Zoe Alexander: There is huge potential to set a new consensus about what is needed to get the most out of our system.
The latest of the Pension and Lifetime Savings Association’s (PLSA’s) regular columns looks at what it believes will be a ‘watershed year’ for the industry
2025 is one of those years in pension policy that we will look back on as a catalyst of significant change.
With the two-part pensions review underway and the Pension Schemes Bill expected to be tabled in the coming months, the government has set a bold and ambitious agenda.
My team is laser-focused on supporting government to deliver a review and a Bill that work for savers, by playing an active role in discussions around the review; making sure the Bill drafting delivers the right outcomes and providing technical expertise through the committee stages.
We will use our convening power to bring members from all sections of the industry together to solve the big issues government is grappling with. And we're focusing our proactive policy work programme on adequacy, pension fund consolidation and a range of investment-related issues as we strive to improve the UK's £2trn retirement savings system to maximise outcomes for savers.
Adequacy
Automatic enrolment (AE) has been an unequivocal policy success story. But it is not perfect. Contributions remain too low for most people and the system does not adequately support under-pensioned groups, including women, gig economy workers, self-employed people and others.
We are carrying out work in 2025 to further refine the recommendations of our milestone Five Steps to Better Pensions report to identify ways AE can be developed further so savers can get better outcomes from the system in the future without unduly hurting their financial prospects in the here and now. We'll be publishing a policy paper with our findings later in the year.
With measures for DC decumulation and a value for money framework expected in the Pension Schemes Bill, we will also work closely with Government to ensure legislation supports saver outcomes.
The Retirement Living Standards, which help people understand how much they might need to spend in retirement, will be updated in the summer.
Consolidation
Pension fund consolidation is an ongoing structural trend that has been put in the spotlight by the Pensions Investment Review. The government is exploring ways to accelerate the move to fewer, larger schemes and has proposed measures which would impact structure of the defined contribution and Local Government Pension Scheme (LGPS) segments of the industry.
The PLSA supports consolidation where it demonstrably improves saver outcomes, such as through better returns or reduced costs.
As the government develops its proposals, we will work with the industry and policymakers, advocating for policy change that improves the system for savers without unduly distorting the market, eroding competition, stifling innovation or resulting in other negative unintended consequences.
In parallel, the PLSA will maintain a dialogue with government as it drafts the Pension Schemes Bill, so the legislation succeeds in delivering more financially secure retirements.
Investment
There has been much debate about the role pension schemes play in generating economic growth in the UK over the last two years.
Fiduciary duty and investment strategies that serve the best interests of savers remain the primary drivers for pension funds. However, within that context, the PLSA advocates for policy and regulatory interventions which have the potential to make the UK a more attractive investment proposition for pension schemes. We want to work with the government to help it grow the pipeline of home-grown investment opportunities for pension funds and promote a regulatory environment which can further support UK growth. At the same time, voluntary commitments to invest more of the nation's retirement savings to productive finance in the UK, where that is in the best interests of savers, are actively being explored.
For DB schemes, higher interest rates and careful management mean funding levels are as strong as ever. With the Government signalling its intention to relax the rules governing the release of surplus to improve member benefits, support sponsoring employers and potentially generate growth in the UK economy, the PLSA will be working to ensure the right safeguards are in place to ensure member benefits remain secure.
We will also continue to work with our members to help them achieve their net zero goals, by seeking policy change where needed, encouraging collaboration across the sector, and being at the forefront of the considerations on how the finance sector can respond to the climate emergency.
This is likely to be a watershed year for the pension industry setting in train significant change in the structure of the market with the aim of delivering better returns for members over time. There is huge potential to set a new consensus about what is needed to get the most out of our system.
Zoe Alexander is director of policy and advocacy at the Pensions and Lifetime Savings Association
