Former pensions minister Steve Webb has echoed Conservative opposition to the proposed government power to mandate pension schemes to invest in certain asset classes and domestic projects.
As co-author of a Lane Clark & Peacock report, where Webb is now a partner, he argued that there was no clear argument for setting “arbitrary top-down” targets for total levels of productive investment, which may be a “potentially ineffective” policy instrument.
The madation clause is part of the Pension Schemes Bill, which was passed in the Commons and is to be debated before the House of Lords.
Webb is a former Liberal Democrat MP, and was pensions secretary from 2010 to 2015 when the party governed in coalition with the Conservatives.
He says: “The UK investment mix will in any case shift rapidly in the coming years, as UK DC schemes grow rapidly, and the Government should not be in the business of over-riding trustee decisions to impose what it thinks is the right answer.”
The report was more sympathetic to any government mandation policy that may come with a more definite aim, for example environmental targets.
At a Pensions UK event hosted in Edinburgh last week, mandation was “a very wrong tack which could end up reducing people’s (pension) returns”, according to Helen Whately, the shadow pensions minister.
Earlier in the day at the same event, pensions minister Torsten Bell had defended the concept of mandation, insisting that the government would make it clear it would only be used to support the Mansion House Accord, and rejected the argument that a future government could use it for more extreme interventions, arguing that parliamentary sovereignty meant they could do this anyway.
He said: “There are sunset clauses on these powers. But remember that any government with a majority can do things. The power will only be able to be used for implementing the Accord and nothing else (by this government).”
The LCP report, co-authored by IFS director Paul Johnson and published in conjunction with Frontier Economics, also argued that comparisons with the Australian pensions system should be treated with caution.
The report says: “It should also be noted that the Australian superannuation system is based on the principle that schemes should invest with the ‘sole purpose’ of purpose of providing retirement benefits for members, and that this means investing in the ‘best financial interests of members’ and not having regard to considerations such as the Government’s wider economic policy.
“Yet this ‘sole purpose’ rule has not prevented Australian schemes from having much larger allocations to ‘productive’ assets than is currently the case in the UK.”
In a similar vein, comparisons between large UK DB schemes and the ‘Maple 8’ Canadian pension schemes was also labelled as equally “misleading.”