Elections 2019: Pension reforms expected after Tory majority
Sweeping pension system reforms are expected following the Conservative Party’s comprehensive victory in Thursday’s general election, with more powers coming for the regulator, a tax review for the higher and lower paid, and experts calling for more work on retirement adequacy.
The Conservatives won 364 seats, giving prime minister Boris Johnson a strong majority over the Labour Party, which lost 71 seats to end up with 203 MPs, with one result still to be declared at the time of writing.
Among the casualties was Frank Field, chairman of the Work and Pensions select committee, who lost his seat in Birkenhead to Labour’s Mick Whitley, having been the Merseyside constituency’s MP since 1979.
Watch out for a much tougher regime for funding for DB plans, stronger powers for TPR to intervene, and up to seven years in jail if you get it wrong enough with your company pension scheme
While Brexit remains top of the agenda for the new government, with the January 31 2020 withdrawal agreement deadline looming, pensions commentators called for the government to reintroduce the pension schemes bill into parliament.
The bill contains plans for new powers for the Pensions Regulator, the introduction of collective defined contribution schemes in the UK and a framework for the pensions dashboard.
Steven Cameron, pensions director at Aegon, called for the Conservatives to “look beyond Brexit” to domestic issues such as pensions and social care, where he said the UK could become a world leader.
Mr Cameron said: “Over the coming five years, and starting right now, the government and industry need to work together to make sure people across the UK, irrespective of age, gender, wealth or employment status, are fully engaged with their retirement saving, making adequate provision for the financial futures they aspire to.”
Shake-up in the DB sector
With the Conservatives promising to revive Guy Opperman’s three-part pensions bill in their manifesto, the defined benefit sector could expect a shake-up, with new powers for TPR and the introduction of a criminal offence for directors who fail to adequately protect final salary schemes.
Francois Barker, head of pensions at Eversheds Sutherland, said: “Watch out for a much tougher regime for funding for DB plans, stronger powers for TPR to intervene, and up to seven years in jail if you get it wrong enough with your company pension scheme.”
Tim Smith, professional support lawyer at Herbert Smith Freehills, added that company directors with responsibility for DB schemes needed to have “immediate regard to these new criminal and regulatory sanctions on future corporate transactions, restructurings, refinancing and dividend payments”.
Susan McIlvogue, partner at Hymans Robertson, said more legislation would lead to “an invigorated regulator with a broader arsenal of powers and penalties at its disposal”.
“It is now more important than ever for a scheme to understand how it may be perceived by TPR, to prioritise any required changes and to identify where it might be taking unacceptable levels of risk,” she said.
Tax reforms should be 'top priority'
Away from the pensions bill, industry commentators also highlighted tax reforms as a key area for the new government.
Helen Morrissey, pension specialist at Royal London, called for Mr Johnson to “make good” on manifesto promises to address the ‘net pay’ tax anomaly that affects low-paid workers, and tapered annual allowance that has hurt high earners such as doctors.
Aegon’s Mr Cameron said the net pay issue should be a “top priority”, adding: “Tax rules and reliefs must be fit for the future and work together without unintended consequences across all earnings bands.
Consolidators unfazed after being dropped from pensions bill
The two existing defined benefit commercial consolidators have said they are not surprised by the lack of superfund provisions in the pensions bill.
“It can’t be acceptable that complex technicalities are leading to senior health professionals in the NHS refusing extra work or retiring early to escape pension tax charges. A full review is urgently needed, and not just a temporary sticking plaster for the NHS.”
Hargreaves Lansdown head of policy Tom McPhail said: “Tinkering will only make the pensions system more dysfunctional than it already is; the best answer would be a fundamental reform of the tax treatment of pensions across the board.”
The Pensions and Lifetime Savings Association voiced support for tax reforms and the pensions bill, but said in a statement the government “must not stop there”. It called for more work towards retirement income adequacy.
Nigel Peaple, director of policy and research at the PLSA, said: “Ensuring adequate contributions, fostering effective engagement and allowing well-run schemes to operate at appropriate scale provides the blueprint for making the greatest difference to the greatest number of people. We must get on with improving the system.”