The Labour party has vowed to review the pensions and retirement savings sector and simplify the ISA landscape if it comes into power in the next election.
As part of its plan for financial services ‘Financing Growth’, Labour said it will evaluate whether the current pensions and retirement savings framework will deliver sustainable retirement incomes for individuals.
Its review will cover all types of pensions, including defined benefit, defined contribution and public sector schemes including Local Government Pension Schemes (LGPS), at corporate sponsors, asset managers as well as VCs and private equity.
For defined contribution schemes, Labour plans to give The Pensions Regulator new powers to bring about consolidation where schemes fail to offer sufficient value for their members and will ask TPR to provide explicit guidance around fund and strategy suitability.
For LGPS schemes, Labour said it will evaluate different models for pooling, including increasing in-house fund management capacity at the pool level, to deliver better returns for savers and increase investment in productive assets.
Tom Selby, director of public policy at AJ Bell, said: “Labour appears intent on a wide-ranging review of the pensions landscape if it wins power, with the aim of building on the automatic enrolment reforms. While Sir Keir Starmer’s party seems focused on continuing the drive towards more productive assets in people’s pension investments, it is critical that the interests of savers are at the heart of any future reforms.
“Ensuring the investments held by auto-enrolment default funds are appropriate is clearly important, but ultimately the biggest driver of retirement outcomes is contribution levels. It is therefore likely the next government will need to think carefully about the question of pension adequacy and how to scale up minimum contribution rates beyond the current level of 8% of qualifying earnings.”
Selby also called upon the Labour party to set a clear direction on the State Pension, outlining how much it should be worth and when people should receive it, as well as whether the triple-lock should be scrapped.
Labour also plans to simplify the ISA landscape to make it “as easy as possible for people to feel the benefits of saving and investing their money”, including the increased utilisation of stocks and shares ISAs.
The move was welcomed by AJ Bell, who said the array of choice currently on offer is “confusing” for savers and the sector would benefit from a ‘back to basics’ approach.
Selby said: “No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today. A ‘back to basics’ approach would help build on the core feature of ISAs, which is their simplicity. A full review of ISAs should be seen as an opportunity to prevent them being suffocated by incremental complexity, which could eventually see ISAs turned into a political football in the same way as pensions taxation.
“Research we’ve conducted shows that the ISA ‘brand’ is widely recognised by the UK public. But once people are asked to identify the various different types of ISA available, knowledge levels plummet.”
Additionally, the Labour party has said it will evaluate the current advice/guidance boundary. The party said it supports the on-going consultation on the FCA’s three proposals to address the advice gap through the Advice Guidance Boundary Review and will monitor the progress in closing the gap.
In addition to ensuring alignment between the new proposals and the remit of the Money and Pensions Service to continue to provide and free and impartial guidance on money and pensions, Labour said it will also work in partnership with regulators and industry to support financial services firms in levering data and emerging technologies to produce accessible and affordable financial guidance tools.
The proposal was welcomed by AJ Bell, with Selby adding: “Ensuring millions of Brits can get the support they need when making often complex financial decisions is critical to boosting people’s financial resilience. Promoting the value of regulated advice and reforming guidance rules so people who don’t take advice can receive more personalised help can both play a significant role in improving consumer outcomes in this area.”
