Legal & General responds to the Minister for Pensions shake up of private pensions

The Minister for Pensions has announced several private pension reforms aimed to improve fairness, adequacy and predictability for members:

• A consultation on a new framework for assessing Value for Money for workplace schemes
• A consultation on extending the framework for Collective DC schemes
• A call for evidence on options for addressing the growing number of small dormant pots
• Confirmation that the regulations for excluding performance fees from the charge cap will take effect from 6 April this year, and trustees will need to start explaining their policy on illiquid assets from October.

These measures are a very welcome boost to the industry and will go some way in creating fairer outcomes for members.

The confirmation that performance fees will be excluded from the charge cap from 6 April 2023 means one of the key regulatory barriers to investing in illiquid assets has now been removed.

It will give trustees greater flexibility to invest at more meaningful levels, maximising the opportunity for members and benefitting more people in the long-term.

This democratisation of productive finance is also key for levelling up the UK and is something Legal & General has been calling for.

However, more can - and has - to be done to encourage saving and make it as easy as possible to do so, which is why Legal & General continues to call for:

1. Regulated personalised guidance to close the advice gap and help savers understand their pension choices

Due to the regulatory restrictions currently in place, pension providers are not able to directly alert customers to financial solutions that might be better for them as this would be seen as advice. While free support services such as Pension Wise and MoneyHelper provide useful guidance, they remain largely underutilised. More needs to be done to help prompt and nudge customers to making a decision that is tailored to their own circumstances, particularly as the cost of living continues to squeeze.

The FCA has signalled its intentions to carry out a review of the boundary between advice and guidance and we hope they look at examples where the boundary isn't working. The provider accepts that any review needs to be considered but believes changes to the rules are necessary so that people who reach retirement are confident that they are making choices that will serve them well, and those who are still saving are equipped to make informed decisions on how much they need to save.

2. A review of auto-enrolment and a greater focus on engagement efforts

While auto-enrolment has been the big pension success story, industry and government need to make sure that it does not inspire false confidence and that savers see their workplace pension as part of the overall picture which makes up their retirement.

According to the recent update of the Retirement Living Standards by the PLSA, the minimum required by a single person to cover the basic needs in retirement is £12,800 each year⁵. With the full state pension currently worth just over £9,500 to those who qualify, the pressure is on for people to make private provisions, even to meet the basic day-to-day living standards in retirement.

This is why Legal & General is calling for a review into auto-enrolment to assess whether it has been truly effective in creating adequate and sustainable retirement incomes.

3. A clear timetable for implementing AE changes

It's important that there is a clear action plan to implement the government's proposed automatic enrolment reforms to give providers, employers and members a clear timeline to prepare. Even in difficult economic times, it is vital the momentum is maintained with cross-party support.

And while it's fantastic that the age threshold will be lowered to 18 - the question is: when? Legal & General calculations show that lowering the age threshold by four years would have a huge impact.

If the same 32-year-old mentioned above had started to contribute to their pension at age 18, then they would have an additional £8,309 more in their pot now, meaning they'd be on track to have a retirement income of £15,110 per year.

The longer it takes for this change to be implemented, the more people will miss out on the benefits of saving early.

Public link

Please use the above public link if you want to share this noodl on another website.