They’ve only been in power since early July, but the Labour Government have certainly hit the ground running when it comes to pensions.
Based on early activity, Sir Keir Starmer, Rachel Reeves and new Ministers clearly see the many billions invested in defined contribution pensions as key to Labour’s overriding drive to boost economic growth.
I, and the rest of the industry, was pleasantly surprised to see a new Pension Schemes Bill in the King’s Speech on 17 July, a move that reinforces the importance the new Government places on a range of pension reforms.
Just days later, Chancellor Rachel Reeves launched the Pensions Review that had been promised in Labour’s manifesto, giving us an idea of what will be in scope.
Together, these put in motion thinking on many of the policies promised in Labour’s manifesto and elsewhere prior to the election. And, importantly, there’s much – but not complete – continuity with pension initiatives started under the Conservative Government. Of course, we may see greater divergence as the details are finalised.
At such an early stage, there will be many further plans still to be announced – some previously hinted at, others too important to escape the new Government’s attention for long. Here’s my summary of what we know so far, as well as some thoughts on how initiatives may develop over the coming months and years.
- The role of Defined Contribution pensions within Labour’s ‘growth’ agenda
- Pension Schemes Bill
- Labour’s Pensions Review
- Other ongoing pensions and advice initiatives
1. The role of Defined Contribution pensions within Labour's 'growth' agenda
One of Labour’s very first announcements was its ambition to boost UK economic growth and achieve the ‘highest sustained growth in the G7’. A key part of this is increasing investment in productive finance or ‘growth’ businesses, with a particular focus on UK homegrown businesses. Defined Contribution (DC) pensions and the Local Government Pension Scheme are firmly in the spotlight as a source of such increased investment.
Linked to this agenda is the new National Wealth Fund, which will see the Government provide an additional £7.3 billion of investment into what it identifies as UK-based growth businesses. At the same time, they hope to attract £3 in private investment for every £1 of state investment. Particular areas of focus include clean energy and green infrastructure, helping advance the ESG agenda and the UK’s journey towards net-zero emissions. The King’s Speech confirms the National Wealth Fund will be put on a statutory footing.
The Planning and Infrastructure Reform Bill is also designed to boost growth, to ‘get Britain building again’ and may also help improve the supply of investments appropriate to the National Wealth Fund.
While the National Wealth Fund will be open to a range of investors, it could become a primary route for DC pensions to increase their investment in UK private assets.
2. Pension Schemes Bill
A surprise announcement within the King’s Speech, the Pension Schemes Bill includes a number of interesting measures for UK pensions.
Consolidation of small, deferred DC pots
The Conservatives proposal to address the exponential growth of small, deferred pension pots (under £1,000 initially) was to authorise a small number of consolidators to sweep up the current stock. A clearing house would identify eligible pots and match these to a consolidator. The DWP has been running a series of workshops to resolve points of detail, and ahead of the election, these workshops agreed to delve more deeply into how the necessary clearing house would work.
It’s likely that the Labour Government will want to continue and draw on the findings of the workshops before confirming details of the way ahead. They could still decide on a different approach from the multiple consolidator model. But it’s clear Labour does want to find a solution here, both to improve member outcomes and remove ‘waste’ in the system.
Value for Money Framework
Like the Conservatives before them, Labour want to make sure everyone is in a good value pension scheme. Labour also want to drive scheme-level consolidation to have fewer, better governed schemes whose scale facilitates greater investment in productive assets, ideally those based in the UK.
The detailed Value for Money Framework criteria haven’t yet been finalised, with a consultation from the FCA due at time of writing. Labour may seek to influence the detail, but the broad direction of travel is unlikely to change.
Schemes to offer retirement products
The Conservatives’ initiative was to make sure members of trust-based schemes had access to a range of retirement options, including requiring trustees to offer a default decumulation strategy to those members unwilling or unable to make their own decisions. There was also a longer-term ambition to require trustees to offer access to a decumulation-only Collective Defined Contribution facility (these don’t yet exist!) .
The Labour Government is talking of ‘requiring schemes to offer retirement products so people have a pension and not just a savings pot when they stop work’. Trustees would ‘offer a retirement income solution or range of solutions, including default investment options’. The Labour Government says this is ‘likely to lead to more funds being invested for longer, giving the potential for investments in productive assets’.
Again, there have been regulator workshops and we expect Labour to continue to use these to inform the final detailed approach. It’s assumed trustees will, as is currently envisaged, be allowed to ‘partner’ with other schemes or arrangements to offer options they don’t offer ‘in-scheme’.
3. Labour's Pensions Review
Labour’s Pensions Review aims to ‘boost investment, increase pension pots and tackle waste in the pensions system’. This is being led by the new Pensions Minister, Emma Reynolds, who is the first ever joint Treasury and DWP Minister.
Phase 1, which will take place over the next few months, will focus mainly on investment aspects. This will inform the detail of the Pension Schemes Bill which is anticipated to be published next Spring. We may see consultations in the meantime.
Phase 2 will explore long-term challenges to ensure the pensions system is fit for the future. It will consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement ‘adequacy’. The industry is hopeful this is an opportunity to advance auto-enrolment enhancements – for example, basing contributions on earnings from the first £ (removing the £6,240 offset) and reducing the minimum age to 18. It could also provide a platform to begin considering raising the 8% minimum contribution rate.
Social care funding
As part of the Chancellor’s announcement on the state of the nation’s finances, she confirmed that the Government would not be taking forward the previous Government’s deal on social care funding. Cancelling the deal, which was to have started in October 2025, means individuals will no longer have their contributions towards eligible care costs capped at £86,000.
Had the new funding deal been introduced, advisers would have been able to help individuals plan ahead for the eventuality of needing to pay for care. Unfortunately, we’re left in the current position where those who have built up more wealth may simply be asked to pay more. With people on average living longer, the challenge of social care funding is likely to get worse. While the nation’s finances may be stretched, I do hope the Government will look again at what can be done to strike a fair funding deal between individuals and the state.
4. Other ongoing pensions and advice initiatives
Alongside everything announced by Labour so far, there are a variety of ongoing pensions issues and initiatives to address.
Lifetime Allowance
In 2024, the major pensions concern impacting advisers, schemes and providers alike, has been the chaotic and hugely complex removal of the pensions Lifetime Allowance. While effective from 6 April 2024, at the time of writing, we still don’t have all the final rules, and this has meant some people’s retirement plans are currently on hold.
The Conservative government abolished the Lifetime Allowance to stop the limit discouraging higher-paid individuals, specifically NHS doctors and surgeons, from remaining in work. But the Labour Party, in opposition, saw this as a tax break for higher earners. At the time, they said, if in power, they’d bring it back in some form, perhaps with exceptions for the NHS and other key public sector workers.
Shortly before the election, unnamed Labour Party sources told the Financial Times that reintroducing the Lifetime Allowance was no longer part of their plans. Encouragingly, the Labour manifesto made no mention of bringing back the Lifetime Allowance, although it would have been even better if it had ruled out doing so for good. There are signs that HMRC has now resumed work on sorting out remaining issues.
Broader Pensions Tax Reform
Labour’s Manifesto made no mention of pensions tax relief – and silence breeds speculation that Labour might be discussing this in the background with Treasury officials. This is perhaps not surprising bearing in mind the Chancellor’s announced £22 billion ‘black hole’ in the public finances, coupled with Labour’s commitment not to increase income tax, National Insurance or VAT. It would be surprising if Labour didn’t, at some point, consider pensions tax. The Manifesto did talk of addressing unfairness in the wider tax regime and some would argue that elements of the pensions tax system could be fairer. So this is something to watch for in future Budgets, the first of which is confirmed as 30 October.
As well as flat rate relief, considerations might include changes to tax treatment of death benefits, restrictions on tax free cash or a change or reintroduction of certain limits. As previous Chancellors have found, a move to flat rate relief would be hugely complex. This is particularly true for DB schemes, but it would be highly contentious to make the change just for members of DC schemes, which would exacerbate the existing private / public sector divide.
A flat rate above the current basic rate would benefit basic rate taxpayers. But it cuts the tax relief for higher and additional rate taxpayers and in addition could land them with a substantial tax bill on their employer pension contributions. So the big question is whether Labour will have the appetite or indeed bandwidth to tackle this in its first year in power, or defer consideration until a later date.
Advice Guidance Boundary Review
In their ‘Plan for Financial Services’, Labour confirmed they support all three proposals within the Advice Guidance Boundary Review. This is good news and I hope will mean the Treasury and FCA will continue to work together on turning these proposals into regulations. I’m particularly keen to see ‘targeted support’ added to the FCA rulebook, offering adviser firms and providers alike a new way of supporting those who either don’t need full advice or are unable or unwilling to pay for it.
Pension Dashboards
At last, we’re really getting somewhere with pension dashboards. The DWP has published connection deadline dates – starting from April 2025 for the largest schemes, to September 2026 for the smallest. The Treasury has created a new regulatory permission for Pension Dashboard Services and the FCA recently consulted on regulation of firms wishing to offer these. We’re hopeful that individuals will be able to use the pension dashboard of their choice from later in 2026 – and see all their pension online securely in one place.
Pension Dashboards have the potential to create a step change in pensions engagement and I’d be surprised if the Labour government doesn’t allow this initiative to proceed as currently planned. Dashboards could also pave the way for a more orderly consolidation of small pots.
What's next
With Labour presenting a real appetite for change, 2024 and beyond promises to be a period of significant and wide-reaching change for pensions and advice.
Keeping up to speed with announcements and insights as they happen, will help you to be as prepared as you can when advising your clients. In particular, you can visit our Adviser insights page, a home for our latest articles on the trends and practices defining financial advice.
And you can now also visit our brand new CPD hub, featuring a variety of educational pieces to help you meet structured CPD goals, and learn more about the latest product and legislative topics.
They say a change is as good as a rest – bring on the change!