The Spring Budget built on the Mansion House speech in many ways. The Chancellor announced powers that would be given to both the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) in legislation slated for as early as 2027, enabling them to enforce the value for money regime.
The new requirements are intended to expose pension schemes which have been choosing short-term investment returns at the expense of long-term ones. It is proposed that the FCA and TPR will have power to close to new employers’ schemes which are consistently under-performing on value for money metrics and even, if necessary, to wind them up.
Following the joint consultation of the Department for Work and Pensions, TPR and the FCA in 2023, an FCA consultation is expected which will lay out plans to have contract-based schemes disclose historical net investment returns for their default funds.
The Chancellor also announced an intention to build on the Mansion House reforms by confirming defined contribution (DC) schemes, and, in time, local government schemes, will be required to publish their asset allocation breakdowns to reveal which of these are invested in UK equities. Although initially just an intention to require disclosure of UK investments, the government aims to use this information to assess the need for further action. This presumably indicates possible regulatory intervention in the future if results do not reveal the desired concentration towards UK equities.
The Chancellor also announced two policy intentions for pensions in the future, with specifics to follow. The government will explore the lifetime provider, or one pot for life model for DC schemes in the long-term; and legislate on environmental, social and governance in the future.
Other pensions-related announcements in the Spring Budget included a commitment to the triple lock through state pensions being increased for 2024 by 8.5%.
Beth Brown is a partner and Danyal Enver is an associate at Arc Pensions Law.