Pensions Talks Interview: Joe Dabrowski, Deputy Director of Policy at the Pensions and Lifetime Savings Association (PLSA)

The PLSA’s Deputy Director of Policy, Joe Dabrowski gives SEC Newgate his thoughts and views on the strategies for boosting pension fund investment in UK growth, the role of the National Wealth Fund, and the compatibility of growth with the net-zero transition.

The PLSA has made recommendations to create the necessary investment conditions for pension schemes to allocate a greater portion of retirement savings to UK growth areas, could you please outline what steps you would like pension schemes and Government to take? 

We believe the Government can take six key actions to encourage greater pension fund investment in UK growth, provided these investments are made in the interests of scheme members. The Government should help ensure there is a pipeline of high-quality investment assets that meet the needs of pension funds. We recently published a report, Creating a pipeline of investable UK opportunities, which shows how this can be done. The report outlines how investment needs differ by scheme type and highlights specific sectors where there are potential assets for UK pension funds to invest to help address financing gaps across four key themes – climate, infrastructure, social and community, and life sciences and AI.  

There should be greater flexibility introduced into the funding regime for private sector Defined Benefit (DB) schemes, particularly for open DB schemes and those schemes with longer investment time horizons, within the framework of DB regulation. The Government should also introduce fiscal incentives to encourage pension fund investment in UK assets through changes in taxation. Efforts should also be made to support the consolidation of pension schemes. The market for DC under automatic enrolment (AE) should be reformed to encourage more focus on performance and less on cost. 

Our sixth recommendation is raising pension contributions. The flow of assets into DC schemes should be increased by raising automatic enrolment contributions from 8% to 12% over the next decade.

Do we need to provide other incentives for pensions schemes to encourage them to invest in UK plc and productive finance? 

To encourage pension schemes to invest more in UK companies and productive finance, it is important to provide both investment and fiscal incentives. 

On the investment side, there should be a greater emphasis on using blended finance, including first loss facilities, to reduce the risk for pension funds. Additionally, expanding successful initiatives such as LIFTS would allow more defined contribution (DC) schemes to benefit from these opportunities, particularly through capped returns and fee offset mechanisms. Furthermore, the Government could commit to large-scale infrastructure projects that include guarantees for private investors. These guarantees could ensure that investors receive their capital back at par if the project is abandoned or undergoes significant changes. 

On the fiscal side, targeted fiscal incentives could be introduced to stimulate investment in sectors or regions in particular need. This might include enhancing tax incentives for investments in fixed capital, innovation and in specific technologies and places. Additionally, revisiting the approach to taxation, such as reinstating the dividend tax credit, could further encourage pension schemes to allocate funds to these productive investments.

How do you think the National Wealth Fund will drive growth? 

The PLSA welcomed the Government acting decisively to set out plans for a National Wealth Fund and look forward to working collaboratively to develop solutions that work for savers, pension funds and the economy.  

Although the Government has committed £7 billion to the National Wealth Fund, it’s success will be reliant on the initial investment catalysing pension fund investment. To achieve this, it is vital that the Government works with the industry to address various key elements.

 Firstly, Pension funds have differing requirements and what appeals to one type of scheme may not work for another. “In addition, fiduciary duty remains a scheme’s top priority and investment opportunities must be in the best interests of pension scheme members.

Finally, clarity must be provided around the coherence of National Wealth Fund policy with other reforms (such as Mansion House or the Pensions Review) and in terms of a strategy for how the National Wealth Fund is a part of the transition to net zero.

Is it realistic for the UK to try to replicate the much lauded Australian and Canadian superannuation models? 

Replicating Australian and Canadian pension models in the UK is complex. Although Canadian consolidation and Australian practices offer valuable lessons, in particular in relation to leveraging scale, the UK approach needs to reflect our regulatory and economic circumstances as well as our employment and savings culture. The UK should focus on practical, sector-specific solutions rather than direct imitation, ensuring reforms align with its unique conditions and asset opportunities. All major pensions systems have their own complexities and nuances and it’s important to remember the grass isn’t always greener.

From a pensions perspective, do you think growth is compatible with the transition to net zero and what more needs to be done by all parties to facilitate this transition? 

Funding the climate transition is vital in securing the future retirement incomes of British people and is entirely compatible with UK growth. Our latest report, Creating a pipeline of investable UK opportunities, highlights climate change as a key investment theme. The Climate Change Committee’s sixth carbon budget1 estimated that achieving net zero will require the UK to invest £50 billion a year. However, there are various potential assets for investment, and we identified that net-zero aligned infrastructure investments are likely to be favourable for pension funds. Globally, the opportunity to invest towards future green industries is enormous.  

Although the Government’s commitment to Great British Energy, and its focus on the green transition within National Wealth Fund proposals are encouraging, more action is need to ensure the UK succeeds in harnessing the investment power of pension funds. We urge the Government to provide policy certainty regarding its green transition commitments as this is vital to restoring confidence in UK climate transition markets. Additionally, we recommend considering net zero incentives that could be offered to encourage investment into green sectors such as electric vehicle development and charging points or renewables.

What else would like you to see from the government’s pensions review for pension schemes? 

We now know that the pensions review will take place in two phases. The first phase will focus on investments, and we have been clear that the creation of new investment opportunities in the UK could prove positive for pension funds. The second phase will consider the further steps required to improve pension outcomes, including assessing retirement adequacy. Our view is that it should aim for consensus on the right level of pension saving given it is widely agreed that the UK is under-saving for retirement. The review should consider expanding the scope of AE to benefit under-pensioned groups (e.g. self-employed, gig economy workers, women) and consolidation to leverage scale for better governance and lower costs. It should also support defined benefit pensions by adjusting rules to keep schemes open and benchmark quality pensions, while evaluating state pension value and automatic enrolment income goals.