Member Article

A General Election will be held on 4 July 2024. In this article, Sarah Jenkins considers what that might mean for the pensions industry

What does the General Election mean for pensions?

It has been a busy time for the pensions industry of late - a new policy, consultation or legislation seemingly appeared each month. However, the pensions plates are not the only ones which the Government has been spinning, and much of the planned pension reform has not yet made it to the statute books.

With the news that a General Election has been called for 4 July 2024, Parliament will be dissolved next week, and any legislation which has not been finalised will fall. What does that look like for the pensions industry? And what can we expect from the new Parliament when it is eventually formed?

Defined Benefits (DB) Funding Code

Of most immediate interest (and frustration) for trustees of occupational pension schemes will be the delays that the General Election will likely cause to the DB Funding Code (Code). The Code was due to be published in Summer 2024 and laid before Parliament to come into effect in September 2024.

The new funding regime aims to balance the security of members’ benefits with the sustainability of sponsoring employers’ businesses, and to encourage better collaboration between trustees and employers and a focus on planning for the longer term. While the funding regulations themselves have come into force and will apply to valuations from 22 September 2024 onwards, the Code needs to be laid before Parliament for 40 days before it comes into effect. With only 80 days between the General Election and 22 September, timing feels a little tight. We comment on the new funding regime here: New Scheme Funding Regulations: What you need to know (shoosmiths.com)

DB Superfunds

Also affected by the dissolution of Parliament will be the proposed legislative framework for the authorisation and regulation of DB consolidators, or “superfunds”. The Department for Work & Pensions (DWP) confirmed in July last year that it would prepare primary legislation to introduce this regime “when parliamentary time allows”, with the Pensions Regulator (TPR) to produce an enforceable code to be followed by authorised consolidators. Clearly, time has not allowed in this session, and we do not expect that this legislation will be a priority for 2024 when the new Government is formed.

Mansion House reforms

In July last year, Jeremy Hunt MP delivered a speech setting out a package of reforms aimed at unlocking capital and supporting growth across the economy. Changes to the UK pensions market featured heavily in the proposals (Pensions changes in the Chancellor's Mansion House speech (shoosmiths.com)).

The Labour Party has indicated its broad support of the aims behind the Mansion House reforms. We anticipate that the General Election will delay, rather than de-rail, many of the proposals. However, it is unclear how quickly the new Government will get these changes back on track.

Value for money (VFM) framework

The Financial Conduct Authority was due to consult in Spring 2024 on detailed rules for a new joint VFM framework for defined contribution pensions. This new framework is aimed at improving transparency and the delivery of VFM in the market. The new framework was being developed jointly with TPR, the DWP and the Financial Conduct Authority. However, that consultation has not yet been published, and it seems likely that the next steps for this work will be delayed until at least the Autumn.

Public sector consolidator

Another current proposal related to the creation of a public sector consolidator for DB pension schemes, to be run by the Board of the Pension Protection Fund, acting (primarily) as an alternative to buy out for schemes unattractive to commercial providers.

Surplus payments

Of particular interest to employers is the recent DWP consultation on payment of pension scheme surplus funds. If reform were to take place, it would make it easier for employers to extract surplus from the pension schemes they fund. The consultation only closed in April so any regulatory change is unlikely to be at the top of the new Government’s action list. Further commentary on this topic can be found here: Government consults on defined benefit surplus (shoosmiths.com))

What else?

The legislative changes highlighted above are the tip of the pensions iceberg. Other areas where regulations are awaited include finalisation of the changes to the notifiable events regime and GMP conversion.

Perhaps the biggest elephant in the room, though, is what the Election means for the abolition of the Lifetime Allowance (LTA), which took place last month. In March last year, Labour stated that it would reinstate the LTA were it to be elected to government. Labour has been much quieter about these reforms since that time, and it remains to be seen whether this will be one of its election pledges. Any reversal to abolition of the LTA will involve some complicated legislation.

Period of uncertainty

Whatever the outcome of the vote in July, it is clear that there will be a period of delay and uncertainty surrounding many aspects of proposed pensions reform. Added to the delays which have already occurred in implementing pension regulatory change, we might find ourselves sitting on our hands for many more months after the election.

 

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