The world is a very uncertain place at the moment and strangely that might mean a period of relative stability for UK pension regulations. The main reason for optimism about such stability is simply that Parliament will have to focus so heavily on Brexit issues that there will be no time for another Pensions Act any time soon. The second reason is that there doesn’t seem to be any real appetite for any major change, despite the loud shouting from various parties on many, many sides.
Frank Field and his Select Committee still seem very keen on demonising employers (particularly in one or two high profile cases), but overall there is a recognition that most employers who run pension schemes are working very hard to manage their schemes well and are desperately trying to ensure that members get the right outcomes. The Pensions Regulator is flexing its muscles more but fortunately remains well aware of the funding difficulties that face many schemes in practice. While the Regulator will doubtless continue to crank down on any rogue employers, they realise the need for flexibility and the Annual Funding Statement for 2017 hit exactly the right tone. Equally, the Department for Work and Pensions (DWP) has a fantastic collection of expertise and knowledge to bring to bear on pensions issues. The recent Green Paper showed clearly that the DWP completely understands the problems facing UK pension schemes, members and employers. More importantly though, it also demonstrated that the DWP experts know that there are no quick and easy fixes, even though there is some room for a few tweaks to improve in certain areas.
The same applies to Auto-Enrolment schemes, where the imminent increases to minimum contributions may increase opt-out rates dramatically and could undermine the huge success to date. All the key decision makers are painfully aware of this risk but there is still a very positive outlook generally, with the hope (or even expectation) that the power of inertia will continue to work its magic.
If not, there will probably be a ticking time bomb for a whole generation who will be reliant on a State Pension system that is under intense pressure. Increased longevity in an ageing population is driving up the tax burden from the State Pension, despite the rising State Pension Age. Politicians seem to be caught between a rock and a hard place, with the “grey vote” vital for being elected and then some tough decisions needed from Government to pay the bills.
So what is likely to change? We may well see some high profile headlines about new rules to protect members from unscrupulous employers. All the main parties proposed this in their election campaigns so it would be a relatively easy issue to find an agreement on. In practice, I expect any such “Philip Green law” would be an annoying additional requirement for good schemes without really helping members at all. Similarly, The Pensions Regulator might get some shiny new powers but again I think this would be more about generating some eye-catching headlines rather than genuinely improving things.
Most significantly, I think we could well see some major changes to pension tax relief. Not only is that an opportunity for the Government to save a substantial amount of cold, hard cash but it could also be presented as being fairer (e.g. scrapping higher rate tax relief). We will also have to have a Finance Bill every year so any changes to tax relief could be put through Parliament without a separate bit of pension legislation. Could the Chancellor even scrap tax free lump sums at retirement? Surely not – this seems almost as unlikely as tackling the elephant in the room that has public sector workers still in final salary schemes while private sector staff are all too often stuck with minimum level Auto-Enrolment schemes!
Trustees and employers may take advantage of a relatively quiet legislative agenda to clean up pension data or to cut liabilities by offering members some extra choices. If not, at least we have new Data Protection regulations coming into force next year so there will still be something for schemes to get their teeth into…