Autumn Statement 2023

Investment reform

The government aims to boost business investment by £20m a year by unlocking pension scheme investment opportunities. It has written to the FCA and TPR setting out its vision for pensions market in 2030 (with suitable retirement options for savers, supported by a provider market that delivers value for members), and the investment measures to get there. It welcomed the regulators’ continued support in implementing policy to deliver this vision.

To support investment into ‘the UK’s most innovative companies’, new investment vehicles will be created via the Long-term Investment for Technology and Science (LIFTS) initiative, ‘tailored to the needs of pension funds’. It will also establish a Growth Fund within the British Business Bank, giving pension funds access to investment opportunities in ‘the UK’s most promising businesses’.

Value for Money (VfM) and Consolidation

• The government welcomed FCA and TPR announcements on next steps towards implementing a Value for Money framework (see our Mansion House insight for further detail) in the DC workplace pensions market, noting that large schemes drive down costs for savers and are better placed to diversify into growth equity. It hopes to see the majority of savers belong to schemes of £30 billion or larger by 2030.
• The FCA will consult on rules for contract-based schemes in Spring 2024, working with the government and TPR to develop consistent legislative requirements for trust-based schemes. Schemes will be required to compare themselves against others in the market to ensure they are delivering value for their members. In the meantime, ‘actions from TPR will strengthen their existing supervisory approach’ and embed the framework.
• The government is launching a call for evidence on a ‘lifetime provider’ model aimed at simplifying the pensions market by allowing individuals to have one pension pot for life (with contributions paid into their existing scheme when they change employer). The call closes on 24 January 2024
• It will also introduce a ‘multiple default consolidator’ model, to enable a small number of authorised schemes to act as consolidators for eligible pension pots under £1,000. An interim update is expected by Spring/Summer 2024, with proposals in late 2024
• It notes that significant progress has been made on legislation for both single and multi-employer Collective DC schemes, with the first single employer scheme likely to go live in early 2024 and regulations for unconnected multi-employer schemes to follow later in the year.

Retirement choices

The government is exploring the development and wider use of CDC in decumulation. Its response to consultation proposes placing duties on occupational scheme trustees ‘at the earliest opportunity’ to offer decumulation services and products ‘at an appropriate quality and price’ when savers access their benefits. Schemes will also be required to devise a backstop default decumulation solution, based on the general profile of their members, that a member would be placed into if they access their pension assets without making an active choice.

In the meantime, the government encourages schemes to voluntarily to develop a decumulation offer or enhance their current services. To support this TPR will bring forward interim guidance to show how the objectives of these policies can be met without legislation, and to encourage innovation.

To increase opportunities for DB schemes to invest in productive finance while fully protecting member benefits, the government will consult ‘this winter’ on:

• how the PPF can act as a statutory consolidator for schemes unattractive to commercial providers. It aims to establish this ‘public sector consolidator by 2026’
• whether changes to rules around when surpluses can be repaid (a current hot topic) could incentivise investment by well-funded schemes in assets with higher returns. The DWP will look to design a regime with safeguards for members, including exploring the viability of a 100% PPF benefit underpin.

The authorised surplus repayment charge will be reduced from 35% to 25% from 6 April 2024.

Among other public-sector related announcements, the government confirmed its plans to utilise the LGPS to boost investment, with guidance to be amended to require existing investment in private equity to double to 10% of assets, giving the potential to ‘unlock’ £30bn by 2030.

The deadline for transferring all LGPS assets to pools has been confirmed as March 2025, with the direction towards pools exceeding £50bn of assets.

The government responded to the call for evidence on trustee skills, capability and culture, which looked ‘to deepen the evidence base around trustee capability and other barriers to trustees doing their job in a way which is effective and results in the best outcomes for savers.’

The government is now taking forward some immediate actions to address issues raised by respondents (including TLT), including supporting TPR to put in place a trustee register; to develop the accreditation of professional trustees; to update investment guidance and trustee understanding of alternative investments; and to engage with employers selecting a pension scheme (so that focus is not purely on low costs). TPR’s trustee toolkit is also currently being reviewed to align better with their codes of practice and guidance.

TPR’s forthcoming General Code, once laid, will set accreditation for professional trustees as an expectation. TPR states that ‘every trustee body should include someone who meets professional standards, be highly qualified and able to balance competing priorities to deliver the best outcomes for savers. Where this is not possible, ‘trustees should consolidate’.

• Lifetime Allowance Abolition – The government confirmed that it will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance (this follows the Spring Budget announcement). This will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. The changes are to take effect from 6 April 2024.
• Master Trusts - the government published a review of the Master Trusts market, five years after the regime came into force, looking the future of regulation and supervision with a particular focus on investment governance.