In response to the Chancellor’s Mansion House speech, Lou Davey, Head of Policy and External Affairs at Independent Governance Group, the UK’s leading provider of professional pensions trusteeship and governance services, has commented.
She said: “The Government’s aims are worthy and have the potential to deliver greater value for DC pension savers and boost investment in a broader range of productive assets. At IGG, acting in the interests of the beneficiaries of the schemes we represent is paramount. We embrace new opportunities and fresh thinking that leads to innovative solutions that enhance outcomes for those members.
There are challenges ahead for Government and industry if these aims are to be achieved:
- The need to build a coherent strategy that brings together a series of disparate aims and regulations, and ensure that trustees are not asked to make decisions that are incompatible with their fiduciary duty. We are pleased that Government has decided not to mandate investment in particular asset classes. There is no doubt that good quality long term investments will achieve better outcomes for DC savers, but if the Government expects pension funds to invest in the UK, trustees will need a sufficient supply of good quality investments, and to be assured of the quality of those assets so they can be comfortable that this is compatible with their fiduciary duty.
- Any push towards the building of scale and greater investment in UK assets must achieve better value for money for members, and the regulatory framework around VFM must operate in that context. Many ways of accessing productive assets involve tying up capital for 5-10 years, with little data on performance in this period. This makes it very difficult for schemes to justify these investments in the light of the current value for money framework put forward by the FCA and TPR. Forward looking metrics and a real focus on value over the long term are key.
- The building of DC ‘mega funds’ needs to be over a sensible time frame and ensure that members’ needs are met – one size does not fit all and consolidating to too few schemes will create concentration risk and a lack of competition which may fail to drive value. We need clarity over exactly where consolidation is expected so that the practical challenges that currently exist for many can be properly addressed.
“We are pleased that the consultation on reforms to DC acknowledges many of these challenges and provides the opportunity for them to be explored in detail, including the role of employers in driving some of the changes. It is encouraging to see measures to address the large number of poor value legacy contract based arrangements being explored.
“The Government’s plan for the Local Government Pension Scheme (LGPS) is potentially the sword to sever this Gordian Knot. By showing what’s possible by consolidating the scheme, and showing its growth by investing in UK assets and creating new opportunities along the way, the Government can incentivise other schemes to follow suit. If the opportunities and infrastructure are there and the benefits apparent, regulators should not need to force consolidation in DC.
“A true focus on the long term means the industry should not miss the opportunity to strengthen commitment to sustainability in investment portfolios. IGG’s Sustainability Charter, launched in 2023, sets out the actions we will take to promote sustainability, drive responsible investment and ensure that the long-term interests of members are best served. The Mansion House reforms present an opportunity for the industry to drive further progress together and continue to push for positive change.”
“A strengthening of the FCA and PRA’s growth remit is welcomed if it helps to facilitate more innovation and long term investment opportunities for trustees to consider.”
“We welcome the announcement of FCA’s consultation on transformational changes to financial advice and the support offered. For people to make the best decisions and get the most out of their pension savings, it is vital that they can access the right level of support and guidance – something that the current system does not provide.”
“The absence of further announcements on how the growing surpluses in DB schemes could be put to use for the benefit of members, employers and the wider economy is disappointing. Particularly in light of the recent guidance note from HMRC, which potentially further limits the options for return of surplus and appetite for run on. We hope to see further developments in this space soon.”
