For the third time in five years, voters in the UK will be heading to the polls in a general election. If you add 2014's referendum on Scottish independence and 2016's referendum on the UK's membership of the European Union, Britain has been through an extraordinary period of political turbulence that shows no sign of abating in the short term.
What does this mean for workplace pension schemes in the UK? What do trustees and sponsoring employers need to consider as they steer their schemes through this period of political uncertainty? What will this mean for their schemes' members?
What are the key impacts of the general election on pensions?
1. The Pension Schemes Bill 2019-20 is lost (but probably not forgotten
The Pension Schemes Bill is dead. Long live the Pension Schemes Bill! At the dissolution of parliament, all legislation that has not been enacted fell. This means the Pension Schemes Bill 2019-20 (the Pensions Bill 2019) was lost, but it is likely that the next government will introduce a replacement pensions bill covering the same policy goals in the new year. The Conservative Party have included a manifesto commitment to do just this.
2. TPR's consultation on a new code of practice for DB scheme funding will be delayed
The Pensions Regulator (TPR) announced earlier this month that it would delay the publication of its consultation on a new code of practice for defined benefit (DB) scheme funding. It is likely to publish its consultation if and when legislation is introduced covering scheme funding and TPR's powers (i.e. replacing the provisions set out in the Pensions Bill 2019).
3. Brexit will be delayed
The general election means that Brexit will be delayed. Again. Originally the UK was scheduled to leave the European Union (EU) on 28 March 2019. This was delayed to 31 October 2019 and has now been delayed at least until there is a new parliament. The EU has extended the Article 50 exit period until 31 January 2020 unless a deal is agreed sooner. Whether the UK will actually leave the EU on this date (or earlier) will depend on the results of the general election and whether a parliamentary majority for a particular course of action is available.
4. Pensions is not a key issue for the general election with rehashed policies from 2017
There is a strong sense of policy déjà vu in the manifestos for each of the main political parties. Pension issues are also taking a backseat, with limited policy commitments. The main commitments in 2017 included pledges on retaining the state pension 'triple lock', providing greater powers to TPR to secure workplace pensions and increasing the number of people saving for retirement by focusing on the gig economy and the self-employed. These remain the key issues for the main parties. In addition, many of the parties focus on groups or schemes who may have been disadvantaged by changes in pensions policy (e.g. workers with net pay pension schemes, pension increases for overseas members, women born in the 1950s, NHS Pensions and clinicians and the UK's coal mining pension schemes).
In addition to policies seen in 2017:
- the Labour Party have promised to establish an independent Pensions' Commission, modelled on the Low Pay Commission, to recommend target levels for workplace pensions. If pursued, this could eventually result in increases to minimum employer and total contributions in automatic enrolment schemes;
- the Liberal Democrats pledge to regulate financial services to encourage green investments, including requiring pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement on combatting climate change; and
- the Green Party's pledge to introduce a universal basic income and to ensure that pensioners are paid this at a higher rate.
5. More uncertainty for pension scheme trustees and sponsoring employers
Pension scheme trustees and sponsoring employers have been dealing with political uncertainty in the UK for the second half of this decade. This looks set to continue into 2020. If the general election produces a government able to command a majority, a degree of stability may return as the year unfolds.
What are the main parties promising on pensions?
Each of the UK's main political parties have set out their policies in manifestos. We have reviewed the manifestos from the mainland parliamentary parties and extracted their promises in relation to pensions. You can download a PDF which sets out a table comparing policy positions by clicking here. The paragraphs below summarise the policies set out by the three main UK-wide parties (the Conservative Party, the Labour Party and the Liberal Democrats).
What have the Conservative Party said about pensions?
The Conservative Party are committed to reintroducing legislation in line with what we saw in the Pensions Bill 2019. Along with the other main parties, the Conservatives have pledged to maintain the triple lock on state pension increases.
In addition, they have promised to:
- carry out a comprehensive review aimed at ensuring that workers in net pay pension schemes do not miss out on pension benefits (i.e. missing out on tax relief on contributions); and
- hold an urgent review to solve the problem of tapered annual allowance affecting clinicians in the NHS.
What has the Labour Party said on pensions?
The Labour Party are committed to introducing legislation covering pensions dashboards and collective defined contribution (CDC). This is in line with the policy set out in the Pensions Bill 2019. The Labour Party promise to go further on employers and scheme funding by amending the Companies Act to strengthen protections for stakeholders such as pension funds. In addition, they promise to introduce a "broader 'public interest test' to prevent hostile takeovers and asset-stripping". Along with the other main parties, the Labour Party have pledged to maintain the triple lock on state pension increases.
One of the most expensive pledges made by the Labour Party is on compensating women born in the 1950s. This is not included in the manifesto, but would end up costing up to £58 billion.
In addition, the Labour Party have promised to:
- ensure that the pensions of UK citizens living overseas rise in line with pensions in Britain;
- widen and expand access to pension savings for more low-income and self-employed workers;
- establish an independent Pensions' Commission, modelled on the Low Pay Commission, to recommend target levels for workplace pensions;
- keep the State Pension Age at 66 and review retirement ages for "physically arduous and stressful occupations";
- introduce legislation so that so that 'accrued rights' to the basic state pension cannot be changed, but future benefits can; and
- change the UK's coal mining pension arrangements so that HM Treasury's take of the surplus is reduced from 50% to 10%.
What have the Liberal Democrats said on pensions?
The Liberal Democrats promise to review the legislation on automatic enrolment to ensure that workers in the 'gig economy' are covered. As part of this, the Lib Dems will be looking at portability for individuals who change jobs. Along with the other main parties, the Liberal Democrats have pledged to maintain the triple lock on state pension increases.
In addition, the Liberal Democrats promise to:
- address continuing inequalities in pensions law for those in same-sex relationships;
- regulate financial services to encourage green investments, including requiring pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement on combatting climate change; and
- act to compensate women born in the 1950s in respect of state pensions and deal with the tapered annual allowance issue in relation to the NHS Pension Scheme.
What should trustees and employers do now?
Other than in rare cases (such as if an employer is mid-way through the process of introducing a collective defined contribution (CDC) scheme, there are no immediate actions that trustees and sponsoring employers of occupational pension schemes need to take. For now, awareness of these developments is sufficient.
The main headline for pension scheme trustees and sponsoring employers is that the development of pensions policy has, for the time being, been put on hold. The Pensions Bill will fall and this will have a knock on impact on TPR's plans to consult on a new code of practice for scheme funding. However, the policy grounds for legislating are as relevant today as ever - primary legislation is still needed if a future government wants to:
- give TPR additional powers as outlined in the White Paper on securing DB pensions;
- amend the scheme funding regime to introduce new governance requirements;
- put in place statutory frameworks for the development of:
- CDC schemes; and
- pensions dashboards.
It therefore seems likely that if the dust settles on political wrangling over Brexit, a new pensions bill will be introduced covering a similar set of policies.