Securing economic growth and reforms to pension schemes featured prominently in the King’s Speech this morning (17 July), which sets out the legislative agenda at the beginning of a new parliament.
Among a raft of planned legislation, Keir Starmer’s government will aim to introduce a Budget Responsibility Bill, which will ensure that all significant tax and spending changes are subject to an independent assessment by the Office for Budget Responsibility (OBR).
Notably, former chancellor Kwasi Kwarteng announced the ‘mini-budget’ in September 2022 before the OBR could complete an assessment of the fiscal policy, which eventually led to the resignation of then prime minister Liz Truss.
Other key items on the Labour government’s legislative agenda include nationalising rail and building more houses.
Pensions Schemes Bill
The government has also announced the ‘Pensions Schemes Bill’, which will see occupational pension schemes being required to offer retirement income solutions to investors.
Meanwhile, Labour has sought to continue the previous government’s work in the consolidation of defined contribution small pots.
The legislation will also aim to focus on a value-for-money framework, with the worst performing default funds set to be put under the spotlight.
Simon Kew, head of market engagement at Broadstone, said the legislation is a positive step forward.
“The problem of small pots is likely to take years to solve so it is good to see that there is an urgent desire to fix this issue. While there is a mention of commercial superfunds, which have already completed their inaugural deals, the public sector consolidator idea is conspicuous by its absence.
“The Bill also contains measures for the trustees of pension schemes to offer savers retirement products so they have a pension and not just a savings pot when they stop work which can help drive up engagement. The challenge of retirement income from Defined Contribution funds is massive and adding some paternalism back into the system seems to be the only way forward.”
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Kate Smith, head of pensions at Aegon, said the announcement of the pensions bill was a surprise, due to Labour’s pre-election talk centring on their desire to complete a full review of the UK’s pensions landscape.
She said: “The new Pensions Schemes Bill looks like a sign of continuity, adopting many pensions policies already in motion from the previous government. Labour will be moving fast to make this happen, improving saver outcomes and supporting investments by enabling schemes to invest in a wider range of assets.
“The measures proposed include the consolidation of small, deferred DC pensions pots and progress on the Value for Money framework, both of which allow for consolidation and leading to better member outcomes. In addition, trust-based schemes will be legally required to offer retirement products in-house or in partnerships, as well as a default solution for those unable or unwilling to make their own choices.
“We also welcome the National Wealth Fund Bill, and look forward to seeing more detail on both this and the Pensions Schemes Bill going forward.”
However, Tom Selby, director of public policy at AJ Bell, said that scaling up automatic enrolment was a “key” missing component to the bill.
“There is wide agreement that minimum contributions under auto-enrolment will need to rise, and a 2017 review recommended removing the lower earnings band and reducing the minimum qualifying age to 18 as a starting point.
“The legislation for these changes is already in place – but the big question is when will it be put into practice? By removing the lower earnings band, savers will benefit from an extra £500 a year into their pension, which would make a big difference over the course of a person’s lifetime.”
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