ABI calls on MPs to put savers first in the Pension Schemes Bill

Ahead of an appearance in front of the Public Bill Committee tomorrow (Tuesday 2nd September), the ABI outlines its support for the Pension Schemes Bill, alongside considerations for MPs to ensure it delivers for savers.
 
The Committee is seeking stakeholders' views on how the Pensions Schemes Bill can make pensions easier to understand and manage, and to deliver better value for millions of savers.
 
We're broadly in support of the Bill and are pleased to see measures we've long called for included, such as the power to enable firms to consolidate schemes where it's in customers' interests, a framework to assess funds' Value for Money, and efforts to find a solution to the small pots problem. Along with the Pensions Commission and wider changes to help customers make decisions about their pension, it forms part of a long-term plan for pensions.
 
However, to ensure the Bill can reach its full potential and truly deliver for savers, we call on MPs to:

1. Rely on industry action to invest in the UK and in private markets

The insurance and long-term savings industry supports the UK economy and drives growth. This has been demonstrated by the voluntary Mansion House Accord signed by 17 of the UK's largest pension funds this spring. Additionally, our research found that bulk and individual annuities providers invest 65% of assets in the UK. But savers should always come first, and pension providers and trustees must retain the power to act in savers' best interests.
 
Mandating how pension schemes invest undermines trust in the system. The government's role should be to make the UK an attractive destination for investment, as it is already seeking to do, rather than directing investment. With the enhanced focus on improving investment prospects in the UK, and the Accord already in place, the reserve power is unnecessary.
 

1. Ensure people's pensions remain the first priority when accessing DB surplus or a Superfund

Superfunds are intended to help employers and schemes find a home for defined benefit pension liabilities when they cannot afford a buyout through an insurance company. But while cheaper, Superfunds aren't regulated as closely as insurance firms and are required to hold less capital than an insurer does to ensure all pensions are paid. This puts savers' promised pension benefits at a greater risk.
 
To protect scheme members, we urge the government to establish a robust legislative framework for Superfunds, reflective of the stringent standards applied to insurers. It must also retain the 'Gateway test' - a vital mechanism that requires schemes which can afford to secure member benefits through buyout to do so.
 
Furthermore, any plans to allow companies to access surplus pension capital must put the security of saver's benefits as the top priority. The interaction between surplus extraction and the Gateway test needs to be managed carefully to avoid schemes extracting surplus to a level which takes them below buyout eligibility and defaulting to a Superfund.
 

1. Communicate a clear timeline for how measures will be implemented

The government's focus on legislation that enables more transparency in the pensions system and delivers better value for savers is positive. But the proposed sequencing doesn't give enough time to allow for these measures to be implemented properly.
 
A “contractual override” will allow for savers in workplace schemes regulated by the FCA to be transferred to other schemes when it's in the saver's best interest, as providers regulated by The Pensions Regulator can currently do. It's essential that firms have this power before the Value for Money framework and small pot consolidation reforms are implemented so they actually move savers to schemes which deliver better value or consolidate small pots.
 
The government must also provide firms with clear guidance on how these measures will be introduced through secondary legislation so they can begin to prepare for changes to ensure they are ready on time.
 

1. Help people get the most out of their pension

Crucially, the Pension Schemes Bill is about people. And measures must be taken to ensure everyone can access the help they need. Under current rules, anyone who is automatically enrolled in a workplace pension scheme through their employer is effectively opted-out from marketing communications by default. This can mean they miss out on engaging and helpful content relating to their pension.
 
The Bill creates a chance to address this problem by extending the soft opt-in exemption to workplace pensions. This additional messaging from providers could help people become more engaged with their pension and make more informed decisions. It could also help drive greater pension savings, better understanding of retirement needs, more effective use of retirement savings, and improved financial wellbeing overall.
 
Rob Yuille, Head of Long-Term Savings Policy at the ABI commented: "It's an exciting time for pensions and there is much to celebrate in the government's Pension Schemes Bill. But it does also need careful scrutiny.
 
“With the right approach, this Bill alongside the reformed Pensions Commission, adequacy review, and upcoming regulatory changes could fundamentally strengthen the UK's pension system. We'll continue to lead on behalf of the sector to ensure savers' interests remain at the heart of reform."