Pensions and ombudsman reform trailed as Reeves lauds free trade benefits in Mansion House speech

Tom Barton and Jonathan Cavill of Pinsent Masons were commenting after Rachel Reeves delivered her first Mansion House speech as UK chancellor on Thursday 14 November.

The speech addressed a wide range of topics, providing signals of the UK government’s approach to international trade, as well as confirming its focus on areas of potential growth in financial services, such as sustainable finance and fintech, including open banking. The chancellor further confirmed new growth remits for UK financial services regulators and the government’s intention to remove the certification regime from UK’s current senior managers and certification regime legislative framework. New legislation will also be published by May 2025 to establish a new 'PISCES' stock market in the UK “to support companies to scale and grow”, she said.

Reeves also set out plans to reinvigorate the UK’s capital markets by unlocking private investment from UK pension funds. Central to that are plans to target a minimum size for multi-employer defined contribution (DC) pension schemes and consolidate local government pensions funds into eight “megafunds”.

Tom Barton said, however, that an equally significant pensions-related announcement was made by the government on 14 November in the interim report from the ongoing pensions investment review (18-page / 225KB PDF). In that report, the government said it was seeking views on whether to impose new duties on employers in relation to workplace pension schemes. It suggested it is considering whether new duties concerning the value of schemes are needed, in particular.

Barton said would the move, if implemented, could amount to a fiduciary, or fiduciary-like, duty on employers in relation to workplace pension provision and, while there is some “logic” to the proposals, they also entail new risks.

“This is not a new idea as this was considered when the competition authorities looked at the DC workplace market in detail over 10 years ago but was not taken forward,” Barton said.

“There is a logic to introducing this duty, since employers are the buyers of commercial defined contribution (DC) workplace pension schemes which deliver auto enrolment compliance and employment contract obligations around pensions. However, there are weaknesses too given dynamics in the market and how the market has moved on with existing regulation such as value-for-money and the charge cap since the competition authorities first got involved,” he said.

“An employer duty could also create additional risks for employers that will need to be managed. Something along these lines already exists in relation to employer 401K plans in the US and we have seen a long line of successful class actions against employers for breach of the duty on the other side of the Atlantic,” Barton added.

A focus of Reeves’ speech was on the actions the government intends to take to drive investment in financial services and ultimately facilitate economic growth. She said addressing uncertainty arising from the way the current redress system operates in the sector is a necessary part of that.

In this regard, she said the government had worked with the FCA and FOS on a new agreement between the two bodies that sets out “clearer expectations on how they cooperate, including on historic market practice and mass redress events”. The FCA and FOS subsequently published a joint call for input seeking “views on how to modernise the redress system, so it better serves consumers and provides greater stability for firms to invest and innovate”.

Jonathan Cavill said: “The chancellor’s remarks on the need for closer co-operation between the FCA and the Ombudsman are to be welcomed at a time when mass redress events are having such major impacts on the financial services industry and wider market – noting, for example, the rise in car commission disclosure complaints following the Court of Appeal’s recent intervention in this area. This event follows ‘hot on the heels’ of other mass redress events like PPI and British Steel pensions mis-selling. The call for input will serve as a key inflection point for the regulator and Ombudsman, looking at how best they can ensure they approach such events with greater certainty, consistency and clarity – factors on which markets and businesses place a particularly high premium.”

Cavill added that a focus of the call for input is on addressing complaints early. He said it also “proactively puts financial services firms on notice, if they weren’t already with the advent of the consumer duty, that they too will be expected to act with greater efficiency and proactivity to address complaints when they arise”.

That, Cavill said, “should head off larger mass complaint headaches further down the track”, highlighting that while many firms already have rigorous complaints handling processes in place, they need to “keep such processes under close review to ensure they are sufficiently resilient in the event a systemic regulatory issue occurs, giving rise to mass complaints”.

Anthony Harrison, also of Pinsent Masons, added: “The chancellor’s speech and call for input also coincides with the Ombudsman’s latest proposals that, subject to necessary approvals, it intends to introduce a £250 fee for individual professionally represented cases, reduced to £75 if the outcome is in the consumer’s favour. The hope is that this will strike the right balance between ensuring proper support for those consumers who require specialist advice in complex cases, whilst signalling an end to meritless mass claims.”

Dr Totis Kotsonis of Pinsent Masons, a specialist in international trade, said businesses keen to understand how and to what extent the new Labour government might align more closely with the EU, the UK's biggest trading partner, might have been disappointed with the chancellor’s speech.

Kotsonis said: "The chancellor admitted that leaving the EU has led to what she called ‘structural challenges’, adding that there was now a need to ‘reset our relationship’ with the EU. What that might entail remains unclear, other than the chancellor confirmed that the government does not intend to rejoin the Single Market or the EU customs union. That might not leave much room for meaningful relationship resetting and might give rise to EU concerns that the UK is still seeking to cherry-pick. Europe à la carte is, for better or worse, not on the menu.”

“The UK might yet choose to maintain close alignment with EU regulatory standards. This might make life somewhat easier for businesses that export to the EU, but it won't be enough to do away with the ‘structural challenges’ that the chancellor acknowledged in her speech. Ultimately, the difficulty for the UK is that, with the new Trump administration with its avowed protectionist trade agenda coming into view, it might yet find itself caught in the cross-fire of trade wars, without the necessary heft to protect its own trade interests or convince its major trading partners of the benefits of what the chancellor called ‘free and open trade’,” he said.