The UK government wants to channel pension scheme investment into UK assets, which sits in tension with trustees’ legal obligation to invest in the interest of their members.
The Labour government’s plans to push pension scheme investment into productive finance “overreaches into private arrangements” and “interferes” with trustees’ fiduciary duties, the SPP’s investment committee chair, Simon Daniel, said at a recent event.
The government launched a review of pension investment in September. This is considering, among other areas, how to increase scheme investment in UK equities and infrastructure. The previous Conservative government had pursued a similar agenda.
Speaking at an SPP webinar on 26 September, Daniel – who is also a partner at law firm Eversheds Sutherland – acknowledged the importance of considering climate change and levelling up, and the role that private markets assets can play.
“The challenge for the government in developing and implementing the productive finance agenda is that it involves overreaching into private arrangements to direct the allocation of private assets into certain types of assets within a specific jurisdiction, in order to contribute to the growth of the UK economy,” he said.
“I don’t suggest that this ultimate objective of growth is not a good aim, economic growth should be good for all of us,” he continued.
“The issue is in seeking to do it via accessing private capital and not by using tax receipts, which is really what political economic theorists would say is the right thing to do.
“It interferes with the fiduciary duties that trustees of defined benefit and defined contribution schemes owe, and we know that administering authorities of Local Government Pension Scheme funds – who are quasi-trustees – also owe fiduciary duties.
“These duties basically require them to use their investment powers for investment purposes and to invest in the most suitable assets for their scheme.”
Last week, several organisations made similar observations in response to the first phase of the Pensions Review, calling for members to be put at the centre of any policy discussions or changes.
Steven Cameron, pensions director at Aegon, said: “It would be highly risky to legislate for particular investment allocations. Trustees and independent governance committees will be very much against being forced to invest their schemes assets in a particular way if they believe this is not in the member’s best interests.”
Further reading
Members must be centre of Pensions Review, industry says (25 September 2024)
10 questions that will shape the Pensions Review (5 September 2024)
How to get pension schemes investing in productive assets (12 August 2024)
