Laura Trott – 2023 Speech to the Pensions and Lifetime Savings Association

The speech made by Laura Trott, the Pensions Minister, to the Pensions and Lifetime Savings Association on 30 January 2023.

Good afternoon, it’s great to be here at the PLSA, as we launch further measures to ensure people saving into a workplace pension are treated fairly, are properly protected and can enjoy the secure retirement they expect and deserve.

Today’s measures are just one part of our wider reforms to the private pensions sector. Reforms, which, together, recognise and respond to a sector that has undergone significant change over the past few decades.

The move we’ve seen from Defined Benefit to Defined Contribution schemes means it is individuals who now shoulder greater responsibility for growing their pension pot.

It is a structural shift that has led to stark generational differences between those who can expect a predictable level of retirement income – guaranteed by their employer – and those for whom there are no such guarantees.

There is increased risk and uncertainty compared to decades previously and often less adequacy.

The introduction of Automatic Enrolment in 2012 under the Conservatives was a game-changer.

For over ten years, it has been embedding a culture of retirement saving for a new generation within a new pensions landscape.

Millions more people are now saving into a workplace pension – with 10.8 million workers enrolled so far and £33 billion more saved in real terms in 2021 than in 2012.

But as well as coverage, we also need to focus on quality and outcomes.

Having created a new generation of savers, it’s only right that we help them maximise the value of their hard-earned retirement in later life.

Pension Freedoms have provided more flexibility for people to choose how and when to access their pension savings.

Alongside a record number of workplace pension savers and assets, there’s more choice and more freedoms.

But with more choice, comes increased variability in terms of the retirement outcomes that schemes are delivering for savers.

More freedoms put more decisions into the hands of individuals to make.

As scheme members, many feel they are navigating through a hugely complex financial world.

There is more that we can do to help. My plans for reform focus on three pillars. Increasing are Fairness, Adequacy and Predictability.

On Fairness, if your scheme is underperforming and you don’t know about it, you could be losing out on thousands of pounds.

When I started this role, I was shocked to see analysis showing a difference in returns between schemes over a 5-year period of up to 48% in some cases.

This means that a saver with a pot of £10,000 will have notionally lost £5,000 over a 5-year period from being in a lowest performing scheme.

This simply isn’t fair. Bringing fairness to our new system is the first pillar of my vision for pensions.

All savers deserve to be confident that their pension scheme is working hard on their behalf and on track to deliver fair and predictable outcomes – reassurance that the generations that proceeded them would have had from their Defined Benefit pensions.

To date, we have introduced “value for members” assessments which came into force in 2021.

Today I am announcing that we will be going further, with a new Value for Money framework.

The consultation I am launching today will seek your views on proposals to require all occupational pension schemes to publish a full assessment of the value their scheme is delivering relative to others.

But what does value for money mean?

When I talk about Value for Money, I don’t just mean low costs. Value for money means that savings are invested well, they are not being eroded by high charges and that schemes are helping members make the right decisions throughout their accumulation period.

The consultation has been jointly developed with The Pensions Regulator and the Financial Conduct Authority. It proposes a framework that will increase transparency, comparability, and drive competition across the pension market.

It will help to deliver long term value for hard-working savers, and it proposes giving the regulator the powers they need to tackle underperforming schemes.