In a submission to the Pension Schemes Bill Public Bill Committee, Pensions UK welcomed measures to introduce Guided Retirement Products, put Superfunds on a statutory footing, address the Small Pots problem, introduce the Value for Money regime and ensure trustees can make choices about the use of DB surpluses. These are positive changes Pensions UK has called for and helped to develop. However, emphasising schemes’ legal obligation to act in the best interests of savers, Pensions UK said it believes in a pensions sector that puts fiduciary duty to savers at its heart, with free and open market competition to drive better outcomes for savers.
As such, there are aspects of the Bill that raise concerns because they introduce risks to savers now, and over the long-term, especially related to broad new powers for the Government to direct pension investment.
Pensions UK is seeking amendments to safeguard savers in a number of areas:
DC mandation: The Government has taken a reserve power, with a sunset clause of 2035, to set out how DC Master Trusts invest. We do not believe this power is needed and a voluntary relationship with the industry, as set out in the Mansion House Accord, is a better way to proceed. We believe that the sunset clause should at a minimum be limited to 2032, and the legislation governing the amount that funds should invest should be in line with the Accord. This sets out that a minimum of 10% of assets should be invested in private markets, half of which (5%) is in the UK.
LGPS mandation: The Bill provides broad powers for the Government to set criteria for how LGPS Pools operate. This could include how Pools invest. The Pools will manage the money of over 7 million savers, and are large, sophisticated, FCA-authorised investors. Government should not be seeking to interfere in how they run their money. The powers in the Bill need to be much more specific about the intention behind the drafting.
Superfunds: We are pleased to see the long-awaited statutory regime for Superfunds. We support new provision to deliver secure saver outcomes and hope the changes bring innovation and competition to the market – including new provision from buy-out providers. Parts of the current provisions do, however, cut across fiduciary duty and include anti-competitive measures which should be amended. Only trustees, in conjunction with their employer, should decide their end-game solution. The inhibiting requirement for a ceding scheme to demonstrate it cannot buyout should be removed.
Surplus: Pensions UK favours giving trustees more flexibility in accessing surplus funds, from well-funded schemes, subject to appropriate safeguards. We welcome the statutory override and support provisions that give trustees the authority to decide how surpluses can be released. This will ensure savers’ best interests are protected. We would also support amendments that would allow trustees to use surpluses to enhance DB member benefits, boost DC contributions or establish CDC schemes without the 25% tax penalty being applied.
Value for Money and Guided Retirement Products: Pensions UK supports measures to introduce the value for money regime and to establish a new regime to support members in decumulation. These areas do need further clarification though. For example, it is not clear how the grading criteria for VFM will work at present – this is important because it will determine who can and cannot operate in the market. On Guided Retirement Products, it is also not fully clear how the default process will work as a member gets moved into a ‘hard’ or ‘soft’ default arrangement and what the trigger for that move should be.
Pensions UK’s full submission includes further detail about each of these measures and proposed amendments. Pensions UK Director of Policy and Advocacy Zoe Alexander will give evidence to the Public Bill Committee on 2 September.
Zoe Alexander, Director of Policy and Advocacy at Pensions UK, said: “Pensions UK welcomes the introduction of the Pension Schemes Bill which introduces important reforms that are positive for long-term retirement outcomes. However, we are concerned that broad new powers to direct investment introduce avoidable risks to savers and must be approached with significant caution. The best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not mandatory basis.”
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