government’s potential to enhance DC pension outcomes but voiced disappointment regarding the review’s focus on LGPS inefficiencies – emphasising the LGPS’s “long history of continuous improvement and a ready enthusiasm to adopt best practice.”
Tom Selby of AJ Bell highlighted the government’s clear intention to use UK pension scheme assets to drive investment in the UK economy, particularly in private equity – however, that while increased investment could yield higher returns, it also carries risks.
Selby noted: “it is vital the interests of savers, whose money is ultimately being used here, are not sidelined as a result.
“Successive governments have made dangerous claims that a shift to riskier investments will deliver larger pension pots for people, despite the inherent uncertainty that exists in this area, particularly when considering investment returns over decades.
“It is, of course, entirely possible that investing more in the UK will yield better returns and bigger pension pots – but it could also go the other way.”
Source: Cooper, Dan. Money Marketing. August 2024. https://www.moneymarketing.co.uk/news/government-publishes-update-on-landmark-pensions-review/.