What does Labour have in store for the pensions industry?

The Labour party last week set out its plans for reform of the financial services sector, including several proposals affecting pensions. We asked industry commentators for their views.

Pension industry commentators have widely applauded Labour’s plans for later life savings if it wins the next general election.

The party published its Financing Growth report at the end of January, and stated that it would review the current state of the pensions and retirement savings landscape to assess whether the current framework would deliver sustainable retirement incomes.

This would involve working with the industry to ensure that pension savers are getting the best possible returns, and to identify and address the barriers to schemes investing more into UK productive assets – indicating support for the current government’s Mansion House reforms.

Auto-enrolment
Labour’s plan stated that it would “review the current state of the pensions and retirement savings landscape… to evaluate whether the current framework will deliver sustainable retirement incomes for individuals”. The review would “look across the ecosystem” at all forms of retirement savings.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Auto-enrolment has been in place for a decade and the review gives an opportunity to step back and look at what needs to be done to build on its success.

“Such a review should also include the state pension and the triple lock. With costs continuing to spiral the government needs to look at how to keep state pension on a sustainable footing long-term.”

Glenn Cameron, senior investment consultant and head of digital assets at consultancy group Cartwright, highlighted the need to increase minimum contributions.

“Increasing these rates is essential for ensuring that future retirees have adequate savings,” he said. “Yet, as noted, the timing is challenging due to the current economic climate. A phased or conditional approach to increasing contributions, perhaps tied to economic indicators or wage growth, could offer a more palatable solution that balances the need for higher savings with the realities of the cost of living pressures.”

Productive assets
Another positive from the plan was the intention to continue with the Mansion House reforms, especially those focused on increasing investment into UK businesses.

Cartwright’s Cameron said: “The focus on overcoming cultural and regulation-induced risk aversion to encourage investment in UK productive assets sounds promising. However, it requires a nuanced approach to ensure that pension schemes are not exposed to undue risk.

“The industry needs clarity on how the encouragement of these types of investments will be balanced with the need for stable, long-term returns. Government should not be using people’s lifetime savings as a piggy bank in an attempt to get a sluggish economy going, or to plug a hole in their own fiscal position.”

However, Daniel Taylor, client director at Trafalgar House, said the proposed review’s focus on wider economic growth “seems to fall short of addressing some of the core, technical challenges facing the pensions sector”.

He warned that Labour’s approach “may not fully satisfy the needs and concerns of pension members or the administrators and industry professionals who support them”.

Consolidation
The Labour party indicated that it wanted to take a harder stance on the consolidation of small pension schemes, including by granting new powers to the Pensions Regulator (TPR) to “bring about consolidation where schemes fail to offer sufficient value for their members”.

Phillip Smith, defined contribution (DC) director at TPT Retirement Solutions, said: “We believe that a more joined-up consolidator market will be key to schemes benefiting from economies of scale, and subsequently improving member outcomes.”

Helen Ball, partner at Sackers, added: “With a quest to ensure greater consolidation across pension and retirement saving schemes and a focus on value for members, there is a familiar ring to much of the content of the Labour Party proposals.”

Steve Webb, partner at LCP and a former pensions minister, said: “A large part of the Labour agenda as set out in today’s document represents continuity with the current government’s agenda rather than a radical change of direction. The main difference seems to be a slightly more interventionist approach… If the [current] government had produced today’s document rather than the Labour party, it would have represented further evolution rather than revolution.”

A general election must be held by 28 January 2025 at the latest. Prime minister Rishi Sunak has indicated that he would call one in the second half of this year.