What did the Queen’s speech tell us about the future of pensions and master trusts?
Last month, on the 18th May, the Queen delivered her 65th speech, outlining the key policies and programmes drawn up by the British Government. The speech often proves to be one of the most important dates in the Parliamentary diary, as her Majesty comments on a wide variety of issues that could have a major impact on the country. This year, the speech included some details on pensions and specifically, the master trust market. Here at LifeSight, we knew something was coming, so our interest was piqued!
One of the most intriguing parts of the speech revealed that the Government will be implementing ‘strict new criteria’ for master trusts and greater powers for the Pensions Regulator. It has not been decided what these will be, but it is better to get the details right than to publish them early.
A key aim of this could be to remove fears that members’ funds could be used to meet the costs of winding up an insolvent, failing master trust and transferring members’ savings to a new provider. This is a particular concern when the master trust is not supported by a profitable enterprise with diverse lines of business and a reputation to protect. Making master trusts hold money in reserve to cover any wind-up costs would be one solution. However, capital costs may affect what providers need to charge members in the normal course of events.
The Government could also consider making all master trusts comply with the governance and administration standards set out in the Master Trust Assurance Framework. The enhanced role for the regulator to ‘authorise’ schemes looks like a licencing regime for multi-employer pension schemes. Enforcing such standards will help employers verify potential schemes suitability for their employees.
While the details aren’t there yet, there is support around the intention assuming it is proportionate. Raising the minimum requirements for entry into the master trust market is clearly important in order to develop a reputable and trustworthy industry that employees and savers can be confident in.
The Pensions Bill
Now, although this may not have merited a mention in the Queen’s speech, watch this space as bills can be amended after being introduced. This means that the final legislation could be much more wide-ranging.
By the time the Bill reaches the statute book, for example, it might contain measures to bring forward when the State Pension Age will rise to 68 following John Cridland’s Review. The Bill could also be a vehicle for anything else that the Government decides it wants to do in the pensions space – from changes to how defined benefit pensions are regulated to outside chances such as automatic enrolment into Lifetime ISAs.
Lifetime Savings Bill (LISA)
No new details of the Lifetime ISA were announced during the Queens speech – which is unsurprising as we are expecting to hear more in the autumn. Some employers will be eager to facilitate access to LISAs as employees may find it appealing to save money directly out of their paycheque, before they have a chance to spend it. Employers may also be able to negotiate better deals than individuals could do themselves. For other employers, the challenge will be to communicate how the benefits of workplace pensions stack up against LISAs.
Generally speaking, Government policy still provides stronger incentives to save for retirement through a pension, certainly where employee contributions are being matched by the employer. Having said that, the Chancellor may not be finished with changes to how pensions can be paid and taxed.
Overall, the Queens speech touched on important aspects of British legislation, and the impact of those aspects relating to pensions have the potential to be far-reaching. The impending changes to master trusts could stand to benefit employees and savers immensely if they succeed in ensuring this ‘strict new criteria’ achieves its aim, to ensure members’ funds are adequately protected. In addition, by regulating the up and coming master trust market, the Government will ensure the market’s credibility by eliminating any less reputable or unsustainable schemes.