Mansion House reforms: Pension industry warns Jeremy Hunt against 'well-intentioned but hasty' reforms

Hunt's long-awaited Mansion House reforms plan to use the collective investment clout of pension schemes to reinvigorate the UK economy.

They follow months of reports and proposals including the Resolution Foundation's Beyond Boosterism which argued that pension schemes should play a critical role in the  ownership of UK companies to boost the UK economy.

In May The Tony Blair Institute suggested that thousands of public and private sector pension plans should be pooled into a series of regional ‘superfunds’ with assets of up to £500bnn, as part of an “extremely radical” proposal to free billions of pounds of investment capital to boost the growth of UK businesses. 

Industry reaction

Phil Brown, director of policy at People’s Partnership, provider of The People’s Pension, said Hunt's view of consolidation would be encouraging to millions of workplace pension savers "as central to delivering significant reform to the ever-growing defined contributions market".

He added: "Investments must be made in the members' interests and at a fair cost -  it’s now vital that the asset management sector brings forward quality investment options that work in the best interests of consumers."

British Business Bank

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said it was important pension schemes’ had the ability to direct their own investment strategy in the best interests of their members. He said:  “As is widely recognised, investments totalling around £1 trillion by pension funds in UK assets already support economic growth and are a major source of long-term investment in the UK economy.

“We welcome measures which improve access to a broad range of assets and schemes will always be interested in exploring investments which have a strong likelihood of generating good returns, within their risk tolerances, and in the interests of their individual members."

Peaple said the government’s announcement of a bigger role for the British Business Bank in establishing suitable investment vehicles was encouraging. "We would like it to provide a pipeline of suitable UK growth assets for pension fund investment," he said.

“With the right policy and regulatory initiatives, and support from the right type of fiscal incentives, there is a potential for a win, win, win - for pension savers, schemes and the UK economy. However, this is a complex area, and it is easy to get the wrong outcomes, so the Government is right to propose undertaking a public consultation on all the key issues over the next couple of months."

Consolidation of schemes

Peaple said there was already a great deal of consolidation happening in the UK landscape.

"For example in the case of DC schemes operating in the automatic enrolment market, and in the Local Government Pension Scheme where assets are already being transferred to eight large asset pools. And over time, consolidation is also going to happen with regard to closed DB schemes as they buyout. 

"Moreover, the Government is already taking action to encourage consolidation, for example, via the use of value for money tests in DC, and via Government direction in the Local Government Pension Scheme (LGPS).

"However, today’s measures will speed up the consolidation that is already happening and go further by consulting on a legislative regime for a new form of DB consolidator, DB superfunds, and by seeking views on a wider role for the Pension Protection Fund.

 “It is important to remember that there are things other than consolidation that the Government can also do to facilitate investment in the UK, for example amending the rules applying to the AE market, introducing more flexibility in the TPR DB funding code for open DB schemes, and supporting the good governance of the LGPS scheme. Fiscal incentives, such as LIFTS are also helpful. 

Simon True, chief executive of Clara-Pensions, “As the only consolidator to have completed the Pensions Regulator’s assessment process for superfunds, we welcome the Chancellor’s intention to introduce a permanent superfund regulatory regime. Pensions consolidation will deliver increased member security, improved governance, and the ability to access long-term illiquid assets that can drive economic growth.

The Association of Consulting Actuaries (ACA) issued a word of cautioned to the Chancellor and DWP. It urged them to "take the industry with them" and not risk undermining the proven value of existing arrangements with over-hasty, if well-intentioned, reforms.

It also reviewed with interest the consultation on how the role of the PPF could evolve as part of the Government’s proposals and added it did not support proposals which would compulsorily require schemes (DB or DC) to hold particular asset classes, or which would require schemes to consolidate involuntarily.    

Steven Taylor, chair of the ACA, said: "We are also strong supporters of approaches that will help the next generation of savers, such as the introduction of collective defined contribution (“CDC”) schemes, which will naturally invest in growth-focussed ways."

“Pension scheme trustees, their sponsors and the wider industry will look forward to working with government to help develop and debate emerging policy ideas over coming weeks.”