Queen Elizabeth II 1926 - 2022

The Chancellor, Jeremy Hunt, has outlined a series of pension reforms and initiatives aimed at bolstering investment in the UK and refining the pension landscape in this latest Budget.

These reforms include exploring a ‘pot for life’ model and enhancing investment in the UK economy through pension schemes.

UK Pension Investment

During his speech, Mr Hunt emphasised the importance of directing UK pension schemes towards domestic investment, building upon the Edinburgh and Mansion House reforms.

This strategy involves granting new powers to The Pensions Regulator and the Financial Conduct Authority (FCA) to ensure that defined contribution (DC) schemes deliver better value by focusing on overall returns rather than costs.

Additionally, mechanisms will be introduced to facilitate pension funds’ investment in UK growth opportunities, including the announcement of winners of the Long-term Investment for Technology and Science (Lifts) competition.

Local Government Pension Scheme (LGPS) reforms

The Chancellor has proposed new measures following concerns about the effectiveness of UK pension investment strategies compared to other countries, such as Australia, which enjoy higher returns from domestic growth stocks.

To address this, new requirements will be introduced for DC and local government pension funds to publicly disclose their UK and international equity investments, aiming to align UK practices with international best practices.

The Budget documents confirm plans to implement similar disclosure requirements for Local Government Pension Scheme funds in England & Wales by April 2024.

These measures are part of a broader review to ensure an increase in UK equity allocations, amidst warnings from industry experts about potential unintended consequences and a risk-averse attitude emerging in the pensions industry.

The Government is also exploring the role of the LGPS in supporting investment in new children’s homes, with revised annual reporting guidance set to provide a clearer picture of asset allocation and the progress of pooling from April 2024.

Value for money framework

Updates on the value for money (VFM) pensions framework were also provided, focusing on preventing underperforming schemes from taking on new business.

This framework will assess schemes based on their long-term investment outcomes versus short-term cost savings and scale.

Regulatory powers will be employed to address schemes delivering poor outcomes, including closing schemes to new employer entrants or winding them up if necessary.

Commitment to pensioner incomes

In addition to these reforms, the Government reaffirms its commitment to supporting pensioner incomes through the triple lock, with the basic state pension set to increase significantly compared to past years.

Lastly, the Spring Finance Bill 2024 will introduce legislation accommodating the treatment of funds from a collective money purchase scheme during the winding-up process, with additional tax changes to follow.

These comprehensive pension reforms highlight the Government’s commitment to enhancing the UK’s pension landscape and ensuring robust investment in the domestic economy.

If you would like to know more about how these changes may affect you or your pension, please get in touch.