Hymans Robertson experts comment on:

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1. DC pension reforms overall picture
2. triple lock decision by the Chancellor
3. pension 'pot for life' proposal
4. National Insurance drop in Autumn Statement
5. Pension Protection Fund (PPF) expanded role
6. scheme surplus withdrawal tax
7. LGPS investment consultation
8. pensions decumulation Govt consultation outcome

Commenting on the overall picture of today’s Government announcements on Defined Contribution (DC) pensions reform, Paul Waters, Head of DC Markets, Hymans Robertson, said:

“The Government’s current focus on all things DC feels like a homeowner ignoring the maintenance and then suddenly trying to fix everything. Most of the policy developments are welcome and needed, but it’s not a great idea to do it all at once.

We welcome the focus on decumulation, and in particular the requirement for all schemes to design and offer a default solution for their members. CDC has benefits but the industry’s lukewarm reaction is a clear sign that it’s not the silver bullet the Government describes it as. Other forms of risk sharing can deliver better outcomes when applied in the right way.

Action was desperately needed to fix the proliferation of small pots and we have seen real progress on this score. A world in which members have better visibility and control over their pension, while providers administer fewer small accounts is a win-win.

The arguments for a single pension for life, facilitated by obligating employers to pay into a pension of your choice, appear weak at first glance. The issues they are designed to address are either not material or can be tackled by other means which are already under design. Albeit, we can see a tangential opportunity to improve the gender pensions gap if this paves the way for household pension pots.

Future generations of DC savers will be well served by the current Government and regulators focus on delivering good outcomes for DC savers. But care must be taken over the degree of change and how these are implemented. Sustained attention over time is far better than implementing a sudden fix.”

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Commenting on the Chancellor’s decision to maintain the triple lock in full, Paul Waters, Head of DC Markets, Hymans Robertson, said:

“Now was not the time to tweak the triple lock. The increased income that it provides right now, especially to deal with the high cost of living, will have been desperately needed by pensioners, particularly those on low incomes. The state pension is already relatively low when measured against recommended UK minimum living standards and many European countries. Changes to the triple lock, or the state pension, shouldn’t be made in a piecemeal way. In a period of relatively high inflation and interest rates, financial metrics and benefits shouldn’t be looked at in isolation. Short term decisions like suspending the triple lock aren’t a simple fix to the challenge of managing high levels of public spending and the ageing population. It needs a long-term solution, so, once the state pension is at a more meaningful level for the pensioners relying on it, the mechanism of ensuring fair but affordable increases must be addressed. Deep-rooted reforms that consider the interaction of pension savings, tax, and other benefits including care are needed.”

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Commenting on the pension 'pot for life' proposal from the Chancellor today, Hannah English, Head of DC Corporate Consulting, Hymans Robertson, said:

"Whilst we agree that the proliferation of deferred small pots is an issue that should be tackled – we are cautious about the proposals to allow members to manage and determine where both their deferred and current DC pots are invested. Introducing such changes would put an overwhelming amount of responsibility on members to ensure they make the best decision possible in the most informed way. Current lack of understanding of savings vehicles amongst the average saver could result in savers making poor decisions about where their pot is invested, perhaps making decisions based on the cheapest solutions or those that are the most marketed, rather than those that offer the best value for money. Education to savers would need to be carefully managed as part of this initiative. Auto-enrolment was incredibly successful due to the inertia of members and we don’t want to undo the good work done here.

"The complexity in introducing such a solution should also be considered. We are cautious that not only would lots of work and effort be required to implement this, but the administrative complexity required to maintain a solution that fully functions with minimal risk should not be overlooked. By allowing savers to choose their provider would put an additional burden on employers who would then need to be able to capture the chosen provider of their employees and ensure that contributions are correctly directed in the chosen way. Even if there is a central clearing house process, there is the risk that employers may not correctly collect the savers chosen provider, and the process of unpicking such errors would be very cumbersome."

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Commenting on the drop in National Insurance Contributions (NIC) announced by the Chancellor today, Hannah English, Head of DC Corporate Consulting, Hymans Robertson, said:

“The reduction in the main rate of NIC employees pay from 12% to 10% in January next year will save an employee earning £35k just over £448 a year. For those that make pension contributions by salary sacrifice, it will mean a small increase in the cost of pension contributions. An employee on £35k that sacrifices 5% of salary for pension contributions currently saves £210 in NIC. From January that saving will reduce to £175. The NIC saving their employer makes will stay the same at £241.50 if an employee makes contributions via salary sacrifice. Some employers already pay some or all of the NIC saving they make into employees’ pension pots. It might be that those that don’t will come under pressure to do so from January.”

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Commenting on the Pension Protection Fund (PPF)’s expanded role announced by the Chancellor today, Elaine Torry, Partner, Hymans Robertson, said:

"The PPF has a natural head start to become a public consolidator, so not unsurprising that this has featured in the Chancellor’s Autumn Statement, but this is not the most important area of focus in the DB policy space, and the Government should not miss the opportunity to reinvigorate retirement savings.

"The PPF’s statutory objectives and operational aims as a voluntary public consolidator would differ from the PPF’s current employer insolvency arrangements. This would require material changes at the PPF, not least to cope with the myriad form of non-standard DB benefits that exist. And we wholly oppose any public consolidation vehicle - PPF or otherwise - that appropriates assets from the PPF’s existing employer insolvency arrangements. Any public consolidator must be voluntary and separate."

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Commenting on the cut to the tax on pension scheme surplus withdrawal announced by HM Treasury today, Elaine Torry, Partner, Hymans Robertson, said:

“We welcome the government cutting tax for pension scheme sponsors that wish to extract surplus. Tax incentives are one tool that could help to align DB scheme choices with society’s wider aims. However, incentives to extract surplus would only be effective as part of a broader reframing of objectives for DB schemes. Using surplus to fund pension costs may simply free up business cash for other uses, so the government needs implement tax incentives in a way that they end up creating value and help the wider economy.”

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Commenting on the Autumn Statement and Government’s response to the Local Government Pension Scheme (England and Wales): Next steps on investments consultation, Philip Pearson, Partner, Head of LGPS Investment, Hymans Robertson, says:

“After consulting on a range of proposed changes to LGPS investments, the government, in line with their Autumn Statement, have concluded their consultation and published their results. In this, they have confirmed an intention for a target to pool assets to be set for March 2025, for there to be a smaller number of pools with £50b in assets, to provide guidance on a preferred model of pooling, for funds to have a target of up to 5% of assets invested in ways that help to address Levelling Up and for funds to have an “allocation ambition” of 10% of assets to private equity. Requirements will also be set on pensions committee training, standardised reporting and formalised objectives for investment consultants.

“Whilst the government has taken time to consider the feedback received, noting large concerns put forward for a wide range of the matters, it appears all of the key issues are still being put forward. However, it is pleasing to see some changes will not be enforced, instead either taking the form of “comply or explain” or being voluntary. This includes the ability of funds to explain why certain assets aren’t pooled by the 2025 deadline and government confirming that funds will not be forced to make investments in private equity and levelling up. Similarly, there will be no mandating of pool consolidation in the medium term. There are also some sensible concessions on how the single preferred model of pooling will be defined, focussing on characteristics and outcomes, rather than specific structures.

“We look forward to the government issuing the promised guidance on these wide ranging issues and providing clarity to these issues that have created great uncertainty within LGPS investments for a number of years.”

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Commenting on the outcome of the Government’s consultation on pensions decumulation, Kathryn Fleming, Partner, Hymans Robertson, said:

“It is good to see additional duties being placed on pension trustees to ensure decumulation options are in place for scheme members. They are well placed, we believe, to make decisions that reflect the wants and needs of their memberships. We agree with the overall aim for every pension scheme to either directly or through a partnering arrangement provide decumulation solutions for their members. This will act to improve member’s financial outcomes. Therefore, we believe that all trust-based schemes should be required to provide a solution to support a member in accessing the full range of the pension freedoms. However, it is imperative that this is not just product driven, but it is delivered in a way that best meets the needs of the members. It needs to be delivered in conjunction with a support service that helps a member better understand their retirement goals. What’s also clear is the lack of consensus across the pensions industry that the new product should be CDC. We believe that pension and product providers should have the freedom to design a solution that best meets the needs of their members, of which CDC is only one solution. While we welcome the Government’s acknowledgement that CDC will not be a solution for all, but it will have a role, we are disappointed to see its continued focus on it as the primary decumulation option. In doing this the Government is missing an opportunity to push the industry to innovate in this area. It also needs to be approached with caution as there is a broader conversation to be had regarding the extent to which irreversible solutions will have a place in default decumulation.”