The government has published an update on how it plans to conduct a landmark pensions review to boost investment and increase saver returns.
Chancellor Rachel Reeves announced the launch of the review last month and today (16 August) further details were shared via a terms of reference notice.
The first phase of the review will focus on investment and covers four areas: driving scale and consolidation of defined contribution (DC) workplace schemes; tackling inefficiency in the Local Government Pension Scheme through consolidation; a greater focus on value rather than cost; and encouraging further investment into UK assets to boost growth.
It will report initial findings ahead of the introduction of the Pension Schemes Bill.
The second phase will start later this year and alongside investment will consider further steps to improve pension outcomes, including assessing retirement adequacy.
Ongoing policy development with respect to defined benefit workplace pensions schemes will remain separate from the review.
The joint HM Treasury-Department for Work and Pensions minister Emma Reynolds has been appointed to lead it.
Paul Waters, head of DC Markets at Hymans Robertson, said he welcomed the update, adding there are “significant opportunities for the government to help the industry to improve outcomes for DC pension savers”.
However, given the “undeniable success of the LGPS delivering in alignment with local government”, Waters said his firm is “disappointed in the premise of the pensions review in tackling fragmentation and inefficiency”.
“The LGPS has a long history of continuous improvement and a ready enthusiasm to adopt best practice,” he said.
“We look forward to supporting the LGPS to leverage the review, and increased government attention, to continue to develop the scheme.
“We note that a Terms of Reference for defined benefits (DB) will follow separately and look forward to seeing this in due course.”
Tom Selby, director of public policy at AJ Bell, added: “The new government has made no secret of its desire to harness the trillions of pounds of assets held by UK pension schemes to help drive greater investment in UK Plc and, ultimately, spur long-term economic growth.
“The initial phase of this landmark pensions review is focused squarely on workplace pension schemes and local government schemes, with ministers hoping consolidation of this fragmented landscape will both improve outcomes for savers and boost investment in UK assets, with a particular emphasis on private equity.”
Given the “stagnant growth the UK economy has experienced since the 2007/08 financial crash”, the increasing desperation of policymakers to solve the productivity puzzle is understandable, said Selby.
“If stable, long-term economic growth can be achieved, that means more money for public services and potentially less need to bring forward unpopular tax hikes.
“However, it is vital the interests of savers, whose money is ultimately being used here, are not sidelined as a result.
“Successive governments have made dangerous claims that a shift to riskier investments will deliver larger pension pots for people, despite the inherent uncertainty that exists in this area, particularly when considering investment returns over decades.
“It is, of course, entirely possible that investing more in the UK will yield better returns and bigger pension pots – but it could also go the other way.”
Selby said trustees and those responsible for looking after members’ interests have a crucial role to play in ensuring investment strategies are designed with the aim of delivering good outcomes for those who will rely on those pensions in retirement.