Pensions: March monthly overview

This past month has largely been characterised by the further turmoil on the financial markets. The failure of Silicon Valley Bank (SVB) prompted wider concerns across the global banking sector, which were then exacerbated by the brokered takeover of Credit Suisse by UBS. Markets have appeared to have calmed slightly since these events, but the crisis will almost certainly result in changes across the financial services sector and from a policy and regulatory response.

In the UK, some of the focus from these events has shown the need for “a larger, more diverse financing system” which is linked to wider concerns about the state of UK capital markets, and the attractiveness of the City of London for companies to list and raise finance. A growing theme in potential answers to address these challenges has been to mandate UK pension funds to play a bigger role in investing in UK innovative firms – citing that low valuations of firms on the London Stock Exchange can partly attributed to pension funds’ lack of investment in British stocks. Influential industry figures have called on the Chancellor to look at this and the government itself has said it would look at the issue later in the year. If such a change was mandated, then it could represent a further investment requirement and a significant new challenge for UK pension trustees.

Yet again, our data showed this month that State Pensions was the most talked about subject in the news. Chancellor Jeremy Hunt delivered his first Budget, in which saw pensions issues take centre stage. Hunt announced the scrapping the lifetime tax-free pensions allowance and the raising of the annual allowance, which he said would encourage older people to carry on working. The implications of this change are still being determined and time will tell if it does encourage older people to remain (or re-join) the workforce, but it nevertheless will have a big impact on the savings and DC pension market.

Whether the measure remains in place, however, is less certain with the Labour Party opposing the allowance change (arguing that tax breaks for those with a million pounds in savings is the wrong priority). If there is a Labour government at the next election, we could see the Lifetime allowance returned.

We also saw last week, the government confirmed that the planned state pension age rise will not be brought forward, as had previously been suggested. Now it is due to begin rising to 68 from 2044.

Given the importance of ongoing ESG and climate reporting regulations on many pension schemes, the government’s so called ‘Green Day’ last week was much anticipated. This included the government’s response to Chris Skidmore’s Net Zero Review, the Green Finance Strategy, the Energy Security Strategy, the Net Zero Delivery Plan and the raft of new consultations. Many observers, however, highlighted the lack of new announcements among these reviews, while others expressed disappointed that the government did not set out measures to provide a response to the US Inflation Reduction Act to kickstart the UK’s green industrial revolution.

Elsewhere, the Work and Pensions select committee continue their inquiry into the fallout from LDIs, as well as open a separate inquiry into the state of defined benefit schemes, with a particular focus on what The Pensions Regulator (tPR) should do to improve the quality of trustee boards. Pension schemes will know that remains a high degree of political and media scrutiny on the sector. 

If you would like any specific communications advice relating to any of these issues, get in touch with us pensions@secnewgate.co.uk