Pensions UK has called on the government to withdraw its reserve mandation powers from the forthcoming Pension Schemes Bill.
These reserve powers effectively allow the government to direct how schemes invest members savings.
These reserve powers have arisen in response to the voluntary Mansion House Accord, which saw 17 of the UK’s largest pension providers pledge to invest at least 10 per cent of their DC default funds into private markets by 2030, with half of these funds invested in the UK.
The new powers contained in the Bill enables the Government to act is schemes fail to follow through on these commitments. However the way it is worded will give future far more wide-ranging power to direct how pension schemes invest members’ money that goes beyond the limited scope of the Mansion House agreement.
The Pension Schemes Bill is currently making its way through Parliament. It is currently at the report stage, which Pensions UK says offers one of the last opportunities for amendments to be introduced and pushed to a vote.
Pensions UK says it welcomes the broader aims of the Pension Schemes Bill, including reforms that reduce system complexity and improve saver outcomes. These reforms are critical for the sector and long-term member outcomes.
But it says if the mandation power is exercised, it would hamper free and open market competition aimed at driving better saver outcomes, and put those outcomes at risk. It says decisions on how savers’ hard-earned money should be invested should not be a political choice.
Pensions UK says that if these powers remains in the Bill it is essential that the legislation should allow no more direction by Government than the minimum necessary to deliver its stated intention.
As a result Pensions UK calls for three key critical safeguards:
- A cap on the percentage of investment that can be mandated, aligned with the 10% and 5% voluntary Mansion House Accord targets already supported by the Government.
- Strengthening of the report that is required before the power can be introduced.
- A reduction in the duration of the sunset clause from 2035 to 2032 to reduce the political risk to schemes.
Pensions UK has also reiterated that it is vital that the Government continues to facilitate a pipeline of UK investment opportunities and a regulatory environment which supports the aims of the Mansion House Accord.
Pensions UK chief executive Julian Mund says: “Now is the time to drop the reserve mandation power from the Bill.
“Pensions UK strongly supports most of the provisions in the Bill, and wishes to see it passed. But the mandation power risks distorting the market, compromising saver outcomes and eroding trust in the system.
“The current drafting of the provision goes far beyond the scope of the Mansion House Accord and could be used to direct investment in very broad terms, either by this Government or a future one. Should the power remain in the Bill it is critical that it is aligned to the standards set by the Accord, and that it goes no further.”
