Pensions

Chancellor of the Exchequer Jeremy Hunt's 'Mansion House reforms' include multiple proposals for enlisting defined benefit (DB) and defined contribution (DC) pension schemes in the push for economic growth whilst also maintaining security and improving outcomes for pension savers. The detail was announced in various calls for evidence, consultations and responses published the morning after the Chancellor's Mansion House speech on 10th July 2023. News of the next steps is keenly awaited, but there is likely to be an update in the Autumn Statement on 22 November.

Most of the announcements are to encourage:

• DB schemes to invest more adventurously, in the UK, in order to help grow the economy. That means reducing investment in gilts – though not excessively because the Government needs that investment - and increasing investment in 'productive assets' such as private equity and infrastructure. This is against a backdrop of many DB schemes having moved significantly (and increasingly) out of equities and into gilts, corporate bonds and other liability-aligned strategies in recent years. Increases in interest rates have meant that many DB schemes are now in surplus. This is leading to an even greater extent to low-risk investment strategies that protect the funding position. Additionally, many schemes have secured liabilities with insurers or are now able to do so.

Options under consideration by the Government include making surplus easier to access and increasing the consolidation of schemes, perhaps involving a non-commercial public consolidator.

• DC schemes to allocate more of pension savers' default fund assets to 'productive investments'. Recent changes to the charges cap have facilitated more investment in illiquid assets such as private equity and infrastructure, provided certain criteria are met. The Pensions Regulator's continued pressure on small schemes (which are less likely to have good governance, and which rarely invest in illiquid assets) to consolidate into master trusts should also make a difference, but the asset scale is small. A compact with major personal pension and master trust providers to target 5% default fund asset allocation to unlisted equities by 2030 should have a greater impact.

The Government is also pressing ahead with:

• new DC value for money assessment and reporting requirements;
• requiring DC schemes to offer members options for 'decumulation' of pension pots at retirement; and
• a regime for the automatic consolidation of small, deferred DC pension pots.

This is all to be done through a variety of measures but not compulsion. For more detail, please see What's Happening in Pensions Issue 104.

We still await details of the new expected deadlines for schemes to connect to the pensions dashboards central infrastructure. In the meantime, the Pensions Regulator is urging schemes to continue their preparations. In this regard, read our updated article "10 actions for getting to grips with pensions dashboards" and watch these useful video discussions. We have also contributed a chapter to the Pensions Management Institute's new Dashboards Industry Guide 2023, which you can read here.

We also await confirmation of the revised regime for funding DB pension schemes, which is expected to apply when a DB scheme has a valuation with an effective date after April 2024 (or perhaps shortly thereafter). For more detail, please see What's Happening in Pensions Issue 99 and our Pension Schemes Act 2021 briefing.

The Government and the Pensions Regulator are now having to consider how their proposals, which focus on security for scheme members, fit with the Chancellor's Mansion House reforms (see above), under which DB schemes would be encouraged to take more investment risk.