Law & Regulation

If Theresa May’s Conservatives succeed in forming a lasting government, their immediate policy concerns regarding pensions are unlikely to change.

They are tied by statutory obligations to measures such as the review of auto-enrolment, as well as responses to the Cridland report, pension scams and the green paper on defined benefit.

Ian Neale, director at Aries Insight, expects relatively swift movement on the restoration of laws dropped from the finance bill during wash-up, alongside an overdue response to the Cridland report on the state pension age.

He said a response to the green paper on defined benefit may arrive late this year or early next year, and he did not anticipate much disruption to the progress of the auto-enrolment review.

I’m afraid pensions are going to be much further down their priority list even than prior to the election

Ian Neale, Aries Insight

But long-term planning to improve the pensions landscape may have to wait.

“I’m afraid it’s going to be much further down their priority list even than it was prior to the election, because of the additional complexities that are now introduced with the EU negotiations,” said Neale.

A fragile majority dependent on Northern Irish allies would also struggle to pass radical pensions reform without an element of consensus.

For Stephen Budge, DC and financial wellness principal at Mercer, this could imply some much-needed stability for the pensions industry.

“They’re not going to be able to necessarily get some significant changes through unless they get something that’s positive for everyone,” he said.

However, he said that this inaction might deal a further blow to any hope of raising auto-enrolment contribution rates: “I think you’re going to have to be a bold Conservative-led government to propose that at this point.”

At a manifesto level, consensus does exist around expanding the powers of the Pensions Regulator.

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All three major UK parties made political capital by attacking Sir Philip Green and his involvement with BHS. The Conservative manifesto promised to give the regulator oversight of corporate activity, with severe punishments for those deemed to be neglecting their schemes.

David Brooks, technical director at consultancy Broadstone, said the execution of this stance would be highly dependent on the views of the next pensions minister, but that the Conservatives may look to bury the contents of what was not a well-received manifesto.

“I suspect we’ll have a reversion back to where the green paper was going on this,” he said, adding that such a “draconian” rule would harm corporate activity if it was ever used.

Simon Kew, assistant director of restructuring services at Deloitte, urged caution: “Any change to the regulator’s suite of powers should be thoroughly considered and not made in haste.

Stagnation expected on state pension

On the state pension and triple lock, experts expect a significant amount of uncertainty and stagnation.

Hugh Nolan, director at consultancy Spence & Partners and president of the Society of Pension Professionals, noted that the latest 2.7 per cent inflation figure is above the 2.5 per cent triple lock underpin, “and shows no sign of slowing down in the immediate future”.

Nolan doubts the Tories are “going to fight to the death over that particular point” because it “isn’t really a big deal” in the short term.

With regard to state pension age increases, he said there is no pressing reason for the parties to “have a big row about this particular issue because it’s not going to affect them for more than the five-year term of the parliament”.

This means that “we’ll have a period of paralysis… where we’re not tackling the fundamental problem” of pensions becoming increasingly expensive as “younger people [are] being asked to pick up the tab”, Nolan warned.

Who will be pensions minister? 

Richard Harrington was re-elected as MP for Watford with a greatly reduced majority from 2015. A cabinet reshuffle could see him end his tenure as pensions minister after less than a year.

Jon Greer, pensions technical manager at Old Mutual Wealth, also drew attention to the rising cost of the state pension, noting that “it’s quite a contentious area of policy”.

With a hung parliament, “it’s not really clear what the outcome will be”, and there is likely to be “a period of stagnation… it’s going to be very hard to find an agreement”, he said.

Tom Selby, senior analyst at platform provider AJ Bell, said: “The industry now faces a period of limbo while the new government outlines its policies which are bound to come under heavy challenge.”

He added: “The future of the state pension age and the triple lock sit at the top of the list of uncertainties, with the Conservatives and Labour at loggerheads on both of these core issues.”

Good news for holders of overseas assets

Uncertainty also affected the capital markets. The pound plummeted overnight as it became clear no party had gained an overall majority, in turn pushing up the FTSE with its large foreign earnings exposure.

“A weaker pound would be good news for pension schemes with large exposure to foreign currencies in their portfolio,” said Bob Campion, senior portfolio manager at Charles Stanley.

Annalisa Piazza, senior investment strategist at fiduciary manager Cardano, said she expected sterling to continue to show volatility as the process of government formation starts. “For equities, we expect the current negative correlation with the currency to hold in the short term,” she added.

Reactions to #GE2017 

Some of the twitter comments on what could happen to pensions and the country's leadership, after the June 2017 elections have resulted in a hung parliament.

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The uncertainty over whether Theresa May will remain leader of the Conservative party also leads to other questions.

“This result raises a lot of uncertainty over the type of fiscal policy to be adopted,” said Rowena Geraghty, sovereign analyst at Standish Mellon, adding that gilts would be subject to shifts in sentiment.

Piazza also noted that for rates, the uncertain scenario could have a mixed impact: “Potential weakness in the economy due to the uncertain economic picture might be supportive for gilts. On the other hand, should the Brexit negotiations become dire and prospects of budget consolidation be delayed, we see risks of rising yields due to foreign accounts liquidating their ‘safe-haven’ positions in UK assets and increased risk premium.”

Should trustees care?

Long-term investors have seen elections come and go, and more than a short-term wobble is needed to make them review their investments.

Steve Delo, managing director at Pan Governance, said he believes the UK election is likely to be of low significance compared with other events around the world.

“There may well be some short-term UK market froth… but this will settle down fairly quickly back to the ‘norm’ driven by wider, international economic effects.”