Giving the government the power to force particular asset allocations is not the right approach and risks undermining trust in the pensions system, according to the Pensions and Lifetime Savings Association (PLSA).
Responding to the government’s Pensions Investment Review, the trade body said steps such as changes to investment laws that may impact on fiduciary duty “are not straightforward and involve downside risks for scheme members”.
The Pensions Investment Review, published today (29 May), outlines that the government will give itself the power to mandate particular asset allocations if it judges that the goals of initiatives such as the Mansion House Accord are not being met.
“Trustees are there to do what is best for savers. Any reserve power on mandation must be drafted with extreme caution.”
Julian Mund, PLSA
The government has emphasised that the measure is a last resort and does not anticipate using it.
PLSA chief executive Julian Mund said: “Any government intervention to direct how savers’ money is invested is risky. If government doesn’t create the right environment with a suitable pipeline of investment opportunities, it would involve downside risk for scheme members.
“Trust in the system could also be impacted. Trustees are there to do what is best for savers. Any reserve power on mandation must be drafted with extreme caution.”
Mund said the PLSA was “confident” that mandatory measures would not be needed following the Mansion House Accord.
“We believe that the best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not a mandatory basis,” he explained.
Robust governance needed around mandation power
The PLSA urged the government to proceed carefully when drafting the “reserve power”, and suggested including “reasonable” sunset clauses so that any mandatory requirements would not be put in place indefinitely.
The trade body added that “robust governance will be important” to any mandation power, including clarity on its use and the safeguards to be put in place.
The PLSA maintained that the best route to improving investment returns and retirement outcomes for members was through the pensions industry “working in partnership with government”.
Zoe Alexander, director of policy and advocacy at the PLSA, said: “Increased consolidation has the potential to improve retirement outcomes through improved governance, wider investment diversification and improved bargaining power. It can also foster economic growth.
“However, these are big changes that will have significant implications for how UK pension schemes operate. Care must be taken to ensure the reforms work in the interests of millions of pension savers.”
