UK Pensions Briefing | General Election 2024: A new pensions policy agenda?

Which current pensions plans are affected?

There were several pensions changes in the pipeline when the Election was announced and there is some frustration in the industry that their introduction has now stalled:

• Top of the list is the DB Funding Code which was due to be published in the Summer and laid before Parliament before coming into force on September 22, 2024. The new funding regulations came into force on April 6, 2024, and the Code must be laid before Parliament for 40 days to become effective, so timing is tight. Schemes with valuation dates of September 22, 2024, onwards are left in the unsatisfactory position of being without a Code to guide them on how the Regulator expects the new law to be interpreted. Our February briefing looks at the detail of the regulations.
• The abolition of the lifetime allowance – legislative loose ends remain and further regulations clarifying outstanding issues for those taking pensions benefits or hoping to transfer out of a scheme were expected before the Election was announced. Although Labour originally planned to reinstate the lifetime allowance, it has been confirmed that this is not now the intention. Hopefully, the tidying up exercise will be close to the top of the next government’s agenda.
• Repayment of surplus in DB schemes – one element of the government’s recent consultation on options for DB schemes was a proposal for a mechanism to repay scheme surplus, either to employers, members or a combination of both. The consultation closed on April 19, 2024, and it remains to be seen if this will a priority for a new government.
• The passage through Parliament of the Pensions (Special Rules for End of Life) Bill has been interrupted and may not continue. The Bill included amendments to the definition of terminal illness in both the Pension Protection Fund and Financial Assistance Scheme so that people with a life expectancy of up to twelve months (instead of the current six months) can receive terminal illness payments.
• The State Pension Age (Compensation) Bill which proposed a specific timeframe for the government to establish a compensation scheme for women born in the 1950s affected by the increase in State Pension Age will be delayed.
• The Financial Conduct Authority was due to consult in the Spring on rules for a new Value for Money framework for DC schemes, to be developed jointly with the Regulator, the DWP and the FCA itself. The consultation has been delayed and will probably not now appear until the Autumn.
• Further outstanding issues include regulations relating to GMP conversion and to new regulations relating to notifiable events, on which little or nothing has been progressed for months.

What the parties’ manifestos say

Below we have outlined the manifesto promises on pensions policy, set out in the order in which they were published.

Liberal Democrats

• Review pension rules so that gig economy workers are included.
• Protect portability of pension pots.
• Encourage climate friendly investments and create powers for regulators to act where investors do not properly manage climate risks. Managers will be required to show that their investments are consistent with the Paris Agreement.
• Develop measures to end the gender gap in private pensions.
• Protect the triple lock and create a State pension helpline.
• Ensure women affected by the last State pension age rise are properly compensated.

Conservatives

• Establish the “triple lock plus” so that the tax free personal allowance rises at the same rate as the State pension. The aim is that individuals in receipt of the State pension as their sole source of income should remain below the threshold for paying basic rate tax.
• A guarantee of no new taxes on pensions: maintaining the 25 per cent level of tax free cash and pension contributions to continue to receive tax relief at the member’s marginal rate. No mention is made of the tapering annual allowance for “high income individuals” so we assume this will be unchanged.
• Considering compensation for those women born in the 1950s and affected by the rise in State pension age.

Green party

• Basic rate tax relief on pension contributions to apply to all savers, regardless of their marginal rate.
• Introducing a requirement for pension funds to remove fossil fuel assets from their investment portfolios by 2030.
• A commitment to ensure that pensions are always uprated in line with inflation and keep pace with wage rises across the economy. (It is unclear whether this policy relates only to the State pension or to all pensions).
• Work with the higher education sector to tackle the challenges posed by changes to employer contributions for the Teachers’ Pension Scheme.

Labour party

• Undertake a review of the pensions landscape.
• Act to increase investment from pension funds in the UK markets.
• Adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to “deliver better returns for UK savers and greater productive investment for UK PLC”.
• End the injustice of the Mineworkers' Pension Scheme by reviewing as “the unfair surplus arrangements and transferring the Investment Reserve Fund back to members”.
• Mandate that UK-regulated financial institutions including pension funds develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.
• Retain the triple lock for the State pension.
• Adopt reforms to workplace pensions to “deliver better outcomes for UK savers and pensioners.”

Decisions for the next government

On June 7, 2024, the Institute for Fiscal Studies published a report in which it set out five key decisions for the next government to take on pensions policy. The Institute looks at both the State pension and the private pension system and identifies the following as priorities:

• Taking a decision on whether to provide additional support to those not able to work up to an increased state pension age, which is seen as urgent as the State pension age will rise from 66 to 67 between 2026 and 2028. The government will also have to finalise the timing of the increase in the state pension age to 68.
• Settle on a long-term strategy for the level of the state pension. The triple lock, which both leading parties have suggested they will maintain, increases the level and cost of the state pension in an ultimately unsustainable way. Current forecasts suggest maintaining the triple lock will cost around £1.5 billion per year by 2029–30 relative to earnings indexation, although this is an estimated position. The Institute favours a decision on the appropriate level for the State pension and then increasing it to keep pace with average earnings growth in the long run, but also committing to increase it by at least at the rate of inflation every year.
• Decide on whether to proceed with legislated increases in minimum pension contributions. The Pensions (Extension of Automatic Enrolment) Act was passed in 2023 but has not yet been implemented. It would extend automatic enrolment to 18- to 21-year-olds and abolish the lower earnings limit for qualifying earnings.
• Target a long-term policy solution to support pension saving among the self-employed. Low rates of private pension participation for self-employed workers remains an unresolved concern. A quarter of employees earning less than £10,000 (and therefore not targeted by automatic enrolment) are saving in a pension which is a higher number than self-employed pension savers. More needs to be done to make it easier for self-employed workers to save in a private pension (and for those who are already saving to save more), potentially by integrating pension saving into the Self Assessment system for self-employed people.
• Implement policies to help people draw on their private pension wealth appropriately. The pension freedoms of 2015 introduced flexibility but exposed people to the risk of running out of pension income due to longer life spans.

Concluding comments

There are many ongoing key pension policies that need addressing by whichever party is next in power.

On several issues, there is cross-party consensus. These include the extension of auto-enrolment, the introduction of pensions dashboards and the development of policies to reinvest pension scheme funds into the economy as set out in the Mansion House reforms. These plans should all progress without major delay once Parliament reconvenes.

As the abolition of the lifetime allowance would not now be reversed by a Labour government, the rectifying regulations need come into effect as soon as possible, so that clarity is achieved for those waiting to take or transfer benefits and the administrators advising them.

Workplace pensions are an essential part of the UK economy, providing retirement income and driving growth. It will be interesting to see where the focus of the next government falls.

The Norton Rose Fulbright Election Hub can be accessed here.