Contractors, Labour just dropped a landmark pensions review; do its terms bode well for you?

Promised in the Labour general election manifesto, signalled at King’s Speech 2024, and historically similar in circumstances to Gordon Brown’s, a landmark pensions review has now been unveiled by chancellor Rachel Reeves and her new Labour government, writes Angela James of Yolo Wealth.

What is Labour’s landmark pensions review?

With its terms now available online, the landmark pensions review is part of this new government’s mission to “boost growth and make every part of Britain better off.”

The first phase of the Reeves’ pension review was announced on Friday August 16th 2024 and initially it has four policy areas as its focus:

• Driving scale and consolidation of defined contribution workplace schemes;
• Tackling fragmentation and inefficiency in the Local Government Pension Scheme through consolidation and improved governance;
• The structure of the pensions ecosystem and achieving a greater focus on value to deliver better outcomes for future pensioners, rather than cost; and
• Encouraging further pension investment into UK assets to boost growth across the country.

Pensions Schemes Bill -- the valuable bit for contractors

The findings of the initial phase are expected to be reported later this year ahead of the introduction of the Pensions Schemes Bill.

For contractors, this is where the value of this much-needed relook at pensions will come in -- through the Pensions Schemes Bill which is:

• A value for money framework – i.e. it promotes better governance and higher returns to boost pots;
• Concerned with retirement products – i.e. trust-based schemes will be required to offer a default solution for people who are unable or unwilling to make their own choices;
• Concerned with the consolidation of pension pots – i.e. helping retirement-savers to keep track of their pension pots
• Concerned with ensuring value – i.e. making sure schemes are delivering good value for money.

But contractors, at this early stage of the review, you should expect very little to change.

No quick fix

Remember, this is only the first phase of the review and in order to develop “recommendations,” the review will take account of a wide range of external viewpoints; financial services, the pension industry, employers, trade unions and the like.

So while it’s hard not to welcome this pensions review from Labour, it’s likely to take some time and furthermore, any changes could be subtle and/or implemented over time.

Some of the recommendations may appear to have little impact on the professional (private sector) contracting community, as they will be aimed at local government schemes and local government employers.

Perceived benefits of the Labour pensions review

But here’s the thing; for contractors, there could be several benefits to the chancellor’s landmark pensions review and the Pensions Scheme Bill.

How? Well, many contractors, and typically those that have not engaged the services of an independent financial adviser, may have old workplace pensions languishing in the background, invested into default-style investment funds. And a core aim of Reeves’ pensions review is to make sure schemes are providing better value for their savers, and that means not leaving their members languishing in these poor value funds.

Taking this idea further, the consolidation of pension pots should be another benefit for contractors, notably those who may have a variety of pensions scattered around and who find it hard to manage and keep track of them as a result. Even those contractors who choose to ‘opt out’ of pensions because, as a temporary worker, there’s little intention of staying with the employer long term, may as a demographic be beneficiaries of the review, given non-permanent professionals will in future be more inclined to enrol if they know their retirement funds will be in a single place.

Possible risks of chancellor Reeves’ landmark pensions review

Some personal finance commentators fear we may see some increases among the landmark pensions review’s final recommendations. It’s all speculation at this stage, but some of these commentators say the recommended minimum contribution on auto-enrolment could be around 12%

In fairness to the chancellor one day agreeing to such recommendations, these levels have remained at the 3% employer and 5% employee-level, since auto-enrolment was introduced way back in 2012.

Of course, you could argue that this doesn’t (or won’t if it comes to pass) benefit the average contractor, who doesn’t have an employer contribution in the truest fashion.

What does Labour’s landmark pensions review hold for the self-employed?

The self-employed and ‘gig economy’ workers, who are excluded from auto-enrolment, are at huge risk of not saving enough for their retirement. There is genuine concern that these hard-workers not saving for a sustainable or sufficient income at retirement.

According to contractor body IPSE, just 31% of self-employed people are saving towards retirement.

As an adviser to these independent strivers, my hope is that Reeves doesn’t overlook this significant problem, meaning we may see something from the chancellor to address auto-enrolment and the disparity in the self-employed community. After all, this community of workers has grown by 50% since 2000, with more that 4.8 million people working on a self-employed basis.

Implications, too, for umbrella contractor pensions

There’s another potential beneficiary of this pensions review and they too are an atypical worker.

Specifically, if you are a contractor who works through an umbrella company, and you are opted ‘in’ to your umbrella pension, then an increase to minimum pension saving requirements will likely be seen by you as a needed nudge in the right direction.

You’ll get to save more and address retirement-saving more fully, but with little effort needed from you on both counts. 

What should contractors do now, with an official rethink on pensions underway?

Labour’s landmark pension review could eventually shore up your financial position as a contractor, but it’s ‘business as usual’ for now. That’s the case not only because the review is in its infancy, but also because the need to save for retirement, to plan effectively and to make the most of your available tax allowances are fundamentals of retirement-saving that even Reeves at her most audacious is extremely unlikely to interfere with. Like the chancellor’s upcoming Autumn Budget on October 30th there will invariably be ‘winners’ and ‘losers’ but the review does look weighted towards providing better outcomes, better value and improving savers’ chances of a better retirement.

At least that was the three-fold pledge pre-election; and the review terms are so far looking like it will make good on that pledge.

But whatever’s said, whispered, or even shouted in the Commons when the speculation inevitably reaches fever pitch or when the review’s second phase kicks off later this year, don’t let the noise put you off making any prudent nest egg decisions.

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