The Treasury has launched a call for evidence regarding its forthcoming Pensions Investment Review.
This invites providers, consultants, consumer groups and other stakeholders to submit data, information or other feedback relating to the first phase of this review, which will be led by the Emma Reynolds, the minister for pensions (pictured).
This first phase will look at how to boost investment into the economy, increase savers returns and tackle waste in the pension system. At this stage this will focus solely on the DC workplace pensions and the Local Government Pension Scheme (LGPS).
Publishing this call for evidence, the Treasury said the review will consider evidence on a range of questions, including scale and consolidation in this sector, cost and value and investment into the UK. It has published a list of questions on which it is seeking further input and information — reprinted below.
This will be a relatively short call for evidence, with the deadline foe responses being 25 September.
This move has been broadly welcomed by the workplace pensions market. People’s Partnership chief executive officer Patrick Heath-Lay says: “The launch of the call for evidence into the Government’s Pensions Review is the first step in a once in a generation chance to shape the future of the UK’s pension system, towards better consumer outcomes and supporting UK growth.
“It’s important that the review looks at Canada and Australia, which set the gold standard for pension systems, that operate under strong fiduciary governance and produce the kind of outcomes the UK Government has said it wants.
“In these markets pension funds are characterised by scale, strong fiduciary governance and expert in-house investment teams that invest in the interest of the saver. This combination of focus will produce the diversification the Government has indicated it wants, together with better value retirement outcomes for savers.”
Hymans Robertson head of pension policy innovation Calum Cooper adds: “Given DC workplace schemes and the LGPS are important parts of the UK’s retirement savings environment, it is reassuring that the Government is seeking information and solutions from the pensions industry, and wider, to ensure it can deliver its policy objectives most effectively.
“We are particularly glad to see that the government focussing on investment returns net of fees, as opposed to costs. This is important as unlisted equity and infrastructure investment costs, an area the Government are keen for DC and LGPS funds to invest in, are often higher.”
He adds: “We recognise that there are significant opportunities for the government to help the industry to improve outcomes for DC pension savers. For example, leveraging the increasing scale of today’s DC schemes to access new investment opportunities, and enabling more sophisticated default retirement propositions to be introduced.”
The Government outline the following key questions which it is seeking further information on and hopes to address in the first phase of this review:
Scale and consolidation
- What are the potential advantages, and any risks, for UK pension savers and UK economic growth from a more consolidated future DC market consisting of a higher concentration of savers and assets in schemes or providers with scale
- What should the role of Single Employer Trusts be in a more consolidated future DC market?
- What should the relative role of master trusts and GPPs be in the future pensions landscape? How do the roles and responsibilities of trustees and IGCs compare? Which players in a market with more scale are more likely to adopt new investment strategies that include exposure to UK productive assets? Are master trusts (with a fiduciary duty to their members) or GPPs more likely to pursue diversified portfolios and deliver both higher investment in UK productive finance assets and better saver outcomes?
- What are the barriers to commercial or regulation-driven consolidation in the DC market, including competitive and legal factors?
- To what extent has LGPS asset pooling been successful, including specific models of pooling, with respect to delivering improved long-term risk-adjusted returns and capacity to invest in a wider range of asset classes?
Costs vs Value
- What are the respective roles and relative influence of employers, advisers, trustees/IGCs and pension providers in setting costs in the workplace DC market, and the impact of intense price competition on asset allocation?
- Is there a case for Government interventions, aimed at employers or other participants in the market, designed to encourage pension schemes to increase their investment budgets in order to seek higher investment returns from a wider range of asset classes?
Investing in the UK
- What is the potential for a more consolidated LGPS and workplace DC market, combined with an increased focus on net investment returns (rather than costs), to increase net investment in UK asset classes such as unlisted and listed equity and infrastructure, and the potential impacts of such an increase on UK growth?
- What are the main factors behind changing patterns of UK pension fund investment in UK asset classes (including UK-listed equities), such as past and predicted asset price performance and cost factors?
- Is there a case for establishing additional incentives or requirements aimed at raising the portfolio allocations of DC and LGPS funds to UK assets or particular UK asset classes, taking into account the priorities of the review to improve saver outcomes and boost UK growth? In addition, for the LGPS, there are options to support and incentivise investment in local communities contributing to local and regional growth. What are the options for those incentives and requirements and what are their relative merits and predicted effectiveness?