Industry experts have broadly welcomed the Pension Schemes Bill, praising its emphasis on consolidation, value for money (VfM), and long-term reform, although concerns remain over the implementation of measures within the bill and timing.

The Pensions Schemes Bill, announced today (5 June), sets out a comprehensive set of measures, including a framework for establishing defined benefit (DB) superfunds, new regulations aimed at assisting individuals in managing their pension pots throughout retirement, and initiatives for consolidating small pension pots.

It also confirmed the introduction of a new way to assess if workplace pension schemes offer VfM as well as measures to carry out the recent policy announcements made in the final Pension Investment Review report.

The Pensions Regulator (TPR) chief executive, Nausicaa Delfas, called the Pension Schemes Bill “a once in a generation opportunity to address unfinished business in the UK pension system”.

“Making sure all schemes are focused on delivering VfM, helping to stop small, and often forgotten pension pots forming, and guiding savers towards the right retirement products for them, will mean savers benefit from a system fit for the future,” Delfas said.

“We have long advocated for fewer, larger well-run schemes with the size and skill to deliver better outcomes for savers. As such we are also pleased to see the proposed legislative framework for DB superfunds, providing options and choice in DB consolidation.” 

Additionally, People’s Partnership chief executive, Patrick Heath-Lay, described the announcement as "a pivotal moment" in pension reform.

“The bill contains many measures that will require providers to deliver better outcomes for savers and improve the workplace pension system,” he said.

Small pot consolidation

Small pot consolidation was especially welcomed by many pension experts as a key part of the bill.

Which director of policy and advocacy, Rocio Concha, said the company is “delighted” that this bill is seeking to consolidate small pots, calling this a move that will “provide greater value” for savers and support them with keeping track of their pensions. 

“Pensions have become far too complex and fragmented, so it's good to see the government taking steps to simplify them and ensure schemes provide VfM,” she added.  

Now Pensions CEO, Patrick Luthi, agreed, stating that it has been campaigning on small pots for several years, and is “pleased” to see measures to deliver on the ‘multiple default consolidator’ solution included. 

Luthi added that Now Pension “looks forward” to seeing the details which will be “crucial” to supporting members in an efficient way.

Standard Life managing director for workplace and retail intermediary, Gail Izat, also highlighted the bill’s potential to address legacy issues from previous pension reforms (auto-enrolment and pension freedom reforms).

“The proliferation of small pots has been a consequence of both auto-enrolment and the modern job market and consolidators will step in to bring together pots below £1,000,” Izat said.

However, she suggested that the detail and commercial model of this system will require “considerable thought”.

Building scale and supporting outcomes

Phoenix Group CEO, Andy Briggs, praised the bill for setting a “clear direction for the future of pensions” with an emphasis on building scale and ensuring savers receive VfM.

“People across the country will feel the impact of these changes with plans to consolidate small pots, ensure the dashboard delivers and provide default retirement income options at the point of retirement,” he continued.

“Individually these initiatives would be significant but in combination, they have the potential to make a significant difference to people’s retirement across the UK.”

Echoing this, Royal London policy director, Jamie Jenkins, claimed the bill “brings together” several initiatives aimed at improving the pensions landscape for savers.

He added that although there are still “many details to work through”, this “hopefully” marks the start of a long-term strategic plan for pensions.

Pension Protection Fund (PPF) chief executive, Michelle Ostermann, said the PPF “welcomes” the introduction of “this important bill”, particularly the measures which would give the PPF greater flexibility to reduce the levy, enable PPF and Financial Assistance Scheme member data to be made available for pension dashboards, and provide better support for members with a terminal illness.

Consolidation

Consolidation is a key part of this bill, as previously laid out in the final report of the Pension Investment Review last week.

TPT Retirement Solutions chief executive officer, David Lane, described placing consolidation at the heart of the bill as “pragmatic and sensible.”

He emphasised the central role consolidation plays in improving outcomes across master trusts, superfunds, Local Government Pension Schemes (LGPS) pooling, and collective defined contribution (CDC) and defined contribution (DC) models.

However, Broadstone head of DC workplace savings, Damon Hopkins, said a "balance needs to be struck" between a competitive market which inherently drives down cost and sufficiently large schemes which can leverage their scale to improve efficiency/cost.

He noted that it is "pleasing" that the bill has "softened" in stance towards schemes under £25bn which will be allowed to continue operating if they see a road path towards reaching that size within 10 years.

Izat called the bill’s push to consolidate savers into primary default funds “an important catalyst” in delivering the government’s ambitions of DC mega-funds.

“This approach will consolidate the number of default funds and help deliver greater efficiencies on behalf of savers,” she added.

However, LawDeb Pensions managing director, Sankar Mahalingham, warned that although the creation of megafunds may be an effective way to lower costs and streamline asset options, he urged the government to ensure that, at its core, this is a driver for increased performance for savers - and not “just another tool to serve their agenda for economic growth”.

Again, concerns around the mandation power were raised, with Herbert Smith Freehills Kramer pension partner, Rachel Pinto, calling it a "possible sting in the bill's tale".

"The government has said that the power would be used only "if necessary" – in other words if the schemes do not, voluntarily, increase allocations to productive investments," she said.

"Its aim is two-fold: to improve member outcomes and drive UK growth. Yet providers, as the law stands, must act only in members' interests."

Pinto said to "expect friction" as the bill passes through parliament, stressing that the conditions and safeguards around the proposed power will be "crucial".

Surplus

This is not the only area of concern, as the Pension Security Alliance (PSA) warned that plans to extract surplus from DB schemes could “pose a threat” to retirement incomes for savers who “have never been informed or consulted”.

“It is vital that ministers stop to listen to the views of the millions of people who depend on DB pensions– they should be asked how they feel about new laws that would allow employers to dip into their pension schemes and extract cash and use it however they wish,” the PSA said.

However, XPS Group head of run-on solutions, Tom Froggett, said that it was “clear” given the flurry of regulatory guidance and government announcements over the past few weeks that the government and TPR are aligned with the principle of giving well-funded DB schemes more flexibility to build and use surplus where it is “safe to do so”.

He suggested that for well-funded DB schemes using surplus, the focus now turns to “getting the details right”.

“We need a clear blueprint for trustees and employers who are seriously considering running on so that they can develop with confidence the strategic and operational frameworks to deliver the benefits of running on to members and employers,” he said.

Innovations

Izat also praised the inclusion of pension dashboards and new guided retirement options, which she said have “the potential to be one of the most significant things the industry could do to ensure people are supported to make the most of their money”.

She added: “The government’s nod to longevity protection reflects the need for income certainty in retirement planning.”

AJ Bell head of policy, Rachel Vahey, explained that multiple default solutions may be operated, requiring trustees to match members to the appropriate one based on their own circumstances.

Given this, Vahey emphasised that members should be informed about the default solution "early" in their pension journey and can opt out before or after accessing their pension pot. 

Meanwhile, Fidelity International head of platform policy, James Carter, encouraged the government to "quickly initiate" the introduction of parallel requirements to guided retirement options in workplace personal pension schemes so consumers have "consistent opportunities and experiences regardless of the type of scheme they are in".

“Whilst a default solution may help a member avoid a poor outcome, we have to continue to strive to engage members before and through retirement and support them to make active decisions about drawing their benefits," Carter added.

"We believe that the Financial Conduct Authority’s targeted support proposals offer a fantastic opportunity to offer greater assistance to members as they face these important decisions and help them make better choices."

VfM

Izat also suggested that the proposed VfM framework marks a shift towards more holistic scheme comparisons.

However, she emphasised there is “still some detail to work through” around how service targets are quantified and how the framework will apply to multi-employer schemes.

“Ultimately a policy that helps people transfer from poor performing schemes into better ones should be welcomed,” Izat said.

Scottish Widows head of pension policy, Pete Glancy, added: "At present, there is no way to compare the different products in the market on a like-for-like basis.

"It’s hard for employers to determine whether workers could benefit from higher investment returns or better decision making support by moving their workplace scheme to another pension provider."

Therefore, he said this new framework will "arm" employers and those who advise them to do just this.

However, Glancy warned of the complexity of the framework and that it has not been "designed with savers in mind" and can’t currently be used to help them make decisions.

"It should be a priority to develop a similar framework for pension savers so that any consolidation decisions that they make are properly informed," he suggested.

Timing

However, industry experts have raised concerns over the timing and order of implementation of all these measures.

The Society of Pension Professionals president, Sophia Singleton, highlighted the importance of not only assessing the effects of the changes but also emphasised that "it will be crucial to get the sequencing right".

Aegon pensions director, Steven Cameron, noted the roadmap that the government promised to set out, which he stressed would be "key in helping both providers and scheme members plan ahead".

"There’s a huge amount of change here, with many inter-connections, which will require several years of careful planning and implementation," Cameron said.

Association of Professional Pension Trustees chair, Rachel Croft, also emphasised the importance of “realistic timescales”, particularly for the administrative and regulatory provisions that follow the bill to reflect the “huge additional load” being taken on by trustees and the industry as a whole.

---