The Government made a number of pension–related announcements in the Budget today, primarily in relation to defined contribution pension schemes, the Local Government Pension Scheme, and ESG investment regulation.

Defined Contribution pension schemes

UK equity investments

The Chancellor, Jeremy Hunt, confirmed the Government’s proposals, (published on 2nd March 2024) requiring defined contribution (DC) pension funds to release a public breakdown of their asset allocations, including UK equities. Under these plans, all DC pension funds across the market, will disclose their levels of investment in British businesses along with their costs and net investment returns, by 2027.

Mansion House Compact

The Mansion House Compact was first announced as part of the Government's Mansion House Reforms in 2023, and is, in essence, an agreement between some of the UK's most prominent defined DC pension providers to release at least £50bn of investment capital by 2030 from DC schemes. The Government has confirmed it is working with the Association of British Insurers to finalise a framework for monitoring progress on the Mansion House Compact.

Value for Money Pensions Framework

The Government has announced that it is working with the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) on the upcoming Value for Money (VFM) pensions framework. The framework will highlight where pension schemes are concentrating on short-term cost savings at the expense of long-term investment outcomes, and where this may be stopping them from offering value to savers. The FCA and TPR will have increased regulatory powers available, to take action on this, including closing a scheme to new employer entrants and, winding up a scheme if appropriate. Secondary legislation may be used to enforce these powers if it is necessary to ensure key disclosures are in place by 2027. The Financial Conduct Authority (FCA) will consult on this in the spring.

Lifetime Provider Model 

The Chancellor also confirmed that the Government will continue exploring the “lifetime provider” or “pot for life” model for DC pension schemes, in the long-term. This will involve a continued analysis of engagement to ensure that the model would improve outcomes for pension savers. Whether this means the Government is actually less enthusiastic about the pot for life model remains to be seen.

Local Government Pension Scheme

The Government aims to implement similar pension investment requirements as above for Local Government Pension Scheme (LGPS) funds in England & Wales by April 2024. LGPS funds will have to provide a summary of asset allocation, including UK equity investment, as well as provide greater clarity on progress of pooling, through a standardised data return. Should the data not reveal that UK equity allocations are on the increase, it will consider what further action should be taken.

In addition, the Government has committed to work with the LGPS to consider the role they could play in unlocking investment into new children’s homes.

ESG Regulatory Framework

Following a consultation over the past year, the Treasury has reaffirmed its commitment to give the Financial Conduct Authority powers to regulate environmental, social and governance (ESG) ratings, in order to “improve transparency”. ESG ratings are used to assess an entity’s exposure to and management of ESG risks, such as flooding risk, or ESG opportunities, for example in relation to clean technology. Assessments of ESG factors are used for pension investment decisions, and influence capital allocation.

Appropriate legislation will follow later in 2024.

How Capsticks can help

Capsticks has significant experience supporting employers on a wide variety of pension issues. We’ll keep you updated on the above developments as they progress, or further information is released.

If you have any questions around what is discussed in this insight, please contact Neil Bhan.