The pensions and financial inclusion minister Guy Opperman warned the industry it needs to act together to boost investment into infrastructure and other illiquid assets, or face government intervention on this issue.
Speaking at the Corporate Adviser Master Trust and GPP conference this morning he said the industry had clear lessons to learn from the Australian pension market, and cited the IFM Investors fund – a pooled wealth fund – as a possible role model for how to boost investments into illiquids in the DC space.
He said: “Without a shadow of a doubt this is what we should be doing. The UK pensions industry lacks scale but not capacity. Schemes should be coming together to look at the logistics of how to achieve this. It isn’t a question of why they should be doing it, but how.”
Opperman says that a number of recent government reforms has helped to facilitate this, for example recent legislation to form the Long Term Asset Funds as well as the launch of green gilts.
He says if schemes pooled a small proportion of assets, as has happened in Australia, this would still give them control of the lion’s share of their assets, but could deliver a wealth fund of scale that has the potential to boost member outcomes through increased diversification in DC pensions and investment in these assets.
Asked whether DC providers should come together to create a collective infrastructure purchasing entity, Opperman, pointed to the example of the pensions dashboard. “The question I’d be interested to know is why are you not doing that already? Because it seems to me make total sense, and it’s slightly reminds me of the dashboard conversation. Everyone in this room agrees that it would be really important to have a pensions app where you can see all of your information and everybody in the room agreed this for about the last six to seven years. But would they do it? No. They basically said, ‘We’re just not prepared to do it. We won’t commit the capital. We won’t talk to this person. We won’t do that’. So it requires government to do all the heavy lifting, which is disappointing. But then be careful what you wish for because if you don’t allow us, if you don’t embrace the problem, Government is forced to try and do these sorts of things, which is what I’m doing on dashboard, which is what I’m doing on other stuff.”
Talking at the conference, Opperman also called for better league tables, so members can get clearer information on how their pension is performing on a host of metrics, from value for money, costs, performance and how from how green their pension is.
He says the industry has been transformed by AE but had “lots of learn” from the Australian experience, particularly when it comes to the small pots issues, consolidation, and greater investment in infrastructure.
In his first speech after the COP26 event in Glasgow, he says the UK finance sector, and the pension industry in particular, were “world leaders” when it came to green finance. He pointed out that 85 per cent of DC pension savings were now explicitly invested to net zero targets, while the TCFD regulations had transformed disclose around climate change metrics.
He reiterated his view that divestment was “the wrong approach” for pension funds, but hoped better engagement and stewardship with companies across the economy would help the UK as whole meet net zero goals.
