A bill and a review: what’s in, what’s out, what’s left to work out?

It’s going to be a packed legislative programme and pensions is a prominent part of it. The King’s Speech featured not only a Pension Schemes Bill, but also the National Wealth Fund and several other items of relevance to pensions.

Now, we have the promised review and a wider one to follow.

What happens next? What will, and what should, feature in each and how do they fit together?

The Pensions Review

It’s awkward to say it but everyone knows: policy ideas that nod to the productive finance agenda are often just picked out of a pensions policy lucky dip with a fairly tenuous link to increasing investment in UK assets. More a leap of faith than a theory of change.

A detailed review is likely to see through this and could result in more directive policy, one way or another.

You’d be hard pushed to find people in the industry or representatives of savers who are in favour of mandating asset allocation. While it remains an option and the government hasn’t ruled it out, the ‘saver outcomes first’ message has landed, and the review will need to look creatively to find solutions.

The crowding-in promised by the National Wealth Fund is a sensible approach. There is a sliding scale, encompassing the shared ambition of the Mansion House Compact, the seeded investment of the LIFTS initiative, and the accreditation of private tech funds in the French Tibi scheme, which Labour has said it will emulate.

The Association of British Insurers’ (ABI) Investment Delivery Forum report – focused on annuity and defined benefit (DB) business but potentially relevant to some defined contribution (DC) investments too – set out an approach to blended finance, in a case study with the Green Finance Institute on electric vehicle public charge points.

A short, sharp review of pensions investment gives time to reflect its findings in the Pension Schemes Bill. But that doesn’t mean it should be rushed – some policies or approaches might not need legislation, just a different way of working.

The Pension Schemes Bill

The bill carries forward some of the key policies of the previous administration. But they are at different degrees of readiness, and this is likely to hold the bill back for some months.

On all these issues, a big question for the Department for Work and Pensions is whether the primary legislation will be detailed, or just a framework with the detail to follow in regulations.

The trade-offs are well rehearsed from other bills: too complex, and there’s a risk of baking in detail that is hard to change; too high-level, and it might not give the comfort everyone needs – and it would get a rough ride through the House of Lords. Either way, there is a risk of getting it wrong and having to return to parliament.

Here’s the ABI view on each of the main measures:

• Value for Money: There is a lot of detail to be worked out, which may not be included in primary legislation, and we still expect the next step to be a Financial Conduct Authority consultation. This should enable policymakers to delve into the technical issues that are far from resolved, especially on service standards.

• Default consolidators: This seems to be the furthest from being oven-ready to legislate. There is a great deal of operational detail to work through, such as matching requirements, use of a clearing house, and expectations of the consolidator market.

• Decumulation options: As I’ve said before, duties on trustees to offer retirement income solutions are important. Our feedback emphasised that this must be married with ongoing support for savers to make retirement decisions, linked to the Advice Guidance Boundary Review, which is rightly looking closely at this area.

• Superfunds: We have long said that superfunds should be subject to a robust regulatory regime, and therefore need a legislative framework, rather than just relying on guidance from the Pensions Regulator. The bill does not currently include proposals from the DB Options consultation on use of surplus and a public sector consolidator, but that could be added to the pension investment review. The case for change may not have a big impact on UK growth unless the government becomes much more directive about the consolidator’s investment strategy.

Looking beyond investment

A review focused solely on investment would have been disappointing and would have weakened the message about the importance of saver outcomes. So, it’s welcome that a further review will follow – at this stage very broad in scope, but specifically and crucially including assessing retirement adequacy.

The ABI has proposed a timeline to implement the 2017 Automatic Enrolment Review recommendations and to increase contributions. But this review needs a wider horizon, and we support calls for this to look at workplace and state pension adequacy in the round.

It’s hard to imagine that the review will conclude that future pensions are adequate, or that there is a simple solution. It will need a strategy for improving adequacy in a way that takes account of lower earners.

A comprehensive review would need to consider the interaction of pensions with other factors affecting adequacy – especially housing and means-tested benefits – and big questions like regulatory structure.

But there’s only so much it can do, coming on top of policies in train, like pensions dashboards, transfers and collective DC, and the relevance of the wider legislative agenda including employment rights and data sharing.

Perhaps the big challenge of this review will be deciding where to draw its boundaries and set its priorities – an opportunity for further creative thinking by the industry.

Rob Yuille is head of long-term savings policy at the Association of British Insurers.