@PLSA.
Changes to pension tax relief, productive assets, artificial intelligence (AI), value for money and even the role of TikTok were discussed at the Pensions and Lifetime Savings Association’s (PLSA) annual conference last week. Many of the themes were directly linked to those being faced by investment teams at insurers.
Pensions minister Emma Reynolds was the first to address delegates at the annual event in Liverpool. Reynolds, MP for Wycombe, was fresh from the Government’s International Investment Summit the day previously.
As the first pensions minister to work jointly across both the Treasury and the Department for Work and Pensions (DWP) Reynolds said her priority was to unlock the “true potential” of the UK’s £2 trillion pensions industry”.
She claimed proposed reform to pension provision such as the consolidation of small pension pots and value for money framework would improve outcomes for pension savers and remove costs from the system.
"We face many challenges, but also great opportunities to unlock the
true investment potential for pensions. delivering the growth."
Reynolds also mentioned super funds, and committed to the launch of pensions dashboard as well and plans to extend the current offering of collective defined contribution (CDC) pension schemes to more employers.
The issue of productive finance was threaded through her Reynold’s speech to conference. She welcomed the 200-plus industry responses to the government’s call for evidence, which had asked questions about Defined Contribution (DC) and LGPS (Local Government Pension Scheme) funds investing in the UK.
“The PLSA and its members have a critical role to play in innovating and improving our pensions landscape,” said Reynolds. “Together, we face many challenges, but also great opportunities to unlock the true investment potential for pensions. delivering the growth. The country needs security in retirement. Savers deserve that.”
The upcoming Budget, the new government’s first since it replaced the previous Conservative-led administration in July, was discussed at several sessions and the general consensus was that changes to pension tax relief were likely as the government looks to plug a £22 billion public funding black hole.
Andrew Harrop, former general secretary of the left-leaning think tank the Fabian Society, said removing pension tax incentives appeared to be “the least worst option” for the Chancellor of the Exchequer. He said Reeves had ruled out any tax rises and “the bad news is that you [the pensions industry] look like the least bad space for her to go to to find money.”
There was discussion over the fairness of some of the mooted changes – which have included the removal or capping of the tax-free cash lump sum, removing National Insurance relief for both employers and employees and removing the inheritance tax (IHT) sheltering abilities of pensions.
There was an agreement across several sessions that, because the amount of tax relief given to pensions outstripped tax receipts from pension income, pension saving favoured wealthy higher rate taxpayers.
Jackie Wells, an independent consultant who works with the PLSA, said the removal of the upper rate tax relief could generate up to £42.5 billion for the Treasury.
“This sounds simple for a defined contribution scheme but less straightforward for a DB scheme.”
Steve Webb, a partner at pension and investments consultant LCP and former pensions minister during the 2010 to 2015 coalition Conservative/Liberal Democrat administration under former Prime Minister Lord Cameron likened pension taxation reform to: “Plucking the goose with the minimum amount of hissing.”
“[Labour] want to raise serious amounts of money and they will have heard the clock ticking to the next election, so they need something that will raise money as soon as possible," said Webb. “A government that wants money now to make a difference in the NHS so it’s preferable they would have wanted the money last year.”
At another session Steve Charlton, Managing Director of investment solution company SEI pointed out higher rate taxpayers may not always have been in that tax bracket.
“Master trusts are now the dominant form of DC saving
in the trust based space."
The role of super funds and industry consolidation was addressed in a couple of sessions.
Delegates were told by Julian Barker, Head of Policy Collective Defined Contribution and DC decumulation at the DWP, that master trusts will account for £400 billion of savers' assets by 2045.
The consolidation of defined contribution schemes would be an inevitable product of pension reform and that assets in these types of DC schemes would grow to £1.3 trillion within 20 years.
“Master trusts are now the dominant form of DC saving in the trust based space, and in two decades time, we could reasonably expect master trust to hold about £400 billion in assets."
Barker pointed out the incoming pensions bill will also deal with the consolidation of small deferred pension pots by authorising providers to act as aggregators.
“The intention here is to help remove costs and help individuals keep track of their savings and therefore get better value from them.”
He also welcomed the launch of the first collective defined contribution CDC pension by the Royal Mail was also a sign the industry was moving in the right direction.
At the same session Patrick Heath-Lay, Chief Executive of People’s Partnership ,questioned how much consolidation could realistically take place in the master trust space.
He said numbers of five and 10 [providers] had been bandied around in various different reports. “I think that's overly consolidated.”
The theme of productive assets came up with two of the large providers believing more support from both the government and the asset management industry would be needed.
“I'm not sure we've seen the investment industry particularly come up with the products that can work for asset owners like us,” said Heath-Lay.
Jamie Fiveash, Chief Executive of Smart Pension, used the example of reintroducing tax credits on dividends. “We still need to have fiduciary duty elements, which is why we're talking about some of the fiscal incentives that we think are needed in portfolios.”
Simon True, Chief Executive Officer of Clara Pensions, told another session consolidation of pension was not inevitable, but should happen.
Regulators also addressed the conference and told delegates they were open to more discussion around the proposed value for money framework. The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) said they were committed to working together to make the UK pensions systems work for everyone.
The latest consultation, on detailed rules and guidance, began in the summer and ended last week, on the same day as the conference closed.
“The framework’s primary aim is to deliver value for savers.
This is not in opposition to productive finance."
Nina Blackett, Executive Director - Strategy Policy and Analysis at The Pensions Regulator, said they wanted to collaborate with the industry as much as possible and that the proposals, which included a traffic light warning system, were still very much open to discussion.
Nike Trost, Head of Asset Management and Pension Policy at the Financial Conduct Authority (FCA), dismissed delegates' fears of over-regulation. “We have looked carefully at the cost and benefit and because of the size of the pension market, bringing up some of those at the bottom will drive up the rest,” she said. “That’s not to say we shouldn’t look at the proposals and see how we can streamline that.”
Blackett also addressed a question on productive finance and how the longer term nature of start ups might interact with the value for money proposals.
“The framework’s primary aim is to deliver value for savers. This is not in opposition to productive finance,” she said.
“We make decisions on millions and billions of pounds so I have no
problem with the regulator coming in and examining what we do."
Artificial intelligence and social media also got a look in. At a discussion on trusteeship, Harus Rai, Managing Director of Capital Cranfield and Chair of the Association of Professional Pension Trustees, said he was open to both regulation and accreditation of trustees.
“We make decisions on millions and billions of pounds so I have no problem with the regulator coming in and examining what we do,” said Rai. “If it raises standards and improves member outcomes, how can we argue against it?”
Harus cited the example of 400 page reports that could be summarised for lay trustees using AI. “[AI] has the potential to move the dial so it should be embraced. How can we allow trustees to make the step from not using it to using it?”
At another session Scottish Widows’s Robert Cochran told delegates a video of him running up the stairs talking about pension awareness had so far gained over two million views on TikTok.
Cochran said Scottish Widows had made the decision to engage with social media influencers as part of its involvement in the Pension Attention campaign. “Previously the pension industry wouldn't engage with TikTok. Now we have embraced it and it is opening up new avenues.”
He said Scottish Widows had approached influencers, rather than let them approach it and that proactive approach had allowed it to give them facts rather than soundbites.
Cochran said Scottish Widows’s TikTok account had clocked up 72 million impressions.
Iona Bain, founder of the Young Money blog, said the introduction of the pension dashboard could help empower young people further. “Let's make them easy [to use], they can’t come soon enough,” said Bain.
The conference was closed by Baroness Harriet Harman who recounted her early days as a minister in the first Tony Blair Labour government of 1997.
She expressed her faith that Rachel Reeves’s first budget would be a well-thought and well-intentioned one.
She gave delegates a glimpse behind the Westminster veil and praised Reeves’s relationship with the prime minister Keir Starmer – in comments that alluded to the alleged difficult relationship and power struggle between Tony Blair and Gordon Brown. “They have a very positive and functional working relationship. She said she wants growth and taxes to be fairer like other Labour chancellors.”
However, Harman listed the challenges before Reeves.
“But she's the first who said she wants to end unequal pay for women once and for all,” Harman concluded. “So she's not just the first woman Chancellor. She's the first woman chancellor who's also a working mum, like so many women are in the workforce.”
