This week has been reasonably quiet from the parties when it comes to pensions policy – the Conservative “triple lock plus” state pension proposal featured heavily in Tuesday night’s leaders’ debate, but there have been no new pensions announcements so far. 

Main party manifestos are expected to be published next week so hopefully we will know much more soon. Though it’s difficult to imagine industry hot topics such as the Virgin Media decision and the potential for the change in role of the PPF generating too many column inches in the mainstream media, we would hope to see more details of the parties’ positions on some of the issues within the Mansion House reforms such as the future of DB pensions, the expansion of CDC, investment in productive finance and LGPS pooling.

Public sector pensions

In the broader policy context, we have been considering the implications for public sector pension schemes of Labour’s proposals to bring outsourced public sector services back “in house”.  Whilst the full party manifesto is still to come (expected next week), on 24 May Labour published their “Plan to make work pay” paper, which includes, amongst a raft of measures, a promise to “bring about the biggest wave of insourcing of public services in a generation”.  Going forwards, Labour would intend that, before a service is contracted out, public bodies would be required to carry out a public interest test to understand “whether the work could not be more effectively done in house” – the test would look at “value for money, impact on service quality and economic and social goals”.

Depending on the scale of the overall exercise this could potentially see a significant increase in the number of active members in certain public sector schemes.  At a time when those schemes are grappling with implementation of the McCloud remedy, and preparing to connect to the pensions dashboards ecosystem (as a reminder the applicable staging date specified in guidance is 31 October 2025), this could test administrative capacity.  There are also potentially significant funding implications.  In the LGPS, administering authorities may find themselves having to consider potential “exit credits” (surplus payments) where funds are in surplus at the point services are taken back in house and employers leave the relevant fund. 

Frozen measures

In the meantime, industry discussions have largely focussed on the various half-finished initiatives we have been left with following last week’s dissolution of Parliament:

• Lifetime allowance 

As we reported last week, the industry had been expecting a further set of amending regulations to support the implementation of April’s lifetime allowance abolition – these will now not come in until the Autumn at the earliest.  However, with Labour yet to confirm its position in relation to the lifetime allowance and whether it still intends to reinstate it, it is not clear whether the amending regulations would see the light of day should there be a change of government following the election. 

The hope would be that the amending regulations are still passed, regardless of who is in power, since they are designed to fix wrinkles in the implementation of the abolition.  Any unwinding of the abolition, which would be undeniably complex, could then be considered but schemes would be in a better position to administer benefits under the current (lifetime allowance free) tax rules in the meantime.

On the subject of tax, there has been some press speculation over the past couple of days about whether Shadow Chancellor Rachel Reeves would revive a proposal she made as a backbench MP in 2016 to reduce tax relief on pension contributions for higher rate tax payers (currently 40%) by bringing in a flat rate of 33%. However, the FT reports today that a spokesperson for Ms Reeves has confirmed that this is not a Labour policy and will not appear in its manifesto.

• DB reforms

The Government response to the Work and Pensions Committee (WPC) report into Defined Benefit schemes had been due last month.  The pensions press reported this week that the Committee’s most recent Chair of the WPC Sir Stephen Timms, has said this week that he “would expect the new government to honour the commitment to publish a response to our report”.  Sir Stephen is a Labour MP and is standing again in this election.  However, it does not appear that the new government would be under any obligation to respond.

Reports in the pensions press this week have also suggested that it will be 2025 before we can expect to see a response to the recently concluded DWP consultation on “Options for DB schemes” which explored potential reforms to surplus extraction and the role of a potential public sector consolidator.  Guidance for civil servants on the Government’s website confirms that “during the election period, departments may continue to receive and analyse responses with a view to putting proposals to the incoming government but they should not make any statement or generate publicity during this period.”   

Therefore we can, unsurprisingly, expect uncertainty in this area to remain for the foreseeable future. 

• DB Funding Code

As has been widely reported, the DB Funding Code (to accompany the Funding Regulations that came into force in April) will not now come into force in time for the 22 September 2024 deadline (valuations with effective dates on and from this date will need to take place under the new regime).  This is because the Code needs to be laid in Parliament for 40 days before coming into force, and with the summer recess following shortly after the election there won’t be time for this before September. 

In this pre-election period, the Pensions Regulator could consider publishing an updated draft of the Funding Code, to help schemes with post 21 September valuation dates begin to prepare for their valuations under the new regime.  However, this could be considered politically sensitive – the Regulator is a non-departmental public body and is required to follow guidance on conduct for civil servants during the pre-election period.  The guidance says that whilst essential business must be allowed to continue, discretion is observed “in initiating any new action of a continuing or long-term character”. 

Additionally, the WPC inquiry findings included a recommendation that “the DWP and TPR work with open schemes to address the remaining concerns—particularly around the employer covenant horizon—and report back to us on how they have done so before the new Funding Code is laid before Parliament”.  This recommendation was given in the context of discussion about the changes made in the final version of the Funding Regulations to address the concerns of open schemes regarding the original draft being too prescriptive and not allowing open schemes to take a sufficiently long-term view in terms of funding strategy and investment choices.  This could be another barrier to earlier publication of an updated draft that the industry would no doubt welcome. 

This article is current as at 6 June 2024