Are the “biggest set of reforms to the pensions market in decades” the right path for the government to pursue? Pensions Expert editor Nick Reeve looks into some of the detail of the consultations announced last week.
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“The biggest set of reforms to the pensions market in decades” is how chancellor Rachel Reeves framed this week’s plans for “megafunds” when they were unveiled on Wednesday night.
The truth is that much of what has been proposed was in train long before Reeves moved in to Number 11 Downing Street. What this week’s announcements do is set a much more ambitious agenda and timescale.
Take the LGPS. Pooling has already been extremely successful in reducing costs – something the government acknowledged in its consultation – and driving investment into local and national infrastructure such as renewable energy sources.
Through pooling, funds are recognising the benefits of greater collaboration and achieving good results for members and employers in the process. By proposing a 2026 deadline for the transfer of all assets to pools, the government merely wants to “complete” the pooling process.
But, as many have pointed out already this week, the devil is in the details. This particular devil takes the shape of drastic expansions of the pools’ expected powers and responsibilities. Ultimately, the government wants them to be responsible for all assets as well as providing advice to underlying funds.
Iain Campbell of Hymans Robertson rightly highlighted this as a potential conflict of interest – particularly given the work over the past few years in the private sector to clearly separate advice and implementation.
Another big issue is the planned requirement for pools to be authorised by the Financial Conduct Authority. Five already are, but for Wales, Northern LGPS and ACCESS this represents a drastic change to their business models. There are important and valid reasons why each pool has developed the way it has, and these should not be ignored.
Those in the LGPS who have worked so hard over the past decade to get this far with pooling may not be pleased with the direction the government wants. As Roger Phillips, chair of the Scheme Advisory Board, said earlier this year, the LGPS needs to take control of its future – in this case, by engaging proactively with this consultation.
On the DC side, the reforms seem more straightforward. It is clear here that the government has listened to feedback and wants the industry’s input into how to achieve its “megafunds” goal. It’s still important that schemes, advisers, providers and other stakeholders engage to ensure that the ultimate focus remains on achieving the best outcomes for members.
Nick Reeve is editor of Pensions Expert.
