Speaking at the Pensions and Lifetime Savings Association offices today (January 30), Trott discussed the raft of measures announced as part of a shake-up to private pensions.
She said the move from defined benefit (DB) schemes to defined contribution schemes mean it is individuals who now shoulder greater responsibility for growing their pension pots and it is important to create fairer, more predictable, and better-run pensions.
“It is a structural shift between those people who expect a predictable level of retirement income guaranteed by their employer and those for whom there are no such guarantees,” she said.
“There is increased risk and uncertainty compared to decades previously, and often less adequacy.”
As part of the changes, Trott announced a new value for money framework, which will require pension schemes to disclose investment performance and the introduction of legislation for collective defined contribution schemes exclusive for decumulation, since these could help “improve member choice and outcomes”.
The government also proposed the broadening of investment opportunities such as illiquids to “unlock” pension cash to help economic growth.
There's more that we can do to help and my plans for reform focus on three pillars, increasing fairness, adequacy, and predictability.
Discussing the VFM framework, Trott explained that the variation of the prediction versus the reality is too large and bringing that closer together will be very important.
“For schemes, if they're not for performing for their members, they need to either improve, they need to consolidate or exit the market,” she said.
Although it is still at the consultation stage, Trott hinted at potentially legislating it at a later date, stating that “it is important that the regulator has the powers to be able to act”.
Three pillars
Trott, who became pensions minister in November, said her plans for reform focused on three pillars, increasing fairness, adequacy, and predictability.
The introduction of automatic enrolment in 2012, under the Conservatives, was a “game changer”, she explained.
“For over 10 years, it's been embedding a culture of retirement saving for a new generation within the new pensions landscape.”
Trott said millions more people are now saving into a workplace pension with 10.8mn workers enrolled so far, and £33bn more saved in real terms in 2021 than 2012.
“But as well as coverage, we also need to focus on quality,” she said. “Having created a new generation of savers, it's only right that we help them maximise the value of their hard earned retirement later in life.”
