Emma Reynolds – leading the review

The Government has published the terms of reference for the first stage of its pension review

My commentary is in red.

Those who consider this review an open consultation that allow the pensions industry lobby to set the agenda, will be disappointed. This is big Government flexing its muscles with a view to getting on with it. I welcome this as I did in my post election blog – Leave lobbying alone. I expect to play no part in this review other than to comment on its findings, I would suggest that those who consider themselves “leading voices” do the same. This is a case of speaking when being spoken to.

1. Background

The Chancellor has launched a landmark pensions review to boost investment, increase saver returns and tackle waste in the pensions system. The Chancellor has appointed the Minister for Pensions to lead the review. The review will focus on defined contribution workplace schemes and the Local Government Pension Scheme.

Pension purists will be horrified. Sarah Luheshi, speaking on the VFM podcast had been calling for a holistic review, Darren and Nico want a permanent pension commission. The truth is we are too full of our own importance, we get what we are given, and this is it.

The review will also work closely with the Minister of State at MHCLG Jim McMahon to look at how tackling fragmentation and inefficiency can unlock the investment potential of the £360 billion Local Government Pension Scheme in England and Wales, which manages the savings of those working to deliver our vital local services, including through further consolidation.

To call this meddling would be to grossly understate things, this is direct political intervention to get a wider political agenda done. This is a Government who is running the review from on high.

2. Policy Remit

The first phase of the review will focus on developing policy in four areas:

1. Driving scale and consolidation of defined contribution workplace schemes;
2. Tackling fragmentation and inefficiency in the Local Government Pension Scheme through consolidation and improved governance;
3. The structure of the pensions ecosystem and achieving a greater focus on value to deliver better outcomes for future pensioners, rather than cost; and
4. Encouraging further pension investment into UK assets to boost growth across the country.

As has been mentioned before, none of the above would have been unexpected if this review was being run from the Treasury this time last year by Laura Trott. The policy remit begins and ends with measures to boost UK growth, the pensions ecosystem’s structure is being questioned, an ominous warning of change in a workplace pension system without pensions.

3. Further guidance

In developing its recommendations, the review will have regard to:

• Boosting the returns for pension savers.
• Improving the affordability and sustainability of the Local Government Pension Scheme in the interest of members, employers and local taxpayers.
• The role of pension funds in capital and financial markets to boost returns and UK growth.
• Any implications for wider Government financial stability policy objectives such as with respect to the gilt market.
• Fiscal impacts, which will need to be considered in the context of the public finances.
• The progress already made on in-train policy initiatives such as the Value for Money Framework and other live reform programmes.
• A wide range of external viewpoints, including employers, trade unions, the pensions industry, financial services, local government and consumer voices.

The pensions industry ranks as one of six stakeholders in this. If the PLSA and ABI think they are front and centre of the debate, they they should read that final bullet point several times. This is a political review of pensions, not the pension industry’s review of politicians.

4. Governance

The joint HM Treasury-Department for Work and Pensions Minister Emma Reynolds MP is leading the review.

That tells you what you need to know, this is a top-down -Treasury led – review with input from the DWP. The big picture is investment, the rest is confined to an appendix.

5. External engagement with the review

The review secretariat will consult widely as it develops its analysis and policy options. Co-creation with industry and the Local Government Pension Scheme will be an essential part of the review process, as will expertise from leading voices and think-tanks.

Who the review secretariat will be , will continue to be a matter of speculation. My hope is that it will not consist of “leading voices” from the lobby and focus instead on the wider import of private pensions in the economy; as a means of providing dignity through the provision of a lifetime income and a means of investing in the UK economy to drive much-needed growth. Again, the pension lobby are ranked alongside think-tanks, they will need to compete to be heard, they have no entitlement.

6. Outputs and Reporting

The first phase of the review will focus on investment and report initial findings later this year and ahead of the introduction of the Pension Schemes Bill. The second phase will start later this year and alongside investment will consider further steps to improve pension outcomes, including assessing retirement adequacy. Ongoing policy development with respect to defined benefit workplace pensions schemes will remain separate from the review.

Note the wording here, the first stage will report ahead of the pension schemes bill, there is nothing here to say that the bit of the review the pensions industry is focussing on, the bit about engagement and adequacy will be more than a wash up. DB is being carved out and will be considered in parallel with the first part of the review. In other words, the pension industry agenda has been relegated to the wash-up.