Continuing at break-neck pace up and to the summer recess, the Labour Government  has announced a staged review of pensions.

Speaking on Laura Kuenssberg’s Sunday morning show, Rachel Reeves stressed that her interest in pensions is about getting people more for their money by getting pensions better invested.

There will be more on “adequacy” but only after the investment work is completed and not till the back end of the year.

This is not the pensions review the pension industry wanted, anymore than the Pensions Bill is the Bill it wanted. This is not about adding to the cashflow into pensions but about making more of what is there already. It is not playing to the traditional measure of industry success, “new business”.

Nevertheless it is an important review with Rayner, McMahon and Reeves joining the new Pensions Minister and what was DLUHC – (representing LGPS).

The Government issued a press release singed off by the great and the good of private pensions. They are meeting this morning to kick things off.

My view is that this is exactly right. The problem we have with pensions is that they are not delivering to their potential, they are wrongly invested and often inefficiently invested (hat-tip to Chris Sier). Correcting these problems will mean more than a change in practice, it will mean a change in regulation. We cannot have a Pensions Regulator which stymies innovation, we need one that brings life to the quietest graveyard.

So what will this review actually do?

The Press release tells us

Defined contribution schemes will be managing around £800 billion in assets by the end of the decade and the Review will explore ways to increase their investment into productive assets. Even a 1 percentage point shift of assets into productive investments could mean £8 billion of new productive investment to grow the economy and build vital infrastructure by the end of the decade. (my bold)

This would also help savers using these schemes build up better retirement pots as productive assets are more likely to provide higher returns. Immediate action has already been taken to boost retirement savings through the Pensions Bill, which introduces a Value for Money Framework to promote better governance and achieve higher returns – boosting the pension pot of an average earner who saves over their lifetime in a defined contribution scheme by over £11,000. (my bold)

VFM is couched in terms of improved returns not reduced costs. The £11,000 boost to pots seems to be a carry across from the £1,000 increase in pensions promised by Jeremy Hunt when announcing the Mansion House reforms. It would be nice to think that £11,000 could buy £1,000 of pension but we’d need to see a marked change in discount rates for that to happen!

The first stage of the review will examine actions to support greater productive investment and better retirement outcomes, including through further consolidation and encouraging at-scale schemes to increase returns through broader investment strategies.

LGPS wastage under scrutiny.

The wording of the press release suggests that the LGPS will be singled out for its wastage

The Local Government Pension Scheme (LGPS) in England and Wales is the seventh largest pension fund in the world, managing £360 billion worth of assets. Its value comes from the hard work and dedication of 6.6 million people in our public sector, mostly low-paid women, working to deliver our vital local services. Pooling this money would enable the funds to invest in a wider range of UK assets and the government will consider legislating to mandate pooling if insufficient progress is made by March 2025.

To cut down on fragmentation and waste in the LGPS, which spends around £2 billion each year on fees and costs and is split across 87 funds – an increase in fees of 70% since 2017, the Review will also consider the benefits of further consolidation.

This will send tremors of fear through not just the LGPS pension infrastructure but those who supply to it. That £2bn a year on fees and costs supports a lot of City salaries. 87 funds could soon be numbered on a single hand (eventually a single digit).

Hard-up councils whose council tax payers meet this £2bn a year bill will welcome action, even if the funds and advisory businesses that levy it – won’t.

The Pension Schemes Bill and the Workplace Review

The progress of the Pension Schemes Bill through parliament will happen alongside the workplace review. This is radically different from the consult first, legislate second approach of the previous Government.

The Review seems to be a forum to look at ideas that might work to make legislation more effective. While consolidation , enabling more impactful investment , seems to be at the heart of this, there looks to be further legislation that will follow.

The first stage of the review will report in the next few months and consider further measures to support the Pensions Bill. It will take account of the need to prioritise gilt market stability, liquidity and diversity. It will then broaden out to consider the wider pensions landscape to strengthen security in retirement. In the meantime, immediate action has been taken through new laws announced to Parliament in The King’s Speech.

Those looking for any specific commitments on the AE reforms will have to wait and see what “strengthening security in retirement” might mean. It looks pretty nebulous today.