Our considered take on the Autumn statement

This year’s Autum Statement has unveiled a more considered vision for the pensions market to 2030.  Addressing letters to the Chief Executives of the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), the government outlined its strategic roadmap, placing particular emphasis on empowering trustees and fostering innovation within the DB sector.

The background papers released with the Autumn Statement included  the  Options for defined benefit schemes: Government response to call for evidence (publishing.service.gov.uk), which goes into further details on the Government’s thinking on the future of DB pensions

A forthcoming “winter” consultation promises to be a pivotal moment, with a spotlight on recalibrating rules governing the repayment of DB surplus to employers. Simultaneously, the government seeks to leverage the Pension Protection Fund (PPF) as a consolidator for smaller DB schemes, deemed “unattractive to commercial providers.”

TPR is poised to introduce a trustee register as another step in bolstering governance within pension schemes. Drawing insights from its July call for evidence, the government acknowledges the need for enhanced support, guidance, and training for trustees and stakeholders navigating the complexities of DB schemes.

An integral part of the government’s agenda is to expand the array of high-quality investment vehicles, ensuring opportunities to invest in burgeoning UK enterprises. Prioritising the long-term value of pension schemes over short-term costs, the government aims to guide employers, trustees, and managers in decision-making aligned with members’ best interests.

Building upon the July call for evidence, the government acknowledges a lack of consensus on the path forward for DB schemes. However, a forthcoming winter consultation is slated to consider measures to facilitate surplus extraction, incorporating safeguards to preserve member security and uphold trustees’ fiduciary duties. Notably, the tax rate on authorised surplus repayment is set to decrease from 35% to 25% starting April 6, 2024.  The consultation will also be accompanied by mechanisms to protect members, potentially incentivising well-funded schemes to invest in higher return assets.

The government’s commitment extends to establishing a public sector consolidator by 2026, specifically targeting schemes unattractive to commercial providers. Despite concerns surrounding moral hazard and the PPF’s extended remit, the government asserts confidence in the PPF’s capacity to fulfil this role effectively.

In a nod to industry feedback, the reduction in the authorised surplus payments charge, along with TPR’s implementation of a trustee register and toolkit updates, reflects a commitment to cultivating a resilient and dynamic DB pension landscape. The upcoming winter consultations promise to shape the trajectory of the pensions market. 

Whilst we welcome many of these developments, including establishing a public sector consolidator, we do not believe that consolidation automatically results in better member outcomes.  We believe that smaller schemes are best managed by specialist providers who are able to take a more personal (and often cost effective) approach than trying to fit these schemes into the large scheme model.  We look forward to engaging with the Pensions Regulator to make these arguments and ensure that small schemes continue to have the freedom to make their own choices about how they can best be managed.