Autumn Statement - PwC comments on the Pensions measures

Commenting on the pensions measures announced in the Autumn Statement, Gareth Henty, Pensions Partner at PwC, said: 

The Chancellor has today launched a raft of ambitious reforms for the UK pensions industry with an agenda of growth, choice and consolidation.  

Pot for Life

“Giving pension savers the ability to nominate a ‘pot for life’ will eradicate the problem of individuals building up multiple small inefficient pension accounts over the duration of their working life. Employees will be given a legal right to require a new employer to pay contributions into their existing pension making it easier to keep track of how their pension is growing.

“Whilst the Government has drawn on the positive experience of the Australian ‘super’ funds, implementation in a mature pensions market such as the UK will not be without its challenges and would be a radical change in approach from the current system where employers select a pensions provider on behalf of employees. Recognising that the younger generation expects to have many employers in their careers, this is an ambitious step to meet the workforce of the future’s needs.”  

Growth Fund

“A Growth Fund established by the British Business Bank to help facilitate investment by UK pension funds into high growth UK start-ups will build on the Chancellors’ Mansion House  reforms announced earlier this year. Eleven pension providers and fund managers in the market have already voiced support of the fund as a potentially valuable addition to the market.”

Pension Protection Fund Consolidation

“A DWP consultation on the option for Defined Benefit (DB) schemes that are not well served by the current insurance market to use a vehicle run by the Pension Protection Fund (PPF) as a consolidation vehicle may be attractive to smaller schemes that find it difficult to obtain competitive insurance buy-out quotations or where insurance is not affordable. Subject to the detail being confirmed, this may also be a new option to reduce running costs for scheme sponsors and trustees as well as enhancing member outcomes and services. This could be a game changer for the c. 2,000 DB schemes with assets of less than £10m.”

Foundations laid for a Defined Benefit ‘run-on’ model

“A DWP consultation to provide a regime allowing the £1.4trn of Defined Benefit (DB) Schemes to ‘run-on’ and potentially repay surplus to the sponsor is welcome. The consultation will look into the option for schemes to pay a new premium to the PPF to guarantee full scheme benefits coverage. This is likely to make it much more viable to run a DB scheme on rather than buying out with an insurer. It may also allow schemes to distribute surplus above a threshold to the sponsor, and to support that it was announced that the rate of tax applied will be reduced from 35% to 25% from 6 April 2024. 

"PwC had previously estimated that £900bn of assets in c.350 larger, well funded pension schemes faced a challenging decision of whether to move to insurance or to run-on. The proposed changes could move the dial on the proportion of these assets that stay invested in productive assets rather than moving to insurance company balance sheets.”

State Pension Triple Lock

“Pensioners will be pleased to hear the honouring of the triple lock at the higher rate of inflation giving them the largest State Pension increase ever in cash terms to £221.20 a week from April 2024. This will protect a million pensioners who only have the State Pension as their retirement income at a time when we are still in the midst of a higher cost of living.”

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