After 14 years and 5 different Prime Ministers under Conservative rule, on 4 July, the UK voted to elect a new Labour government to Westminster.1
With fresh ideas and shifting priorities, a change of power naturally leads to questions around how our own circumstances could be affected. In this instance, you may be wondering how a Labour government could impact your workplace pension scheme.
Based on the announcements within the new Pension Schemes Bill and the launch of their promised Pensions Review, here are the key ways your scheme and its members could be affected by the new Labour government.
- Consolidation of small, deferred pots
- Schemes to offer retirement products
- Value for Money Framework
- Pensions Review
All article information correct as at time of writing on 5 August 2024. For the most up-to-date news and helpful tips for managing your scheme, visit our Insights hub.
1. Consolidation of small, deferred pots
Announced as part of the surprise Pension Schemes Bill in the King’s Speech on 17 July, Labour have committed to progressing reforms that will see savers’ small, deferred defined contribution pension pots consolidated into one place.2
For employees, bringing all of their small pots together would make it easier to keep track of their pension savings, as well as hopefully maximising their value by avoiding unnecessary charges.
No timeline for the changes has been given at this stage and there’s been no indication of what form the consolidation process will take, but ongoing work to introduce something similar under the previous Conservative Government could give us an idea.
The Conservatives had hoped to implement a ‘multiple consolidator’ approach, whereby a clearing house would identify any qualifying pots that hadn’t been paid into for at least 12 months and had less than £1,000 in them.3 Then, a small number of schemes would be authorised as consolidators, sweeping them all up. Finally, all of an individual’s eligible small pots would be combined into a single pension under the consolidator.
Labour could stick with this approach, but they could also choose to go down a different path. Either way, the new Pension Schemes Bill shows they have a desire to find a solution, so it’s one to keep an eye on.
2. Schemes to offer retirement products
Also announced within the Pension Schemes Bill, Labour plan to require trust-based schemes to offer retirement products, not just a savings pot, when a member stops working.2
More specifically, trustees of such schemes would be legally required to offer members a retirement income solution or range of solutions – such as flexible drawdown or an annuity – when they retire. This would include a default option for those that are unable or unwilling to make their own choice.
Again, we don’t have much information on how this will be implemented by Labour, but the Conservatives did make progress towards introducing a similar idea. Labour will likely use the findings gathered, including from workshops with the pensions industry, to inform their own plans.
Ultimately, the goal of this change is to improve saver outcomes, whether they make their own choice or follow a default set by the trustees. This could become an important aspect of scheme design.
3. Value for Money Framework
Like the Conservatives before them, Labour want to make sure everyone is in a good value pension scheme. To do this, the third big announcement from the Pension Schemes Bill was further development of a new Value for Money Framework – a series of criteria that all schemes will need to assess themselves against.2
Not confined to just costs and charges, the Framework will look to determine value by also covering investment performance and other consumer-first metrics, such as the quality of customer service and communications. However, the detailed criteria haven’t yet been finalised with ongoing consultation.
Labour are also keen that if a scheme can’t deliver good value, it should join up with a larger scheme that does.4 The Government believes larger schemes are also more likely to invest in a wider range of asset classes, including in unlisted companies, which in turn could support UK economic growth.
4. Pensions Review
On 20 July, the new Chancellor, Rachel Reeves, launched Labour’s Review of the UK’s pensions landscape, as promised in their pre-election manifesto.5 It will be split into two phases: the first to focus on investment for future growth, while the second phase will look at improving pension outcomes and the adequacy of retirement provision.
Phase one: productive investments
According to the Government, defined contribution schemes in the UK will be managing around £800 billion in assets by 2030, meaning even a 1% shift of those assets into productive investments could mean an extra £8 billion for investing to grow the economy and improve infrastructure.5
For savers, it could also yield better investment returns and, in due course, larger retirement pots.
Phase two: improving pension outcomes
Less is known about the second phase of the Pensions Review, but we do know that it will centre on improving pension outcomes, as well as investment into UK markets.
One ongoing initiative that could fall under the remit of improving pension outcomes, is the long-delayed reforms to automatic enrolment.
When the Department for Work and Pensions (DWP) published its Automatic Enrolment Review in 2017, under the Conservative Government, it was hoped that the proposed reforms would be implemented by now. However, a series of delays has meant it’s now on Labour to decide how to push ahead.
The changes in question will see the auto-enrolment minimum age lowered from 22 to 18, while the minimum 8% contribution will be based on an employee’s earnings from the first £1, rather than income earned over the current £6,240 threshold.6
These reforms would see millions of people benefit. Employees will gain from greater employer contributions, although they’ll also have to pay a little extra themselves. Those joining the workforce at 18 will also benefit from contributions over an extra four years. For employers, you’ll need to make sure systems are in place to capture the enrolment of your younger employees, as well as an update to how employee and employers contributions are paid into the scheme.
Looking ahead
It’s very early days of the new Government and too soon to know precisely what may be introduced over the next five years, but one certainty is that it will be busy period of change for pensions, including workplace schemes such as yours.
In the meantime, you can visit our Insights hub for more articles on workplace pensions and scheme management – including education on pension scams, ideas relating to parental leave and contributions, and guides to tax relief.
- General election 2024 results. Data source: UK Parliament, July 2024.
- King’s Speech 2024 Briefing. Data source: GOV.UK, July 2024.
- Ending the proliferation of deferred small pots. Data source: Department for Work & Pensions, November 2023.
- Financing Growth: Labour’s plan for financial services. Data source: The Labour Party, January 2024.
- Chancellor vows ‘big bang on growth’ to boost investment and savings. Data source: GOV.UK, July 2024.
- Automatic enrolment review 2017: Maintaining the momentum. Data source: Department for Work & Pensions, July 2023.