Two of the biggest pension bodies are jointly calling for government action to enhance retirement adequacy while boosting pension investment into the UK economy, to help stimulate growth.
In a joint statement the Association of British Insurers and the Pensions and Lifetime Savings Association highlighted four key areas where further government action is needed.
These four recommendations are:
- Ensuring better adequacy in DC pensions and a bigger pool of investable capital – both bodies point out that low contributions into DC pensions risk risk retirement shortfalls.
- Making regulations work better for investment and savers – the ABI and PLSA are calling ifor regulation to be made make it as simple as possible to invest in illiquids where it is in the interest of savers.
- Increasing investment opportunities – both bodies want the government to help developing an effective pipeline of assets with good risk reward profiles for pension schemes to invest in UK growth.
- Continuing to focus on consolidation – ensuring that consolidation takes place in the best interests of members.
These recommendation comes after last year’s Mansion House compact, a voluntary agreement set out by the Chancellor Jeremy Hunt, which has seen a number of major DC pension providers pledge to increase their investment into private assets and less liquid investments, including start-up companies in the UK.
PLSA director policy & advocacy Nigel Peaple says:”UK pensions already invest around £1 trillion in the UK economy, in particular through their ownership of government and corporate bonds and listed equities.
“The PLSA and ABI have worked together to identify what more Government can do to attract further pension investment in the UK, provided the investment is in line with the interest of savers.
“This is a complex area, but we have picked out four areas for action: higher pension contributions, the right regulation, Government action to support investment opportunities and measures that enable the consolidation of pensions that is already underway. Taken together our organisations believe this is the right way to support growth in the UK and to look after the interests of pension scheme members.”
ABI director of long-term savings policy Dr Yvonne Braun says: “Together, ABI and PLSA members safeguard £2.5 trillion of assets for the retirements of millions of workers in the UK.
“We strongly support the Government’s desire to ensure these assets work as hard as possible for savers, while also fuelling UK growth. But optimising asset allocation is not enough. We also need to ensure people save enough, regulation works, there is an effective pipeline of investment opportunities, and much greater consolidation.”
Insurers are broadly supportive of these aims. Responding to this joint initiative Scottish Widows head of policy Pete Glancy called for the government to look again at auto-enrolment in light of these recommendations.
He says: “We need to re-examine auto enrolment, with key reforms on both the demand and supply side, to be able to invest in ways which maximise returns for scheme members.
“On the supply side, many pensions in the UK are tied to funds that have limits on the proportion of illiquid assets that can be held, holding back investment in key growth areas for the UK like infrastructure. This is because auto enrolment has evolved from unit-linked pensions originally designed for the retail market. Another hindrance from this evolution is the disclosure framework, which deters those making investment decisions away from assets with more complex charging structures.”
He adds: “On the demand side, an excessive focus on price has led default funds to only include cheaper, less complex assets, to the potential detriment of scheme members in the longer term.
“Combining these reforms with the freedom to invest in the optimum asset classes at the optimum time, we would expect to be able to deliver better returns for pension scheme members over the long term.”