Pensions: June Monthly Overview

As we await Chancellor Jeremy Hunt’s Mansion House keynote next week, the debate around urging pension funds to invest in high-growth UK companies is once again thrown into the spotlight. 

This flow of private capital will supposedly spur economic growth, boost the government’s “levelling up” agenda, as well as the green transition – with the Labour opposition favouring similar proposals, as both parties shore up their messaging ahead of the upcoming general election.  

Another argument leans on comparing UK pensions with the success of their relatively less risk-averse Australian and Canadian counterparts. The UK pensions industry (predominated by mature schemes) has been locked in a battle against this view, upholding its overriding duty to preserve savers’ capital instead of chasing “riskier” (and less liquid) returns.  

More recently, the insurance industry body (Association of British Insurers) has chimed in by advocating against any compulsion for pension funds to invest in stipulated areas, warning that it would raise the risk of “asset bubbles”. In that vein, the ABI has called for government to help “de-risk” illiquid assets by co-investing alongside schemes. Yet asking taxpayers to shoulder that burden could be an unwelcome strategy ahead of elections. 

Others are concerned that any “outsized” returns over scheme members’ lifetimes would simply be swallowed up in fees. So, the Chancellor wants to progress consolidation of the fragmented DB and DC landscape to bring down unit costs and to offer economies of scale. Whether this results in the establishment of a GB “superfund” or not remains to be seen, but it certainly poses a competitive challenge for insurers’ pension buyout offering.  

At the recent PLSA conference, industry stakeholders were rife with alternatives that might afford pension funds greater flexibility, whilst still driving the government's agenda for economic growth; one of these proposals include Long-Term Asset Funds, on which the FCA issued guidance last week to help broaden retail access.  

Elsewhere, our data shows that pension scheme funding levels remained the most discussed topic past month, partly driven by the Department for Work and Pensions’ latest report on DB schemes and LDIs. 

It emphasised the importance of ensuring trustee boards have sufficient knowledge and skills, calling on the DWP to work with TPR “as a priority” to improve the trustee regulation and governance standards. 

Following its publication, MPs urged both bodies to pause existing plans for a new DB funding code until they have produced a full impact assessment for the proposals. They covered two key concerns with the new regime – that the approach will not facilitate new open schemes to thrive, and will result in greater “herding” in investment decisions. 

As such, the ongoing debate around innovation and growth in consolidation models is likely to roll on... 

If you would like any specific communications advice relating to any of these issues, get in touch with us Pensions@SECNewgate.co.uk