The Association of British Insurers said a long-term strategy that put savers at its heart could draw more pension fund investment into the UK economy.
The ABI's report Investing in our Future: Delivering for Savers and the Economy looked at how pension schemes could be encouraged to invest more money in UK companies.
The ABI is the latest organisation to call for more to do be done to attract further investment in the UK economy, last month the Resolution Fund urged pension funds to come to UK Plc's rescue and in May The Tony Blair Institute for Global Change said pension funds could be used to boost UK savings and prosperity.
Pension schemes do already invest a great deal in the UK, the ABI acknowledged but, "the litmus test for any new policies must be that they deliver better outcomes for savers".
LIFTS and LTAFs
The Long-Term Investment for Technology and Science (LIFTS) initiative was an example singled out in the report as being part of a framework that could be used by pension funds to "encourage further investment in the UK"
More also should be done to ensure regulation made it as easy as possible for the funds to invest in illiquid assets, including through long-term asset funds (LTAFs), the report added.
The report said: "Initiatives which pool both government and pension scheme funds, such as LIFTS, have the potential to encourage greater investment in illiquid assets. By developing further initiatives that use co-investment as an incentive, the government could create opportunities for pension funds to put more money behind assets that align with its wider policy objectives.
"For any investments that are expensive and / or riskier, such incentives would shift the balance of risk and reward, improving the value for savers, and making them more attractive to schemes."
End “cost is king” culture
The ABI said ending the “cost is king” culture in the defined contribution market, where charges rather than scheme value was a focus could also help shift funds towards more UK centric investment.
To do this The Pensions Regulator (TPR) would need to "review and update its DC investment governance guidance to encourage trustees to focus on overall value" and that "both TPR and DWP’s default fund guidance should incorporate the framework – once finished – to rebalance the focus on costs towards a more value orientated approach"
Longer term the ABI report said "stressed out DB schemes" could be helped by giving a wider role to the Pension Protection Fund (PPF), to act as a DB master trust and that more consolidation "was appropriate" for the 86 Local Government Pension Funds (LGPS) which together administer £400bn in assets for the retirements of local authority workers.
It also recommended pressing ahead with plans to increase automatic enrolment contributions by removing the lower earnings limit and by lowering the automatic enrolment age from 22 to 18 and gradually raising employer and employee contributions to DC schemes over the next 10 years to 2032 to 12 per cent.
Dr Yvonne Braun, director of policy, long-term‑savings, health and protection at the ABI said it welcomed the government’s appetite to increase investment opportunities for pension schemes. She added: “The UK market can be made more attractive for pensions, for example through co-investment from government in certain sectors. It is also crucial that the auto-enrolment pensions market starts to focus on value rather than price."
"But pensions are for the long-term, so any more far-reaching changes need to be part of a long-term strategy that is joined up across government and can command cross-party support. Our industry will continue to proactively engage to help bring about this long-term strategy.”
