Hopes for DC and DB Pensions in 2024

Commenting on the impact of 2023 on DB Pensions , and his wishes for 2024 Calum Cooper, Partner, Hymans Robertson, says:

“2023 was a year of expansive pensions regulatory, political, and financial thinking. Think Mansion House, the first DB consolidator transaction, the W&PSC review of DB and what it would take for the 460+ open DB schemes to thrive. More recently the Government’s push to harness the productive potential of £1.4trn+ of DB assets. And the PPF reports that in aggregate, DB is now beyond solvency funded.

“So, what does this mean for 2024? How do we turn this possibility orientation into practical action to improve outcomes for pensioners? My wish list is:

1. Commissioning going steady. We’d love to see government getting serious about a longer-term relationship with pensions policy. This is critical to give corporates confidence in a stable future. We continue to advocate for the establishment of a cross party commission to look at these issues, in order that policy transcends political tenure. A key commission objective would be to stimulate diverse retirement saving solutions that improve retirement outcomes whilst supporting wider economic growth. This would intergenerationally reconnect the UK’s immense store of pensions wealth, deliver pension promises, support current workers and build societal prosperity. 

2. Taxing to a better future. What if government used tax incentives to align DB scheme choices with society’s wider aims around growth, climate and pensioner living standards? For instance, not applying tax on refunds which are re-invested in UK productive finance or in UK climate transition initiatives. Without this, reinvigorating investment in UK productive assets and enhanced pension outcomes is highly unlikely to succeed on a material scale. And it will still require change to regulations (next wish!).

3. Enhancing regulatory goals. The statutory objectives given to the Pensions Regulator (TPR) should be reformed and re-oriented in 2024.  A better statutory objective for today would be to balance keeping past benefits secure with offering quality pensions to current workers. This TPR mandate would give employers, and the pension industry, freedom to develop a new generation of retirement saving designs that would allow longer term investment horizons (opening the door to UK productive assets) and secure better employee outcomes. The new funding code will not touch the edges here.

Commenting on what he’d like to see in 2024 in DC Pensions Paul Waters, Head of DC Markets, Hymans Robertson, says:

“In 2024 we’d like to see cross party, political alignment around pension policy to deliver long term planning stability. What’s really needed is for this to be devolved in such a way that short term Treasury priorities do not dictate policy, especially if, as expected there is an election in the next 12 months.

“Adequacy remains a massive issue for DC pension members. The AE minimum is currently not enough for good long-term outcomes and needs to be raised to 12%. Time is running out for those with DC pensions and inadequate contributions to gain a good retirement income. So, there must be legislation to allow pension schemes to default members into post-retirement options to give them a genuine whole-of-life pension solution. Innovative retirement solutions exist that could deliver better outcomes (e.g. longevity pooling) but a default approach would enable these to flourish and the government must encourage this.

“We also want to see the recent focus on DC consolidation, small pots and dashboards continue – in particular, greater clarity on the big consolidation ideas that have been mooted. It would be good to see the long-awaited introduction of the DC code and Value for Money regulation. There remains a compelling case for bringing illiquid alternatives, such as infrastructure and private equity, into DC default investment strategies. These are expected to drive improvements in member outcomes through greater returns and improved diversification. But, to unlock this potential, we need to stop the race to the bottom on charges and ensure the positive case for delivering better value is heard.

“2024 must be the year that there’s big effort put into solving issues about the advice and guidance boundary around which financial services institutions can deliver personalised guidance to help customers make decisions. The latest proposals from the FCA on “targeted support” could be instrumental in delivering better outcomes. If the proposed new policy is implemented effectively it will then be up to the industry to deliver the solutions members need, and we encourage providers to be bold and be decisive in making this happen.”