The pensions sector has a tendency to ambush you when you’re on holiday, as happened to me in July when the Department for Work & Pensions (DWP) put out a set of policy papers.
These accompanied chancellor Jeremy Hunt’s big Mansion House speech from 10 July in which he said — although not explicitly — pension funds should be used to pay for government projects.
It was literally the first time I’d heard any government pensions policy described as ‘coherent’
This echoed past public remarks by prime minister Rishi Sunak and his predecessor-but-one, Boris Johnson, about the opportunity to level up the country through pensions investment. All three figures have talked up the great investment possibilities that, supposedly, lie across the land.
There are two over-riding themes in the Mansion House reforms: illiquid investment, and consolidation of the far-too-many small schemes. The word ‘illiquid’ has a bad aura due to the Neil Woodford scandal, where investors became trapped in illiquid funds; also because the government obviously views pension funds as a way to pay for infrastructure.
Conflicting motives
There is a clear tension between the Tory regime’s political agenda — to win an election through pension-driven investment — and trustees’ fiduciary duty to get the best rate of return for scheme members.
My conclusion on all this: advisers should never take their eye off the pensions sector
A short consultation the government published about trustees’ skills and duties seems to want to redefine their fiduciary duty. The language the government uses in the paper is surprisingly direct.
It says: “We are concerned there may be a risk-averse culture in the application of this [fiduciary] duty, or even a perception that fiduciary duty means capital preservation at all costs. This may be preventing trustees from considering investment decisions that could potentially create higher returns for savers in the longer term.”
It adds: “Trustees should consider investing across a wide range of assets that can deliver enhanced returns for savers. Failing to consider the full range of investment options, where appropriate, is a failure of governance and a failure to fulfil fiduciary duty.”
A difference of opinion exists between the government and the opposition on the LTA, but not on the Mansion House agenda
In his Mansion House remarks, Hunt made two claims that attracted much attention on social media.
First: “More effective investment schemes will increase returns, boosting a saver’s typical pension by 12% over a career, or an extra £1,000 a year in retirement.”
Second, and the claim that drew the sharpest reaction: “These reforms will also deliver better value for money for savers. Over a five-year period, there can be as much as a 46% difference in returns between the best and worst pension schemes. This means a saver with a pot of £10,000 could have notionally lost £5,000 over a five-year period.”
There is a clear tension between the Tory regime’s political agenda and trustees’ fiduciary duty
It will be fascinating to see if trustees and the government end up at loggerheads over where pension money should go.
‘Revolutionary and seismic’
I watched a Lang Cat webinar on 31 July in which director of public affairs Tom McPhail uttered some nuggets about Hunt’s reforms.
He said: “These are revolutionary and seismic in terms of the impact they will have on the UK’s pension provision over the next few years. It is also the nearest thing we could get from the government in terms of a coherent policy on pensions.”
I chuckled at the word “coherent”. It was literally the first time I’d heard any government pension policy described as such. On the webinar I asked how the abolition of the lifetime allowance (LTA) and axing of death benefits related to the Mansion House reforms. McPhail said these were separate ideas generated by different government departments — the former at the Treasury and the latter at the DWP.
It will be fascinating to see if trustees and the government end up at loggerheads over where pension money should go
There is a political dimension too to the separation of these subjects. Labour shadow chancellor Rachel Reeves has spoken about supporting UK pensions to invest in Britain. And she has indicated Labour would seriously consider reversing the abolition of the LTA. So there is a difference of opinion between the government and the opposition on the LTA, but not on the Mansion House agenda.
My conclusion on all this: advisers should never take their eye off the pensions sector.
Michael Klimes is news editor. Contact him at: michael.klimes@moneymarketing.co.uk
This article featured in the September 2023 edition of MM.
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