The pension reform proposals announced in the chancellor’s Mansion House speech aim to accelerate consolidation, bringing about fewer, larger pension funds with the scale to invest in a wide range of asset classes.
As well as supporting growth, the reforms have the potential to achieve better outcomes for savers through economies of scale and greater negotiating power. But care must be taken to ensure the evolution that takes place happens at all times in the interests of members and represents value for money.
The PLSA, along with 14 other signatories representing £400bn of assets in the defined contribution and LGPS segments of the workplace pensions industry, has written to the chancellor to express the view that the pension review and the Mansion House reforms set a positive direction for the future of the UK pensions sector.
UK pension funds are already significant domestic investors, with allocations across shares, corporate bonds, government debt and other assets. The reforms offer additional mechanisms to increase pension investment in UK growth while maintaining a strong focus on fiduciary responsibilities to scheme members.
Growing the UK economy is rightly a priority for the government and as an industry we are working hard to do more to support this goal. A strong UK is better for retirement outcomes.
The local government pension scheme
The proposals to accelerate the pooling of assets managed by the local government pension scheme can increase the investing might of one of the largest funded defined benefit pension schemes in the world.
Since pooling was first announced, most funds have completed the transition of the great majority of their assets, which has resulted in cost savings and new UK investment opportunities. Yet much of the opportunity remains.
The industry supports the completion of the transfer of remaining assets and the articulation of the LGPS pool model, supported by setting clear and realistic timelines to achieve this goal. A lot of good work is already in place across the LGPS, and administering authorities and pools should take care further work is done in a pragmatic way which maintains value and does not incur unnecessary investment losses or costs.
The PLSA has long called for the implementation of the recommendations from the Scheme Advisory Board’s good governance project to develop a common standard on governance and foster effective relationships between pensions funds and asset pools. So we are pleased to see these proposals taken forward, as well as measures that support more investment into local areas.
We also know that LGPS members are exceptionally committed to the regions they serve and welcome the opportunity for local investment.
Defined contribution funds
The majority of UK workers now save into a DC pension arrangement thanks to automatic enrolment (AE). AE is a success story and enjoys widespread support across all political parties, the pension industry, and among the public. Thanks to AE, 19.4 million people who had not previously saved into a pension scheme are now setting money aside for their retirement.
The PLSA supports the government’s regulatory initiatives aimed at improving value for money and encouraging consolidation in the DC workplace market. The level of the government’s ‘minimum size’ for default funds, how they are provided and the timeline for reaching it, will be central to the success of the proposals.
The PLSA’s response to the pensions investment review call for evidence highlights some of the complex barriers to consolidation. Working with industry to overcome these, as well as supporting the wider programme of change, such as the introduction of pensions dashboards, will be key to driving success in this area.
Moreover, as the industry eagerly anticipates part two of the pensions review, we hope to see further measures brought forward that look at the long-standing issue of pensions adequacy, that set out a roadmap to address the level and scope of current AE contribution rates. We would also welcome further clarification on government ambitions for the future of DB schemes, especially around the treatment of open schemes, surplus sharing and consolidation measures in this area.
The UK pensions sector is a cornerstone of our economy, with nearly £1trn invested in UK assets. By working closely with the government on the Mansion House reforms, we can ensure the system delivers greater value for savers, supports long-term economic growth and advances our climate ambitions.
Consolidation, stronger governance and economies of scale will drive better outcomes for members, but it must be done pragmatically. By aligning with government proposals and safeguarding fiduciary duties, we can secure the best possible future for savers while boosting investment in UK assets and ensuring the system remains globally competitive.
Zoe Alexander is director of policy and advocacy at the Pensions and Lifetime Savings Association.
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