Pension Schemes Bill

By consolidating fragmented pension pots and pooling Local Government Pension Scheme assets, the bill aims to create economies of scale that allow funds to invest in illiquid 'productive finance' assets like infrastructure, private equity, and venture capital. This aligns with the 'Mansion House' reforms intended to stimulate UK economic growth. However, shifting asset allocation towards these higher-risk asset classes exposes pension funds to potential volatility, though the long-term aggregate effect on capital deepening is expected to be beneficial.

The pooling of Local Government Pension Scheme (LGPS) assets is explicitly designed to reduce investment management fees and administrative costs, generating direct savings for the public purse. While establishing new regulatory regimes for Superfunds and Value for Money assessments will incur administrative costs for the Pensions Regulator, these are typically funded via industry levies. Long-term, higher private pension returns reduce the pressure on state welfare benefits like Pension Credit.

The automatic consolidation of small dormant pots primarily benefits lower-income and transient workers who frequently change jobs and lose track of savings, preventing these assets from being eroded by fees. Additionally, changing the definition of 'terminal illness' from a 6-month to a 12-month life expectancy for PPF and FAS compensation is a significant improvement in justice for the critically ill. However, provisions allowing employers to extract surplus from Defined Benefit schemes may be perceived as prioritising corporate interests over member bonuses, despite the safeguards included.

The legislation prioritises inertia and defaults over active choice, notably through the automatic consolidation of small pots and 'contractual overrides' that allow providers to change terms or transfer members without specific consent. Furthermore, the 'guided retirement' provisions and mandates on asset allocation (pushing funds toward specific UK assets) reduce the purely market-driven autonomy of trustees and the individual choice of savers. These restrictions are justified by the policy view that member disengagement leads to suboptimal outcomes, necessitating systemic intervention.

By forcing schemes that are 'not delivering' value for money to consolidate, the bill aims to ensure higher net returns for savers, directly translating to better standards of living in retirement. The introduction of 'guided retirement' duties addresses a critical gap where retirees currently struggle to manage the drawdown of their savings, potentially reducing the risk of running out of money in old age. The expansion of terminal illness provisions also directly improves the quality of life for the dying by reducing financial stress.

Although not primarily an environmental bill, the push for consolidation and the creation of 'Superfunds' and LGPS pools creates entities with the scale and long-term horizon necessary to invest in green infrastructure and renewable energy projects. Larger funds generally have more resources to conduct stewardship activities and enforce Environmental, Social, and Governance (ESG) standards on the companies they invest in compared to smaller, fragmented schemes.