Jeremy Hunt is the real minister for pensions.

Jeremy Hunt is the Minister for Pensions

The Pension Minister and the DWP are currently irrelevant  to pensions

Whether the next Pension Minister is the newly appointed DWP junior minister Paul Maynard

Or the newly appointed full minister Jo Churchill,

Is neither clear or particularly important.

My bet is Jo Churchill is heading for Guy Opperman’s post of Minister for Employment while Paul will fill Laura Trott’s shoes. That’s simply matching the seniority of their roles to the seniority of the positions, I know nothing definite and apologise for jumping the gun yesterday!

But the DWP’s role in pension affairs over the next twelve months is likely to be minimal so the normal process of meeting, greeting, explaining, lobbying and expecting is likely to be muted. There is not much that could have been done by the DWP without a pensions bill and there is no pensions bill. The new pensions minister is going to have little to do.

The Treasury’s raid on pensions on the other hand….!

The promotion of Laura Trott to be Chief  Secretary to the Treasury will should leave her fully occupied doing that job.

She has  the ultimate job in understanding what government is about. It will be hard work but educational – it’s a way to lose friends but get power

Normally the Chief Economic Secretary can take their foot off the breaks in an election year, but Jeremy Hunt may be more ambitious than to let Treasury freewheel

My view of Trott is that she is determined to start what she has finished so I expect to her to play a very able supporting role as the Chancellor sees through his pension ambitions

The signals coming out of the Treasury before the Autumn Statement , a week today (22nd), suggest that anything is possible including corporate tax cuts, benefit cuts and a kicker for the Mansion House Reforms. I do not think pensions are off the budget agenda, I now expect them to be at the heart of it, The cabinet reshuffle was a convenient way for the Treasury to formalise the centrality of Trott to Hunt’s plans.

Having a pension insider inside the Treasury tent, suggests the Treasury are going to fight for pension money (rather than tax-payer money) as the fuel for the economic growth the Government needs to appease internal and external critics.

It is unlikely that any nudge on the pension community (including rabbits from tax hats) will influence a shift of money in  the immediate future, but the direction of travel can be established. If the Treasury decides to act it can act. The DWP’s general levy (option 3) is simply a tax on small pension schemes that could make them a thing of the past.

The levy is DWP’s most obvious lever but the Treasury have many such. The impact of Gordon Brown’s stealth tax on pensions in 1997 is still being felt and talked about. The lever of the levy can be pulled from HMT, DWP is no more than a pawn in the game.

How will the Mansion House reforms play out?

With the DWP weakened by Trott (and Guy Opperman’s) departures (GO is gone to transport), the onus is on the Treasury to see things through. Labour has let it be known that they will, if they acceded in 2025, pick up the reforms and maybe go harder on mandating their implementation.

So – for the sake of economic continuity, it makes sense to press ahead in the next twelve months with policy that encourages pension schemes to follow Jeremy Hunt’s three golden (pension) rules.

to secure the best possible outcome for pension savers;

to always prioritise a strong and diversified gilt market as we seek to deliver an evolutionary, rather than revolutionary, change in our pensions market;

and to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.

So far, neither the press or the public have bought the message that they are better off investing for growth through private markets. As regards workplace pensions, neither the various Compacts between providers and venture capitalists have amounted to much more than places at the table of further city dinners. We cannot expect consumer pressure or provider co-operation to drive structural change in the allocation of assets.  The commercial pressure is still driving a race to the bottom on pricing – forcing defaults into passive trackers not productive finance.

The land-grab from insurers of DB pension assets, exchanged for a buy-0ut of liabilities is likely to have precisely the opposite impact of “prioritising a strong and diversified gilt market”, that is best achieved by encouraging DB schemes to run on. The idea of getting DB schemes to consolidate and run on as occupational schemes has so far yielded one success, Clara’s deal with Sears, but even that is but pain delayed, the bridge to buy-out model is not a run on proposition , it is but buy-out deferred.

For run on to happen, schemes will have to commit their assets to growth for the gilt market to continue, gilts rather than corporate bonds, must match occupational scheme liabilities. The propositions presented to me over the past few days (Aon and M&G’s run on proposals), both advertise prudent investment as following the  debt strategies of the insurers, these do not meet the second of the Chancellor’s golden rules. Am I alone in wondering how the Treasury is intending to keep  pension schemes investing in gilts without intervention?

The  Need for occupational schemes to remain occupational pension schemes

For the best part of 20 years, the Treasury, PRA, FCA , TPR and DWP have promoted the ABI’s view that the annuity is the gold standard to which occupational pensions will aspire. Despite telling the public that “no-one will ever have to buy an annuity again”, millions of British Pensioners are finding their pensions are not pensions at all – but insurance annuities. The trickle of buy-outs is set to become a flood unless there is Government intervention to make it possible for occupational pension schemes to stay occupational pension schemes.

Schemes can do this by either choosing to run on (with or without the support of external capital) or by consolidating into superfunds which take over assets, liabilities and governance and deliver scheme pensions till the last penny is paid.

There may be a point where the last pennies in the pot make it unviable to run a superfund and it converts to an annuity but that should not be for 60 years. The bridge to buy-out model is not promoting Jeremy Hunt and his three golden rules, it is just providing a temporary stay of execution.

Proper support for the occupational pension regime

The Treasury know the numbers, the available assets to make an appreciable difference to the funding of UK growth and the maintenance of the gilts market are with occupational DB schemes, both in the public (LGPS) and private (Corporate DB) sectors.

DC schemes will consolidate out of economic necessity, because of the Consumer Duty and because economies of scale make it the only viable option for commercial providers.

DB schemes will need more. They will need the brake to be applied to the buy-out of DB schemes and that can only be achieved at this stage of the cycle by a sharp reversal in gilt yields (making the market for buy-out distant) or the immediate promotion of run-on through pension superfunds and through long-term investment strategies based on a best estimate funding basis.

The three immediate priorities for the Treasury should be

  1. To amend the DB funding code to be a code for run-on
  2. To require consolidation of unviable DB and DC schemes
  3. To enable commercial consolidators (superfunds who target run-on , not buy-out)

This is why the Treasury has to take over pensions. These measures need the strong arm of the Treasury , not the long-term consensus of the pension industry,


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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