- Emma Reynolds MP has been appointed as the new pensions minister at the Department for Work and Pensions (DWP)
- In a break with tradition, Reynolds was appointed in a joint role straddling both DWP and the Treasury
- Reynolds takes on her role at the start of a new Labour government and at a crucial time for many pensions policy developments
- What will Reynolds’ key priorities be as pensions minister?
Rachel Vahey, head of public policy at AJ Bell, comments:
“The area of pensions has always sat, somewhat uncomfortably, between two masters. The DWP is responsible for paying state pensions and the regulations for occupational schemes. But ultimately it was always the Treasury that had the upper hand, with control over the financials – setting pensions tax rules and the level of state pensions.
“Historically, pensions ministers and Treasury ministers have had to rub along together, both having a say in people’s income in later life. But in a breath of fresh air, the new Labour government is seeking to ease this tension by appointing a minister that has a foot in both camps and should have the clout in both departments to get things done.
“Reynolds is taking on the mantle of pensions minister at a vital time. The new government is relying on growth in the UK economy to help meet spending commitments. In its manifesto, it promised a review of pensions, with the aim of improving outcomes and encouraging greater levels of investment in UK Plc. The latter will likely mean a continuation of the ‘Mansion House’ agenda started by the previous government, which has placed a particular focus on boosting private equity holdings in occupational pension schemes.
“And whilst the review is ongoing and the bonnet is up, the Labour government may take the opportunity to consider other changes, such as changes to pensions tax. Reynolds’ new dual role will make it much easier to bring that into the fold of one overall review.
“But there are several other issues crying out for the new minister’s attention, including launching pensions dashboards to the public and considering the next stage of the flagship automatic enrolment reforms. At some stage the state pension will also likely need to be looked at, and Reynolds’ dual role should make it easier to drive forward change.
“All eyes will be focused on the King’s Speech next week, and whether a Pensions Bill makes the cut. Regardless of what happens, the new pensions minister will play a key role in shaping UK retirement policy in the coming months and, hopefully, years. The post of pensions minister has historically been depressingly short-term, something which always clashed with the long-term nature of saving for retirement. Keir Starmer’s clear focus on stability is hopefully an indication that Reynolds will be given space to deliver sensible, long-term pensions policy focused on boosting the amount people save for retirement.”
What could Labour’s pension review deliver?
Labour promised a review of the pensions landscape, with an emphasis on consolidation and scale to deliver better returns for UK savers and greater productive investment in the UK.
According to Labour, at the turn of the century, UK pension funds and insurers held 39% of shares listed on the London Stock Exchange. By 2020, they held just 4%. In the US, pension schemes hold 50% of their assets in equities, compared to 27% in the UK. Staggeringly, a single investment of £300 million by the Canadian Pension Plan into a UK company exceeded the total amount of all UK pension investment in private equity and growth capital in the same year.
Harnessing this investment power may have the potential to shift the dial on UK investment and boost GDP growth.
The Conservatives entered the Mansion House compact with the major mastertrusts to invest 5% in UK assets by 2030. Labour will want to increase this.
Clearly any shift in asset allocation by these schemes will need to be done in a way that doesn’t harm member interests, but given the amount of money sloshing around in defined benefit schemes in particular, even relatively small changes could make a sizeable difference to the UK economy. It’s likely Labour will consider whether it can push consolidation of these funds by using the PPF (Pension Protection Fund).
Three other key priorities
- Implement pensions dashboards: Pensions dashboards have already been delayed, more than once, and must not be put on hold again. This important initiative cannot be ignored. It has the power to help pension savers understand what they have saved so far, and, importantly, they can then be nudged into saving more and consolidating pension plans to get the best deal for their retirement.
- Set a new automatic enrolment agenda: Automatic enrolment has been an out-and-out success in creating millions of new pension savers. It now needs to move onto phase two. Changes to lower the minimum age to 18 and remove the minimum contribution limit are already law. These have the power to add an additional £500 contribution for everyone, and combined could mean boosting a pension pot by £120,000. But these changes need to be implemented to make a real difference to people’s lives, especially the lower paid. And it cannot rest there; people and their employers need to save more if they are to have the financial retirement they want. These things take time, so a plan needs to be put in place now to raise the contribution rate.
- Remove barriers to transfers: It’s important to stop pension scams but equally vital that pension savers can transfer to safe pension schemes easily and simply. However, many transfers are being stalled by overcautious pension schemes who dare not disobey one letter of the regulations. The DWP needs to re-write the transfer regulations making sure that it’s only the truly dubious transfers that are stopped, not people transferring their pension wealth to reputable schemes.
Previous pensions ministers
Since 1998 there have been 17 different pension ministers. Guy Opperman held the position for the longest time – 1,913 days (about 5 years) – and Sir Steve Webb for 1,813.
