The governor of the Bank of England has voiced opposition to potential policies to mandate how pension schemes invest – an intervention described as “nuclear” by a former pensions minister.
Speaking at a press conference today (9 July), Andrew Bailey – who has led the Bank since 2020 – said he did not think forcing pension funds to invest in particular ways was appropriate.
Former pensions minister Steve Webb described the governor’s comments as a “nuclear intervention” that would be “very unwelcome” at the Department for Work and Pensions (DWP).
Bailey told reporters: “I do think that addressing the pension fund question is very important in terms of investment. We’ve had a low level of pension fund investment in the real economy in this country.
“I don’t support mandating, but I do hope that we can reach, through the [policy] changes, a natural ability to tackle this problem.”
Andrew Bailey, Bank of England
“Structural changes to the pension fund industry are helpful in this respect – particularly, I think, in terms of consolidation. There are economies of scale and scope in terms of managing risky assets.
“However, I do not support mandating. I don’t think that’s appropriate. Reforming the pension system does require a lot of heavy lifting, but it needs to be done. It will take a bit of time, but it needs to be done for these structural reasons.
“I don’t support mandating, but I do hope that we can reach, through the [policy] changes, a natural ability to tackle this problem. The fact that the industry, the Lord Mayor of London and successive governments have [prioritised] this underlines how important it is.”
Government ‘crossing a line’ with mandation: Webb
Webb, now a partner at consultancy group LCP, said: “The governor will not have chosen lightly to be so critical of government policy, and his ‘nuclear’ intervention will be very unwelcome at DWP.
“This challenge raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months.”
Steve Webb, LCP
“But the governor speaks for many in thinking that the government is crossing a line if it presses ahead with plans to tell pension schemes how to invest. While pension assets can certainly be used more productively, it is ultimately for the trustees of pension schemes to decide how to invest in the best interests of their members, and not for ministers to tell them how to invest.
“This challenge raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months.”
Pensions UK, the industry trade body, also opposes the idea of mandation and is lobbying for changes to the bill. At the relaunch of the organisation – formerly known as the Pensions and Lifetime Savings Association – last week, chair Emma Douglas said the policy was a “red flag” for the pensions industry.
Schemes could be able to ‘opt out’ of mandation, minister says
Earlier this week, during the first parliamentary debate on the Pension Schemes Bill, pensions minister Torsten Bell was pressed by MPs over the so-called “backstop” clause in the bill.
Bell said: “I do not currently intend to use the power in the Bill, but its existence gives clarity to the industry that, this time, change will actually come.”
He added that, alongside protections for fiduciary duty, the power included “an explicit mechanism… to allow providers to opt out if complying risks material detriment to savers”.
The inclusion of the “reserve power”, the minister said, “reflects the reality that the industry has been calling for the shift for some time, but words have been slow to translate into actions”.
The devil in the detail: What is the government’s investment backstop power?
Pensions Expert explores the wording of the clause and how the government has stated it intends – or does not intend – to use it. Read more
