You could be forgiven for not having noticed that a new Parliamentary Under Secretary of State for Work and Pensions has been appointed recently. After all, it has been an exceptionally busy time in Westminster – several new faces having recently taken up new (arguably more high-profile) roles in Government with immediate impact.

With a new Prime Minister and Chancellor of the Exchequer in place, Chloe Smith was appointed to the position of Secretary of State last month – and the appointment of Alex Burghart to replace Guy Opperman as Parliamentary Under Secretary was announced a short while after – though his ministerial responsibilities (as the new minister for ‘Pensions and Growth’) have only now been confirmed.

Now that the Work and Pensions line-up is in place, I have written an open letter setting out Barnett Waddingham’s views on what the new minister’s key priorities ought to be.

Dear Alex,

Key priorities for the new Work and Pensions team

Congratulations on your appointment as Parliamentary Under Secretary for Work and Pensions and the new title of Minister for Pensions and Growth. No doubt you are acutely aware of just how big the boots are that you are now filling, and I’m sure that your predecessor Mr Opperman will have set out some detailed handover notes in the expectation that you will continue his work, for example, on the introduction of pensions dashboards, the expansion of the auto-enrolment regime, and implementing Environmental, Social and Governance (ESG) reporting regulations.

To be blunt, you may have been awarded a bit of a poisoned chalice. I’m sure you are keen to drive your own agenda, but to help we would like to advance our view – based on our experience – of what we feel your priorities should be.

  • A fit for purpose Defined Benefit (DB) funding regime. There are a number of potential problems brewing as a result of your Department’s first draft of new funding and investment regulations which are not properly costed and appear to supress existing flexibility. In particular, the new legislation appears to require sponsors to fund deficits at the drop of a hat by giving primacy to the ‘as soon as reasonably affordable’ condition for clearing funding deficits. We look forward to engaging with the Government’s consultation response and with The Pensions Regulator (TPR) as it develops the necessary regulatory regime around the regulations.
  • While the structure of the UK pension system has remained unchanged for a long time, the environment around it – and the people it safeguards – have changed considerably. This is exacerbating the gender pension gap - which needs to be addressed by Government as a matter of the utmost importance. Our research explores the steps you could consider, including reviewing auto-enrolment thresholds and minimum contribution rates; reforming the state pension to better reflect career breaks; moving to a flat-rate of tax-relief on pension contributions; allowing spouses to contribute to each others’ pension plans; encouraging better-designed default investment funds; and collecting more meaningful data on the impact of inequality of employment outcomes by sexual orientation.
  • Working with TPR to put in place a practical, straightforward Notifiable Events framework that doesn’t stifle corporate activity. In particular, there needs to a be a great deal more clarity on when to report (i.e. when has a ‘decision in principle’ been reached? When have the ‘main terms’ been set out?); and to which employers (past and present) the notification requirements apply.
  • Encouraging greater saving – boosting Defined Contribution (DC) savings during the cost of living crisis. We encourage you to consider upping auto-enrolment minimum contributions which are inadequate and will lead to a cohort of retirees relying more heavily on the state than previous generations. However, as a country, we find ourselves at an economic crossroads where the Government is embarking on an expansionist fiscal policy that may (or may not) yet feed that well-documented long-term deficiency in individual pension savings rates. With the cost of living ‘crisis’ at full tilt, the question is - how are you going to square this circle? How can you encourage an increase in savings when the public’s instinct will be to reduce them in order to counter a reduction in disposable income, when businesses can’t afford increased contributions either and the Government seems unlikely in the current climate to afford further tax breaks?
  • Un-tweaking the tax regime – particularly with regard to the Money Purchase Annual Allowance (MPAA), and the freezing and tapering of the Annual Allowance (AA). This problem is being exacerbated by the high inflation environment in which we now find ourselves. There are several well-documented issues with the existing tax regime that are causing problems with excessive taxation for members of the medical profession, disincentivising them from working or saving further for retirement. In fact, these problems are causing issues for pensions savers in many other professions and many other pension arrangements – where staff are effectively paying to work as a result of the tax being levied on the additional pension benefits accruing. The new Prime Minister has said she is going to fix this for the medical profession: we challenge you to help her fix it for everyone.
  • Given the rising demand from occupational schemes for buyout insurance policies – the reform of transcribed EU Solvency II laws represents an outstanding opportunity to shape the insurance market to the advantage of both insurers and pension schemes. Care will be needed, of course, to ensure that the credibility of our world-leading insurance regime is not undermined by excessive de-regulation. However, if done right, the Government can better reflect long-term attitudes to risk and unlock significant and much-needed capital resources for investment in UK infrastructure. 
  • Re-reviewing the triple lock. Is it really fair that pensioners get a 10% increase while workers in both the public and private sectors fund this on pay increases that employers cannot afford to bring up to such historically high levels? And is this really a sustainable call on the public purse?
  • Increasing the focus on sustainable and socially responsible investing by incentivising schemes to incorporate considerations such as the impact on biodiversity and climate change into their decision-making. This should help to drive policies to push on from a ‘do-no-harm’ approach to ESG investing, to one with a positive compulsion to make the world a better place.

With these steps, we can ensure that future generations are able to achieve the retirement they deserve.

We wish you the very best of luck!

Yours sincerely,

Ruth Thomas

Head of Actuarial Consulting
Barnett Waddingham

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