IGG comments on Pension Schemes Bill

Lou Davey, Head of Policy and External Affairs comments:

A pivotal moment for the industry and one which Independent Governance Group is glad to have played a role in shaping.

These measures set the groundwork for a range of important initiatives to improve member security and outcomes in retirement.

We are particularly pleased to see a roadmap setting out the planned delivery timetable and sequencing of the reforms. The sheer number of reforms inevitably means some measures won’t be delivered as soon as we would hope, but clearly everything can’t be done all at once.  We at least have some clarity on the order which enables the industry to plan.

On Megafunds:

The formation of DC Megafunds marks a seismic shift in the UK pensions landscape. It remains to be seen whether size is the only barrier to greater investment in illiquid assets, or whether additional government clarification and support is needed.

In such a novel area for the economy, we are pleased that the government has recognised the risk of stifling innovation, and intends to include exemptions to ensure that the needs of members can be met.

Trustees must be confident that investments are in their members’ interests, so it is vital that government focuses on ensuring a pipeline of investible assets that enables trustees to invest in accordance with their fiduciary duty.

The establishment of megafunds for DC schemes and LGPS pools will hasten consolidation of the UK pensions industry, which has the potential to bring the benefits of scale to more pension savers.

On Small Pots:

The proliferation of small pots is one of the greatest factors contributing to poor value for members. We support the introduction of default consolidators but believe that industry should drive the consolidation of small pots as far as possible without waiting for legislation, which won’t be in force until 2030.

On Value for Money:

We are pleased to see plans for the introduction of the value for money framework, and we fully support a shift in focus on costs to holistic value. We are pleased government recognises the importance of parity across occupational and contract based schemes and look forward to seeing more detail on the framework. In particular, we hope concerns have been heard around an over simplified rating system, and forward-looking metrics to assess performance, as well as considering past performance.

On Decumulation:

We welcome the introduction of measures to ensure members are offered good quality default retirement solutions, whether in an occupational or a trust-based scheme.

Steps must be taken to ensure that trustees are suitably equipped to line up good quality default solutions for less engaged members, as well as providing targeted support; the role of these is crucial for successful member outcomes. We are already seeing innovative solutions coming onto the market, and we welcome further development of these in future.

On DB superfunds:

As professional trustees, it is an exciting prospect to be presented with an alternative endgame option to consider, especially one with high levels of security in cases where the buyout market may not be the best option.

We support superfunds being put on a statutory footing and would hope the details closely mirror’s The Pension Regulator’s assessment framework.

On DB surplus:

We support government’s intention to relax rules around return of DB surpluses, whilst recognising that trustees are best placed to decide how it should be implemented in their scheme.

The link to low dependency as opposed to buy out funding levels is welcomed, and we look forward to seeing more detail around the guardrails and considerations that will be set out in future regulations and in TPR guidance.

There is great potential for members, employers and the wider economy to benefit from the surpluses in DB schemes, and we hope that relaxing the rules will open the door for innovative solutions to maximise the upside for everyone, including tools such as IGGiQ that enable schemes to closely monitor the position of their scheme and to accurately identify what could be distributed.

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