With just a week to go until polling day, the policy proposals for all parties have all now been advanced, and no further significant announcements are expected between now and then.  At the time of writing, it is anticipated by the majority of the polls that the Labour party is likely to win the election and form the next Government.  With this in mind, we’ve been giving some more detailed thought to what we know (and what we don’t know) about Labour’s policies, and the impact they may have from the perspective of public service pension schemes.

Pensions reform

With the current Government’s Mansion House reforms proposals underway but not yet implemented, the election came at a frustrating time for some in the industry.   As a reminder, key elements of those proposed reforms focus on the LGPS and its assets:

• LGPS investments 

The Government planned to require funds to “set out a plan” to invest up to 5% of assets in levelling up in the UK (and to report annually on progress).  It also promised that Investment Strategy Statement (“ISS”) guidance would be amended to require funds to “consider” investments to meet the “ambition” of a 10% allocation to private equity.

• LGPS pooling

The Mansion House reforms included a proposal to accelerate the consolidation of LGPS assets by bringing all listed assets within LGPS pools by 31 March 2025.  Again, according to the 22 November 2023 consultation response this was to be implemented via revised ISS guidance on a “comply or explain” basis but that guidance has yet to be published.  

Also on pooling, the consultation response promised that revised guidance would be published, to include a preferred model for pooling that funds would be expected to adopt over time.  Again, that guidance has yet to appear.

In our blog post earlier this year, we noted that whilst the Labour party had indicated that it supports a broadly similar productive finance agenda, it was unclear what degree of priority it would place on pushing through any LGPS investment reforms.  The now published Labour party manifesto has not shed much more light on this question.  As has been widely reported in the pensions press it promises to undertake a wholesale review of the entire UK pensions eco-system but (unsurprising given the review has yet to take place) there isn’t a huge amount of detail as to what sort of reforms that might lead to or how high a priority they might be for any incoming Labour government.

On pensions generally the manifesto says:

“Labour will also act to increase investment from pension funds in UK markets. We will adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC. We will also undertake a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets.” 

So far, so Mansion House – promises to drive increased investment in UK markets and focus on consolidation in order to (hopefully) deliver better returns through economies of scale and greater efficiencies.  In terms of specifics, in particular for public service pension schemes, the “Financing Growth” paper published by the Labour party back in January 2024 (before the calling of the election) may offer a few more clues as how these ambitions might be implemented. 

That paper trailed the “in-government pensions and retirement savings review” which now appears in the manifesto,  and specified that it would encompass public sector schemes including the LGPS. It also promised:

• as part of the review, to work “with industry and consumer groups to ensure savers are getting the best possible returns, and to identify and tackle the barriers to pension schemes investing more into UK productive assets”
• to enable “greater consolidation across all pension and retirement savings schemes”, including for the LGPS an evaluation of different models for pooling, “including increasing in-house fund management capacity at the pool level, to deliver better returns for savers and increase investment in productive assets” 
• working with the LGPS, to set out best practice for adopting “cost-effective in-house fund management capabilities within pools” similar to the model adopted by other pension funds 

Therefore, although light on specifics, there are strong synergies here with the Mansion House reforms, and LGPS funds in particular may expect to see a Labour government pick up the baton where the previous Government left off, if it comes to power.  Expect to see the focus on increased investment by pension funds in UK plc continue, and a deeper dive into LGPS pooling models.  Query though whether the 31 March 2025 deadline for transfer of listed assets into existing pool structures might be quietly parked pending the outcome of that pooling structure evaluation and the wider review of the pensions landscape.

Insourcing

In advance of its manifesto launch the Labour party published another detailed paper in May 2024. The “Plan to Make Work Pay” paper sets out a host of wide-ranging reforms that the Labour party intends to make to UK employment law.  As we referenced in our 6 June post (ahead of the publication of the manifestos), as part of that “new deal for working people”, the paper promises to “bring about the biggest wave of insourcing of public services in a generation”. 

The manifesto states that, if elected, a Labour Government would implement the deal outlined in the May 2024 paper in full, and would introduce legislation within 100 days, consulting with stakeholders “on how to put our plans into practice before legislation is passed."  The paper indicates that the in-sourcing of services would be achieved by:

• reviewing current out-sourcing arrangements when the existing contracts expire (or a contract is terminated due to failure to deliver)
• requiring public bodies to carry out a public interest test to understand “whether the work could not be more effectively done in house” before a service is contracted out;
• that test would look at “value for money, impact on service quality and economic and social goals”.

If the scale of the in-sourcing of public services is as significant as Labour seem to envisage, this could potentially lead to 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.  For the LGPS, there are also potentially significant funding implications.  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.

Tax

Readers will recall that when the abolition of the lifetime allowance was announced by the previous Government, the Labour party had initially promised that it would reinstate the limit (and associated charges) if elected.  However, this commitment did not find its way into the manifesto – which may be welcomed by an industry still tackling the complexities of implementing the abolition and the new lump sum arrangements which came into effect earlier this year.  Through the public sector pensions lens, there may also be some relief given that the LTA abolition came about in part to address workforce planning issues relating to high earners in the NHS scheme (amongst others) becoming liable to high tax charges (due to the accrued value of their pension savings) and therefore taking retirement earlier than they otherwise might have.

It appears therefore that the Labour party proposal to reinstate the lifetime allowance has been shelved, at least for the time being.  As we’ve discussed in earlier posts, one of the measures frozen by the calling of the election was the second set of amending regulations, designed to support April’s LTA abolition by fixing some wrinkles in the legislation.  The hope is that the regulations will therefore still be forthcoming under a new Parliament, even if there is a change of party in power.

The Conservative party manifesto included a further pensions tax promise – a commitment to maintain the current position whereby pension contributions are taxed at an earner’s marginal rate. There had been speculation in the press a few weeks ago that a policy advanced by shadow Chancellor Rachel Reeves to bring in a flat rate of tax relief on pension contributions (thereby making the arrangement less generous to high earners) some years ago may be resurrected now, but that does not form part of the Labour party's manifesto.

Mineworkers pension scheme

Prior to manifestos being published, few of us in the industry would have anticipated the Mineworkers Pension Scheme being one of the headline pensions issues.  Tucked away in a section of the Labour manifesto relating to clean energy is this promise:

“Labour will end the injustice of the Mineworkers' Pension Scheme. We will review the unfair surplus arrangements and transfer the Investment Reserve Fund back to members, so that the mineworkers who powered our country receive a fairer pension.”

Similar promises are made by Plaid Cymru in its manifesto and by the Reform party in its contract.

Briefly, following privatisation of British Coal in 1994, the Mineworkers Pension Scheme closed and the Government “became the guarantor for the scheme”, in place of British Coal as sponsor, guaranteeing that “pensioners would always receive the benefits they had earned up to privatisation”.  The scheme website says that:

“Over the years, the Government Guarantee has allowed the trustees to invest the Scheme’s money more ambitiously than they would otherwise have been able to. This has paid off and the Scheme’s investments have made a surplus on several occasions. Whenever this has happened, the trustees at the time have used the members’ half of the surplus to put money straight into members’ pockets in the form of bonus pensions.”

The controversy relates to the remaining half of the surplus that has been paid to the Government as guarantor – this totals some £420m in the last 3 years alone.  Reports indicate that the total amount that the Government has received over the past 30 years is around £4.8bn. In 2021 a Select Committee recommended that the surplus sharing arrangements should be reviewed and “replaced with a more appropriate arrangement going forwards” as well as that the £1.2bn the Government was then due to receive from the investment reserve should be handed back to miners. The Labour party proposals are therefore consistent with the Select Committee recommendations (which are supported by the Scheme’s trustees).

Overseas Entities Bill

Last but not least, as we reported in our recent blog, another measure interrupted by the election being called was the passage of the Economic Activity of Public Bodies Bill, which had reached the Committee stage in the House of Lords.  For more background on the Bill, which would be relevant to LGPS investments, and about which the LGA had expressed concerns, please see our previous articles. 

The Conservative party’s manifesto included an express commitment to “bring back our Bill to ban public bodies from imposing their own boycott or divestment campaigns against foreign countries and territories.”  The Labour party manifesto does not mention the Bill and gives no indication that it would be resurrected if they win the election (although does not specifically exclude that possibility either).

This post is current as at 27 June 2024