There is likely to be renewed focus from the government on getting DC schemes to invest in the UK economy — despite the lack of a Pensions Bill in the King’s Speech.
Speaking at Corporate Advisers Master Trust and GPP conference in central London that Association of British Insurer’s head of long-term savings policy Rob Yuille reviewed what had been a busy year for pensions policy, particularly in light of the Mansion House reforms.
While the government had stepped back from compelling schemes to invest in private assets and productive finance Yuille said it was clear this was not necessarily off the table indefinitely, particularly after a general election. He pointed out that while Labour’s policy was broadly similar on this issue, it had pledged to do a full scale review of the pension landscape which could involve future changes.
Yuille said: “The principle should be that trustees make investment decisions in the intent of scheme members. This should remain key.”
He also called for schemes to produce better data on current asset allocations. Praising Corporate Adviser’s CAPA data, as being the most comprehensive across the industry he said many providers were still not differentiating their ‘other’ categories which can contain a wide range of assets.
However he said mandatory requirement to invest in private assets were not necessarily off the table indefinitely, pointed out that government could link tax relief in future to requirements to invest in the UK economy which effectively would mandate investment in these areas. He pointed out that there are arguments for compulsion, for example removing the “first mover disadvantages” but he added that this can also cause asset bubbles, particularly in a relatively small investment field.
He also raised the issue of what would happen if the government mandated investment into private asset and illiquid investments and these then subsequently significantly underperformed. “Would the government pick up the tab if it all went pear-shaped? I would think not.” He added that this may part of the reasoning why the Mansion House compact as it stands remains a voluntary agreement between the government and industry.
Yuille welcomed the announcement that the British Business Bank would be launching a venture capital fund which could be accessed by DC schemes, and would effectively see the government co-investing in these assets with the private sector. He said he did not see this as competition to the existing private fund manager sector and said he did not see this have the same effect as a similar acting as a “third way” public/ private enterprise, Nest has had in the workplace pensions market.
“It will not be on the same scale. I see this as a helpful intervention offering additional investment opportunities and driving investment in an areas where there is not enough investment at present.”
Yuille said similar entities existed in France and there was a similar launch just announced in Germany, albeit on a slightly larger scale. He said more detail was needed though, particularly over the type of unlisted equities, in terms of early or late stage venture capital, that this growth fund would invest in.
Despite the lack of a pension bill Yuille said there were a number of actions the government could make in the UK pensions sector. He said he was waiting to see if there would be further announcement on AE, particularly in relation to contribution levels.
With the expectation that the DWP would announce changes to workplace pensions to allow employees to nominate their own pension fund, Yuille made a plea to government policymakers not to use the phrase ‘pot for life’ to mean two separate policy initiatives.
He said that this has been used to relate to automatically consolidating pensions into an individual’s first employee pension, as well as the right to select their own pension. Yuille added that the first, if done automatically would like have the biggest effect on reducing small pots.
