Autumn Statement 2023: how does it affect UK pensions?

The chancellor of the exchequer's Autumn Statement 2023 this week included a range of proposals and changes for UK pensions.  

In his speech, the chancellor said he was delivering an "Autumn Statement for growth" and outlined 110 measures to boost British business, including the next steps in the UK pensions "Mansion House" reforms. He also confirmed that the government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance from 6 April 2024 and that the state pension triple lock will be honoured in full.

State pension triple lock

The chancellor confirmed that the basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2024 in line with average earnings growth of 8.5%, making the new State Pension worth up to £900 a year more.

Abolition of the lifetime allowance

As announced at Spring Budget 2023, the statement said the government "will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance." This will take effect from 6 April 2024. HMRC has published a policy paper summarising the intended changes and transitional arrangements. The Autumn Finance Bill should be published in the coming week. 

Mansion House reform next steps

The chancellor's July 2023 Mansion House speech set out the current government’s plans to “boost returns and improve outcomes for pension fund holders whilst increasing funding liquidity for high-growth companies”.

A number of pensions-related consultations and consultation responses were released with the common themes of unlocking investment into the UK economy (into unlisted high-growth businesses, major infrastructure projects, sustainable technology and other illiquid type assets) and the consolidation or scaling up of pension schemes in order to make it easier for them to allocate part of their investment portfolio to these types of asset.

As expected, details of the next steps in these reforms were released alongside the Autumn Statement.

Letters were also sent on 22 November from the chancellor and the secretary of state for work of pensions to the chief executives of the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) to confirm the government's intent and call to action.  

DB schemes

In July, the government published a call for evidence on how sponsoring employers and defined benefit (DB) scheme trustees can invest differently, and the choices the government could offer to help them to do this.

The government published alongside the Autumn Statement its response to this call for evidence.   The chancellor confirmed that, to " increase opportunities for defined benefit schemes to invest in productive finance while fully protecting member benefits, the government will consult this winter on how the Pension Protection Fund can act as a consolidator". This would be from 2026 for schemes that are "unattractive to commercial providers". The government will also consult on "whether changes to rules around when surpluses can be repaid, including new mechanisms to protect members", where a surplus is to be paid out at a point before wind-up "could incentivise investment by well-funded schemes in assets with higher returns." The chancellor also shared plans to reduce the authorised surplus repayment charge – that is, the tax charge on repayment of surplus to an employer – from 35% to 25% from 6 April 2024.

The consultation response adds that the new DB "funding regulations will make clearer what prudent funding plans look like, make explicit that there is headroom for more productive investment, and require schemes to be clear about their long-term strategy to provide member benefits."   

DC schemes: value for money

In July, the Department for Work and Pensions, TPR and the FCA published the response to their consultation on a common "value for money" (VFM) framework and regulatory regime for occupational (trust based) and personal (contract based) defined contribution (DC) schemes.

The VFM framework proposals include improving member outcomes by extending the focus of value for money to include factors such as investment performance and by encouraging the consolidation of DC schemes which cannot provide value for money into larger schemes which can (in part because their scale makes them better able to consider investment in productive finance assets).

In the Autumn Statement, the chancellor confirmed that the government welcomes the current trend of DC pension fund consolidation and expects to see "a market in which the vast majority of savers belong to schemes of £30 billion or larger by 2030". He also confirmed that the FCA will consult next spring on the next steps of the VFM framework.

The FCA will be working closely with the government and TPR for consistency with the development of legislative requirements for trust-based schemes. In the meantime, actions from TPR will "strengthen their existing supervisory approach". 

DC small pots

In July, the government also published its response to the call for evidence on addressing the challenge of deferred small pots, together with a new consultation on the policy framework for the solution the government has chosen: “default consolidators”.

The response to the July consultation was also published with the Autumn Statement. It confirms that the government will proceed with the default consolidator option for deferred pots of less than £1,000 and sets out the actions planned for 2024.

The response goes on to launch a new call for evidence on a mechanism that it says, in the medium- to long-term, will stop "the creation of multiple new pots in the first place". The proposal is for a "lifetime provider" model which would allow individuals to "staple" themselves to one scheme for life and so have contributions paid into their existing pension scheme when they change employer.  

The new call for evidence also sets out the government's thoughts on the role that collective defined contribution (CDC) schemes (a category of scheme with the scale to consider investment in productive finance through both the saving and retirement stages of member journeys) might play in automatic enrolment and the "default consolidator" and "lifetime provider" small pot solutions.

Trustees and employers

In July, the government launched a further call for evidence on pension trustee skills, capability and culture.

The response to this call for evidence also was published alongside the Autumn Statement. It confirms "immediate actions" in a number of areas. There are references to TPR putting in place a trustee register to aid regulation of and engagement with trustees and to TPR’s new General Code, when laid, setting accreditation as an expectation for professional trustees.

There is also a confirmation that TPR is updating its toolkit (which all trustees should complete "on an annual basis") and is going to issue additional guidance in relation to investment in alternative assets.  .

DC: new duty to offer suitable decumulation services

In July, the government opened a consultation on a proposal to “place a duty on [DC] trustees to offer decumulation services which are suitable for their members and consistent with pension freedoms".

The response to this consultation was published alongside the Autumn Statement and confirms that the government intends "to introduce legislation, when parliamentary time allows, to place duties on trustees to offer a suite of decumulation products and services, which are suitable for their members and consistent with pension freedoms."  In the meantime, TPR will "bring forward interim guidance to show how the objectives of these policies can be met without legislation, and to encourage innovation."

DC Master Trusts

The chancellor confirmed that the government is publishing a review of the Master Trusts market, "five years after the 2018 Master Trusts regulations came into force, including market trends and the future of regulation and supervision." 

Two documents have been published: Trends in the DC trust-based markets (an analysis) and the outcome of the review (including details of the actions the Pensions Regulator and DWP intend to take).

Local Government pension scheme

Another new consultation launched in July was on accelerating the consolidation of Local Government Pension Scheme (LGPS) assets.

The response to that consultation was also published alongside the chancellor's statement, with confirmation that guidance for the LGPS in England and Wales will be revised to implement a 10% allocation ambition for investments in private equity, which is estimated to unlock around £30 billion. The chancellor confirmed: "The government is also establishing a March 2025 deadline for the accelerated consolidation of LGPS assets into pools and setting a direction towards fewer pools exceeding £50 billion of assets under management."

Investment for Mansion House reforms

Following a press release on 21 November, the chancellor confirmed in the Autumn Statement that, in order to support pension scheme investment into the UK’s most innovative companies, the government will commit £250 million to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative –  subject to final agreement – to create new investment vehicles tailored to the needs of pension funds, "generating over a billion pounds of investment from pension funds and other sources into UK science and technology companies."

He also confirmed that, following positive feedback from industry, the government intends to establish a Growth Fund within the British Business Bank (BBB). The fund will draw upon the BBB’s expertise and a permanent capital base of over £7 billion to give pension funds access to investment opportunities in the UK’s most promising businesses.  He added that: "A new Venture Capital Fellowship will help produce the next generation of world-leading investors in the UK’s renowned venture capital funds to support investment into the UK’s most innovative high-growth companies."

In addition, legislation to give effect to the Solvency II reforms will deliver a "more tailored, clearer and simpler regulatory regime for the insurance sector."  The reforms are expected to boost economic growth by incentivising private investment for productive assets, such as infrastructure, with industry having committed to investing over £100 billion in a greater range of productive assets over the next decade as a result of the reforms.

Osborne Clarke comment

As expected, Autumn Statement 2023 proved to be a busy one for UK pensions. The most significant announcement was confirmation that the Lifetime Allowance will be removed from April 2024. This leaves schemes and employers a very short window to digest and decide their approach to this change. The employers and trustees of DB schemes will also want to see the detail of the proposed reduction to the rate of tax on repayments of surplus.

The next steps in the Mansions House proposals confirm the government's desire to move towards a smaller number of larger schemes with a view to maximising member outcomes and making it easier for schemes to consider less liquid investment in the UK economy and infrastructure. It seems likely that a potential Labour government would continue these themes.

However, the key question is what progress can be made in the time remaining before the general election. There was no proposal for a new Pensions Bill in the King's Speech earlier this month and anything to be achieved through secondary legislation (regulations) will be subject to consultation. The documents released suggest that the Pensions Regulator and Financial Conduct Authority are being asked to lead the way where possible.