Following Labour’s landslide win in the UK general election, new Prime Minister Keir Starmer has said that "change begins now". But what can we expect to change in terms of pensions policy?

The Labour manifesto was relatively quiet on the future of pensions policy, but it did contain several proposals which are likely to set the agenda for the next few years. These proposals covered four key themes:

• increasing investment in UK markets;

• ensuring pension schemes take advantage of consolidation and scale;
• improving pension outcomes; and
• mandating transition plans that align with the 1.5°C goal of the Paris Agreement.

We consider below what this could mean for sponsoring employers and trustees of occupational pension schemes.

Increasing investment in UK markets

The idea of using pension scheme assets to support growth in the UK is not a new one: the Mansion House reforms marked the start of this theme, with proposals including reforms to the current rules around surplus refunds for defined benefit (DB) schemes and a new value for money assessment framework for defined contribution (DC) schemes. This was taken a step further at the Spring Budget 2024, with plans announced to require DC schemes to publicly disclose their levels of investment in UK equities.

We expect the new Government to take forward many of the Mansion House reforms. The question is whether a more interventionist approach is now likely.

Consolidation and scale

Many of the Mansion House reform proposals were also linked to this theme, including developing a legislative framework for the regulation of DB “superfund” consolidation schemes, the possibility of a public sector consolidator, extending collective defined contribution (CDC) provision beyond single or connected employer schemes to accommodate unconnected multi-employer schemes, and a proposed automated consolidation solution to the problem of small pots.

As above, we expect the new Government to continue exploring these areas, with legislative change likely in due course.

Improving pension outcomes

The Labour manifesto promised a review of the pensions landscape to consider what further steps are needed to improve pension outcomes, as well as to increase investment in UK markets.

This review is likely to build on existing policy developments, such as the proposed new decumulation framework to support individuals at the point when they access their DC pots. We also expect the new Government to bring forward regulations to implement already existing auto-enrolment legislation. This would reduce the lower age limit at which otherwise eligible workers must be automatically enrolled and re-enrolled into a pension scheme by their employers from 22 to 18, and remove the lower earnings limit from the qualifying earnings band so that contributions are calculated from the first pound earned. Reforms to auto-enrolment could be taken a step further, with increases to minimum employer contributions likely to be under consideration.

Climate change

The Labour manifesto said that UK-regulated financial institutions (including pension funds) will be required to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement. This will represent a step change in the existing approach to climate change, which currently focusses on ensuring proper governance and disclosure.

It is possible that we will also see a renewed focus on other elements of ESG, such as nature-related risks and social factors.

Other pensions developments

Pension scheme trustees and employers will be keen to understand the future of several other pensions developments which have been on the agenda for some time but remain incomplete. The Labour manifesto was silent on these, but we expect the position to be as follows:

• Scheme funding: the new scheme funding regime has already been approved by Parliament and will apply to actuarial valuations with effective dates on or after 22 September 2024. We think it is unlikely that any changes will be made at this stage and we expect the Pensions Regulator to publish its code of practice over the summer.
• Abolition of the lifetime allowance: although Labour initially said that it would reinstate the lifetime allowance, they subsequently announced that they were dropping this policy, so we don’t expect any fundamental changes in this area. We anticipate that regulations to correct the errors identified by HMRC will be brought forward as soon as possible.
• Pensions dashboards: the legislative framework for dashboards has been in place for some time and we don’t anticipate any significant changes to this project.

The future of other initiatives, such as the long-awaited new notifiable events regime, is less clear. However, we will monitor developments and keep you updated as and when we know more.