This article is about the DWP’s pension policy agenda and my view of what matters to the Pensions Minister and his department. Opperman has shown considerable leadership in recent years and my view is that he is in a strong position to affect change. Here I set out what appears to be the direction of change,
Not on the DWP’s agenda
Let’s put aside the longstanding debate over tax relief that needs a budget to resolve, we do not have a budget so the existing incentives to save will remain in place for the foreseeable future.
The Government has, in any case, found a much better means to save, using the power of nudge over a public that wants things done for them. Tax relief is for the mass affluent. The Government can see just how little tax matters to the low-paid by its getting away with not paying 1.7m of us a promised savings incentive amounting to around £6 pm.
Four years progress in the Pension Schemes Act 2020
We are about to see the Pension Schemes Bill being read again in the House of Commons.
The Pension Schemes Bill is due to have its second reading in the UK parliament on October 7.
— Josephine Cumbo (@JosephineCumbo) September 28, 2020
Once enacted, the Pension Schemes Bill will have a profound long-term impact on the private pensions landscape.
What’s in the Bill and how does it matter?
The matters in the Bill do not impact our take-home pay or capital taxes on our wealth. They are primarily targeting
- The capacity for individual’s capacity to engage and manage their pension savings (the pension dashboard)
- The powers of the regulator to manage defined benefit schemes (including a potential reprieve for open pension schemes from “risk reduction”,
- Broadening the capacity of employers and trusts to share pension risks (CDC)
- The requirement on pension schemes to embrace the principles of ESG as defined by the task force on climate related financial disclosures (TCFD)
To these can be added the emergency rules that allow for the creation of superfunds which broaden competition for the buy-out of defined benefits beyond bulk annuities or the last resort of the Government’s PPF lifeboat.
Excluded from the Bill are measures to widen the scope of auto-enrolment to include the self-employed, an adjustment of auto-enrolment contribution rates or any changes to the charge cap. All these might reasonably have been expected from consultations over the past five years.
Taken together, the Pension Schemes Bill when enacted will be the achievement of the current Pensions Minister – Guy Opperman. The Bill sets out as its priorities
- Choice – both for savers and employers , empowered to engage and change
- Compulsion – specifically on schemes to share data and adopt ESG
This mixture between liberal conservatism and a more socialist approach has commanded an all party consensus. There has been virtually no party political debate over pensions in the past five years. This is likely to have secured the passage of the Bill even without the commanding majority enjoyed by the current Government.
We have seen in recent weeks , the DWP looking at its agenda for 2021 and beyond. Pension policy must take a long-term view and is as little affected by the pandemic as any area touching the well-being of the nation.
There appears to be in the DWP a recognition that the longer term risk to society, that of climate change, is something that can be mitigated by the responsible investment of pension funds.
In parallel with this is the Pension Minister’s personal crusade to include patient capital within the investments made on our behalf, whether within historic DB schemes, current workplace pensions or future CDC arrangements and superfunds. The area where the inclusion of social capital is strongest, is within the internal portfolios of insurers such as L&G; the tactic that the DWP are looking to employ is to replicate the conditions which foster the deployment of place-based social purpose investment, through consolidation.
The consolidation may come from three sources
- DB – consolidation of smaller schemes into superfunds
- DC – consolidation of smaller schemes into master trusts
- CDC – consolidation of individual pots into collective drawdown arrangements
I would suggest that 2021 will be a year where the goals of the recent DWP consultation on consolidation (Improving DC member outcomes) will be the basis of new legislation which we will see enacted perhaps in 2021 or 2o22.
Value for money assessments appear to be the DWP (and FCA’s) chosen means to empower employers to make choices over the future of employer schemes.
In parallel with the employer instigated consolidation mentioned above, we will see consolidation at member level. The creation of a small pot task-force suggests that the Government are taking seriously the issue of pot proliferation and looking again at pot follows member, scheme for life and the facilitation of bulk pot consolidation using existing regulatory powers,
The pensions dashboard can be seen as an extension of this policy , as can be seen the new emphasis on the assessment of value for money. The adoption of open banking technology to create open pensions seems to be high on the Minister’s wish-list. The powers granted Government to enforce compliance with the standards of the pension dashboard will be contentious. I suspect that the FCA and TPR will work more closely and that the Competition and Markets Authority may be required to intervene, if the pace of adoption to digital standards does not improve. For the CMA 9 banks, read the CMA 12 pension providers (Pension Bee estimate that 80% of dashboard pension data is under the control of 12 data providers).
A strong platform for more progress in 2021 and beyond.
It is rare for a Pension Minister to stay in office as long as Guy Opperman, indeed – if he remains in office for the current parliamentary term – he will become the longest serving Pensions Minister. This is no small achievement , in a Department which has adopted a revolving door policy for its Secretaries of State.
By working with his counterparts in other parties, Opperman has created a consensus for change which has been broadly beneficial. The key policies around the state pension and auto-enrolment, established by the Coalition Government and Steve Webb, have been maintained and are making a difference. The triple lock continues to improve the security of pensioners and while universal and pension credits are functioning less well, we have taken great steps over the past fifteen years. The PPF has played an important role in providing people with pension security. Pensions have a strong platform.
So both from a political and a policy perspective, the Pensions Minister has a strong hand to play and I expect him to push on with his agenda of making pensions part of the answer to the challenge of climate change, a source of capital with which Britain can bounce back from the setback of the pandemic and an area of finance that can become easier for people to manage, through the adoption of a digital pension dashboard and services around it.