Poorly performing pension funds will be closed to new business and providers will be required to show how much they invest in UK businesses under reforms unveiled by Chancellor Jeremy Hunt today.
The Treasury has announced a package of measures which includes a requirement that by 2027, DC pension funds across the market will disclose their levels of investment in British businesses, as well as their costs and net investment returns.
The Government says the moves will boost investment in British businesses, and mark a further encouragement to trustees and chief investment officers to ‘Buy British’, following last summer’s Mansion House Compact agreement by 10 providers to target a 5 per cent allocation of their assets to growth companies. The Mansion House Compact did not include a requirement to invest in UK growth companies, a move that has been resisted by trustees and chief investment officers as being at odds with their duty to invest with the aim of maximising returns for scheme members.
Pension funds will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10bn in assets, with poorly performing schemes barred from taking new business from employers.
The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) will be given powers to intervene where providers are failing to disclose or achieving poor performance.
The plans are subject to an FCA consultation.
For full details of the performance of more than 20 UK multi-employer schemes and the asset allocation breakdown of their default funds, including the split between UK and overseas equity holdings, see Corporate Adviser’s CAPA-data.com website, or request the Corporate Adviser Master Trust & GPP Defaults Report 2023 (cited in the Government consultation). The 2024 edition of the report will be published in April 2024.
Chancellor Jeremy Hunt said: “We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers – and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes.
“British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”
Secretary of State for Work and Pensions, Mel Stride MP, says: “The incredible success of automatic enrolment has opened up a huge opportunity to grow the economy, boost British businesses and fuel our futures. It has helped us transform the pensions landscape over the last decade.
“And our Value for Money framework will take this one step further, focusing pension managers on their number one priority – securing the best possible returns for savers – as well as providing a boost to the wider economy.”
Julia Hoggett, CEO of London Stock Exchange plc and Chair of the Capital Markets Industry Taskforce, says: “Pension holders should know how much is being invested in equities in their home market. Investing in UK companies ultimately benefits those companies and the returns they are delivering, which supports the economy and the country in which pension holders live, to everyone’s benefit and in everyone’s interest.”
James Ashton, Quoted Companies Alliance chief executive, says: “There is huge upside to aligning the UK’s financial assets with innovative homegrown ventures that could be tomorrow’s world beaters. We welcome these new disclosures and hope they are the first step to many UK pension funds discovering the numerous high-potential companies whose shares are traded on their doorstep.”
Chris Hayward, Policy Chairman of the City of London Corporation, says: “The Mansion House Compact aims to channel long-term capital from pension funds into growth companies. It will support high-growth companies to start, scale and stay in the UK. We welcome the Government’s action to support this objective which will turn the dial to drive investment into UK businesses. It is vital that the pension ecosystem focusses on value for money and long-term returns for savers.”