Following the Chancellor's Mansion House speech last night detailing plans to make money in pension schemes more productive, a raft of government documents have been released this morning. 

Our experts comment on some of the key issue. 

VFM

"Delivering VFM to all members, regardless of what sort of pension arrangement they are in, is essential to building and maintaining trust and confidence in pensions. We believe that introducing a dedicated framework will help to underline the importance of VFM and focus the attention of governance bodies on delivering good outcomes for savers.

"We welcome the fact that the Government has addressed some primary concerns about key issues such as employer subsidies being included and the sheer volumes of return data.  The VFM process must not be another cumbersome compliance document for pension schemes which could potentially mislead savers by presenting incomplete information on the costs and charges they pay for their pension provision.

"In the round, the framework presents a real opportunity for the pensions sector, not only to improve the VFM delivered to savers but also the information reported to them. Properly implemented, a new framework could be the basis for a more informative, member-friendly report to replace the annual DC Chair’s Statement, which has become a ‘tick box’ exercise for pension schemes and is rarely read by savers. We hope the government continues to listen to the industry as this is implemented."

Laura Myers is a partner at LCP and head of the firm’s DC practice

Small pots

“One of the side-effects of automatic enrolment has been the creation of millions of small, ‘deferred’ pension pots scattered across the pensions landscape.   It is therefore welcome that the Pensions Minister has reached a decision on a way forward after a decade of debate.  However, whilst consolidation of the very smallest pots into a small number of consolidator vehicles represents a step forward,  many people will still find themselves reaching retirement with multiple pension pots.  Even someone earning just £20,000 per year and making minimum automatic enrolment contributions will build up a pot above the £1,000 limit for consolidation.  Once the new system is up and running, further thought will be needed to help ensure that savers can get best value from their DC savings”

Steve Webb is a partner at LCP

CDC

“Many of our large pensions clients have been awaiting today’s CDC developments keenly, many having contributed to Government planning and helping to set out the new features needed for CDC schemes to emerge as a force. 

"Chief amongst these are expected flexibilities on how CDC pensions build up, such as age related scales, that will help schemes to be fair for future generations.    Setting out these principles quickly, for multi-employer schemes, also makes sense as commercial considerations for “decumulation only” schemes will need to be thought through separately.  

"In current times, CDC has many desirable features – pensions aim to be both generous (compared to existing DC) and inflation proofed – without creating cost uncertainties for employers.  Investment approaches are also very long term, meaning schemes are natural buyers and holders of growth assets.    These factors mean it also makes sense to think about how current DC savers can benefit from CDC and a this aspect of the consultation is very welcome. “

Steven Taylor is a partner at LCP

Decumulation

"Decumulation is rightly understood to be the most challenging issue in pensions, given the complex questions savers need to answer to achieve a sustainable income in retirement, and we welcome the Government’s continued focus on this area. What’s clear is that savers need more help to support their decisions about decumulation. We believe that “default” or “default-like” solutions have a role to play in helping savers get better outcomes, by taking the pressure off them to design their own post-retirement investment strategy and providing guide rails around the amount of income they should take.

"Solutions like this could include a whole range of options, including new options like decumulation-only CDC or an ability to flex you pension first and fix it later. However, we would like to see solutions evolve that reflect the DC environment as it is today, governance bodies already have significant scope to improve the post-retirement options on offer to savers, by working with providers to deliver tailored solutions that reduce member-borne costs and incorporate default mechanisms. The Government should support them to do so." 

Laura Myers is a partner at LCP and head of the firm’s DC practice.

Trustees

"Although the government has expressed concerns about levels of knowledge and expertise amongst trustees, the truth is that the trustee landscape is already evolving at a rapid pace. Our latest Professional Trustee survey demonstrates that nearly half of all UK pension schemes have at least one professional trustee appointed, and nearly 20% of those are in a Sole Corporate Trustee arrangement where entire trustee boards are being replaced with a team within a professional trustee firm to supplement the need for additional skills around investment and trustee effectiveness. As a result, large schemes in particular generally have a high level of professionalism and knowledge to draw upon when making investment decisions.

"There is however a risk that the increase in demand for those services could result in a squeeze in supply of Professional Trustee services which could lead to sub-optimal outcomes, especially for schemes without a professional trustee, looking for additional skills to supplement their board going forward."

Nathalie Sims is a partner at LCP.