Government Details Scope for 'Phase One' of Pensions Review

The Government has published its 'terms of reference' for phase one of its wide-ranging review into the UK pensions industry. This development is relevant to those working in the pension industry (actuaries, lawyers, administrators and investment consultants) as well as pension scheme trustees and, with that, their PTL insurers.

Background

On 20 July 2024, the new Labour chancellor, Rachel Reeves, announced the launch of a review into the UK's pensions industry (the Pensions Review). The chancellor confirmed that the Government hopes that the Pensions Review, which is being led by the new Pensions Minister, Emma Reynolds MP, will "boost investment, increase pension pots and tackle waste in the pensions system". The chancellor also confirmed that the Pensions Review will focus attempting to unlock the "investment potential of the £360 billion Local Government Pensions Scheme" (LGPS) and determine how best to reduce the £2 billion that is being spent on fees. 

The Pensions Minister commented on the Pension Review when it was announced, stating that phase one would focus "on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure our pensions system is fit for the future", and that details of the same would shortly be published. 

Phase One

On 16 August 2024, the Government published the terms of reference for the Pensions Review, which set out the scope of phase one. This states that phase one 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 LGPS 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.

The terms of reference confirm that the Pensions Review will have a specific focus on attempting to boost returns for pension savers and improving the affordability and sustainability of the LGPS in the interest of members, employers and local taxpayers. In developing its recommendations, the Pensions Review will also consider the role of pension funds in capital and financial markets to boost returns and UK growth, initiatives such as the Value for Money Framework, and attempt to listen to a wide range of external viewpoints across the pensions industry; including employers, trade unions, the pensions industry, financial services, local governments and consumers. 

There is little further detail in the terms of reference but the focus on value and investments will be of particular interest when it comes to where the onus is going to be on ensuring value/returns.  Is there going to be more of a focus on trustees and/or on the investment adviser/fiduciary management market? What if the government sets targets for investment in say UK investments that do not then perform – where does the buck fall? We await further detail of the Pensions Review for answers to these questions and many more.

The Government has confirmed that the second phase will start later this year with a focus on considering what further steps are necessary to improve pension outcomes, including assessing retirement adequacy.