Pensions in 2024: Reform, investment, and the path to adequacy

The year 2024 will go down in history for many reasons. Labour winning the election with a massive majority. Trump winning yet again another US presidential election. Paris’s record-breaking Olympics Games. Jude Bellingham’s ‘Iconic Euro 2024 goal’. Summer 2024 recorded as the hottest ever on Earth. And turning to the world of pensions, the first female Chancellor, Rachel Reeves delivering her first Mansion House speech announcing some of the most significant pension reforms in years.

The UK pension landscape is undergoing significant transformations driven by regulatory changes and evolving market dynamics. It’s recognised widely that pensions need to change. Government research suggest that 12.5 million are under saving in retirement. The reality is that future generations will not have enough to support themselves in later life. 

Although arguably the biggest driver in this change is from politicians – specifically politicians in government who see pensions as the answer to long-running issues over the lack of private sector investment in in the UK economy. In Rachel Reeves Mansion House Speech, one of the most notable developments in the Pensions Investment Review aims to consolidate the UK pension system and unlock substantial new investments for the economy. 

It is expected for major consolidation of Defined Contribution (DC) schemes and the Local Government Pension Scheme (LGPS), into larger "megafunds", which would unlock around £80 billion for investment in new businesses and local infrastructure, as well as help boost the UK's capital markets, which would enhance their scale and investment capabilities. 

The pensions review also consults on further measures on Value For Money (VFM) framework for DC schemes to shift from cost to value, to ensure that pension schemes get the best possible value and deliver better long-term outcomes for savers. 

Although, broadly welcomed by the industry there has been some sceptics, who raise concerns about the complexity and extensiveness of the proposed changes, and how effectively they can be implemented. As well, the investment risks involved by encouraging pension schemes to invest in more infrastructure and other productive assets. As a trustee, one has a fiduciary duty to its scheme members and trustees will need to assess whether the returns justify the risks.

There was also some disappointment that the Defined Benefit (DB) schemes were excluded from this phase. For many it was seen as a missed opportunity to use the Mansion House speech to provide the DB sector with clarity around proposal to make it easier for pension scheme surplus to be returned to sponsors. 

As we look to 2025, the outlook for pensions is shaped by several key trends and regulatory changes. The focus on cyber security will be ever important. More schemes are investing in safeguarding member data against cyber threats. From a communications perspective, it is important to ensure that schemes are prepared and have protocols in place in the event of a cyber breach. We have the introduction of the Pensions Regulator’s General Code in 2024 which will continue to influence governance and compliance standards. 

Artificial Intelligence is set to be a hot trend for next year. We need to learn how to work with AI to enhance and optimise our way of working. For pensions, the ongoing developments of the pensions dashboard is set to revolutionise how people access and manage their pension information, promoting both greater transparency and engagement. 2025 will see the first pension schemes connected.

The focus on addressing pension adequacy will play a key role. The second phase of the Pensions Review will explore ways to improve pension outcomes, including assessing the level of savings needed for a comfortable retirement. As part of this, we may see contribution levels for auto-enrolment form part of the discussion.

Total mentions by topic (October - November)

• Pensions funding and deficit saw the greatest number of mentions between October and November with 608 stories, followed by State Pensions with 189 stories.

   

Examples of Pensions funding and deficit mentions this month 

• @SkyNews - Pension 'mega funds' will be created under government plans to increase infrastructure investment. Reforms could 'unlock £80bn' of investment, according to Treasury plans. Pensions minister @EmmaforWycombe joins @WilfredFrost to discuss the planshttps://trib.al/h1HlE6i

• @PeterStefanovi2 - Pension 'mega funds' will be created under government plans to increase infrastructure investment Reforms could 'unlock £80bn' of investment, according to Treasury plans. Pensions minister @EmmaforWycombe explains the governments plans

• @paullewismoney - It was a complete oversight when AE was introduced and probably due to lobbying by the pensions industry. More pots especially small ones means more business and more funds that can be drained to nothing by charges.