Responding to the Queen's Speech
14 Oct 2019
Hymans Robertson expert commentary on the key pension issues from the Queen’s Speech. This includes tougher regulatory powers, CDC, the pension dashboard and the notable absence of commercial consolidation.
Laura McLaren, Partner at Hymans Robertson responds to the inclusion of stronger powers for the Pensions Regulator in the Pensions Bill:
“Today’s announcement will come as no surprise to DB pension schemes and trustees having been well trailed. TPR has been making increasingly clear statements on its regulatory expectations for DB schemes and has proven it is willing to intervene when this standard is not reached. Further legislation will strengthen TPR’s arsenal of powers and penalties to take tougher action. With it widely anticipated the Pensions Bill will trigger TPR’s first consultation on a new funding code of practice, trustees and sponsors will be watching closely as a stronger more directive code begins to take shape. It is more important than ever for a scheme to understand how it may be perceived by TPR, to prioritise any required changes and to identify where it might be taking unacceptable levels of risk. By addressing this as early as possible trustees and sponsors will be in a stronger position and more likely to avoid intervention. Schemes should act now to avoid being caught on the back foot by a reinvigorated and stronger regulator.”
Rob Harper, Partner at Hymans Robertson comments on the Government’s inclusion of CDC in the Pensions Bill:
“Attaining an adequate, sustainable retirement income continues to challenge many UK workers since the shift in the balance of risk across from employers to individuals. Providing a framework for collective money purchase schemes (commonly known as CDC) will offer the clear benefits that can be derived from pooling of these risks across individuals. CDC could potentially deliver higher and more sustainable retirement incomes as an alternative option to annuitisation and drawdown, pooling risk for members, particularly in the later stages of their retirement. However, the advantages of CDC in the pre-retirement ‘saving’ phase compared to current DC schemes remain less clear.
“Ensuring clear member communications and strong governance will be vitally important if CDC is to succeed. Pension provision is already far too complicated for many savers to fully understand. Employers and providers must offer clear explanation and transparency to help members understand what CDC really means for them.
“CDC is not a ‘one size fits all’ solution. The sheer scale of assets and membership required to pool risk safely will limit this option to only the very largest schemes such as the Royal Mail or other arrangements that can achieve sufficient scale.”
Commenting on the Bill’s inclusion of plans for a legislative framework for a Pensions Dashboard, Scott Finnie, Solutions Architect, Hymans Robertson says:
“We fully support the Dashboard initiative that is outlined in the Pensions Bill. The benefits that consumers will undoubtedly experience are clearly at the heart of the government’s proposed legislation with the assertion that good consumer outcomes are the main purpose. Data standards and security are paramount to the Dashboard’s successful delivery. We are very pleased to see the Government’s desire for data accuracy with its intention to legally compel providers to supply accurate information. Standardising data access and security is a pre-requisite to for the Dashboard. Unless an unambiguously defined data standard is uniformly adopted and implemented by all, the initiative will simply not be able to succeed. So it is great to see that with the architectural design principles proposed, standardised data access and security is being implemented. This will certainly create the platform that will be needed for ongoing innovation.
“Overcoming the difficulty consumers face in viewing their aggregate position is the obvious benefit of a Dashboard. There is an endemic lack of understanding and engagement pervading society around retirement provision and the Dashboard is a very welcome move to tackle this. It will guide consumers to make decisions that will inevitably improve their incomes in retirement. As industry moves to embrace the PLSA’s proposed savings targets, due to be published imminently, the Dashboard will play an integral part in helping people see their holistic long-term savings position and so help them reach these goals. It will be a significant portion of retirement income for many people, so its incorporation is critical to a meaningful view. The Dashboard will also enable financial firms to develop commercial models that help allow consumers to access exactly the support and guidance they’ll need.
“The recent appointment of such a wide range of experts to the Industry Delivery Group is a sure sign of how committed the Government is to the Dashboard’s success. Now the Government is doing its part in making the dashboard a reality, it is back to the industry to respond in kind. Rapid development of the data sharing technology that is needed and ensuring all member records are clean and up to date, is the big task for pension providers ahead.
“It will be vital for both the Government and industry to now keep momentum going, ensuring the pace of progress continues and that tangible milestones of progress are achieved within meaningful timescales.”
Alistair Russell-Smith comments on the absence of DB commercial consolidation from the Pensions Bill:
“It’s disappointing that legislation for DB consolidation has been left off parliament’s legislative agenda. It’s clear that commercial consolidator transactions could get more cash into schemes, improving funding levels and member security and reducing the burden on the PPF. However, in the continuing absence of an authorisation regime for providers, it’s likely that some transactions will continue to stall, slowing the growth of this market.”