Pensions UK, the retirement industry trade body, is to step up lobbying against investment mandation when the Pension Schemes Bill returns to parliament next week.
The bill is due to be scrutinised by a parliamentary committee at sittings scheduled for next week. Pensions UK’s director of policy and advocacy Zoe Alexander will give evidence to the committee at the first session on 2 September.
Pensions UK said it “believes in a pensions sector that puts fiduciary duty to savers at its heart, with free and open market competition to drive better outcomes for savers”.
However, certain measures included in the bill – including mandation powers over defined contribution (DC) funds and the Local Government Pension Scheme (LGPS) – exposed members to risks “now and over the long term”, it stated.
The trade body has been opposed to mandation since it was first proposed, and highlighted it as a “red flag” that it would stand against as part of its rebrand, announced at the start of July.
Alexander explained: “We are concerned that broad new powers to direct investment introduce avoidable risks to savers and must be approached with significant caution. The best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not mandatory, basis.”
Despite this, Pensions UK said the “majority” of measures contained in the bill would “help ensure pension schemes are maximising the value they provide to members, remove complexity for savers and reduce the cost of administering pensions”.
Align investment mandation with Mansion House Accord
The government included a controversial “backstop” power in the draft Pension Schemes Bill, which would mean that pension funds may not receive regulatory approval if they do not have “at least the prescribed percentage of… assets” held in “qualifying assets”.
“We do not believe this power is needed and a voluntary relationship with the industry, as set out in the Mansion House Accord, is a better way to proceed,” Pensions UK stated in its submission to the parliamentary committee.
The clause is due to expire on 31 December 2035, meaning that if it has not been enacted, it will expire and not be enforceable.
Pensions UK lobbied for the sunset clause and now wants this brought forward to the end of 2032.
In addition, the trade body has argued that the investment clause should be aligned with the goals of the Mansion House Accord, launched in May. Signatories pledged to invest at least 10% of their assets in private markets, half of which they aim to allocate to the UK.
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‘Stop meddling with LGPS investment’
Pensions UK has also pushed back against mandation aimed at LGPS funds. The Pension Schemes Bill includes clauses that could affect the independence of how the six remaining LGPS pools invest.
“LGPS pools will manage the money of over seven million savers, and are large, sophisticated, FCA-authorised investors. The government should not be seeking to interfere in how they run their money.”
Pensions UK
The trade body said: “The pools will manage the money of over seven million savers, and are large, sophisticated, FCA-authorised investors. The government should not be seeking to interfere in how they run their money.
“The powers in the bill need to be much more specific about the intention behind the drafting.”
The Pension Schemes Bill currently states that the relevant secretary of state would be given powers to direct a pool “as to the manner in which it is to carry out any specified investment management activities”. They could also require a pool “to take, or not to take, a specified decision in carrying out any specified investment management activities”.
Addressing ‘anti-competitive’ rules around superfunds
The Pension Schemes Bill includes a regulatory framework for defined benefit (DB) “superfunds” – commercial providers designed to consolidate private sector DB schemes.
So far, only Clara Pensions has received regulatory approval and has consolidated four schemes.
Pensions UK said a formal superfunds regime could “bring innovation and competition to the market – including new provision from buyout providers”.
However, the trade body warned that some of the proposed rules “cut across fiduciary duty and include anti-competitive measures that should be amended”.
“Only trustees, in conjunction with their employer, should decide their endgame solution,” Pensions UK said. “The inhibiting requirement for a ceding scheme to demonstrate it cannot buy out should be removed.”
Elsewhere, on surplus release, Pensions UK called for the 25% tax levied on any surplus withdrawn from a DB scheme to be waived if the money is to be used to enhance member benefits, pay additional contributions to DC members, or to establish a collective DC scheme.
It also asked for more clarification on measures relating to the planned ‘value for money’ regulatory regime and default decumulation services.
