Government power to mandate pension funds on how to invest savers money is set to become law after the Labour majority in the Commons struck down attempts by the Lords to remove this amendment.
The Commons also reversed Lords amendments to the Pension Schemes Bill such as changes to the scale requirement requiring DC schemes to hit £25 billion in assets by 2030, and the grounds on which The Pensions Regulator could grant exceptions.
However, following the Lords debate, the mandation clause as passed is worded so as to be more closely aligned to the goals of the Mansion House Accord, a voluntary arrangement which pushes for greater investment in private assets.
In the final wording of the amendment, the Pension Schemes Bill makes clear that no more than ten per cent of a portfolio can be mandated within such “qualifying assets” such as private credit and private equity.
Speaking in the House of Commons, pensions secretary Torsten Bell continued to defend mandation, arguing that previous fixations on cost in the pensions sector had reduced investments in private markets in spite of the possibility for higher returns.
Shadow pension minister Helen Whately also continued her opposition to the idea of mandation. She says: “The fundamental problem remains unresolved, however, because at its core, the bill still gives the government the power to direct the investment of people’s pension savings, and that, as a matter of principle, is wrong.”
The Conservative Party has also pledged to removed mandation as law if it forms a majority in Parliament following the next general election.
Lisa Picardo, chief business officer in the UK for PensionBee, says: “The Pension Schemes Bill contains some genuinely welcome measures, but the controversial mandation clause that hands the Government power to interfere in asset allocation of DC master trusts and certain group personal pensions introduces a new lever inside the retirement system that should be fully insulated from political decision-making – given consumer savings are at stake.
“It’s disappointing that the Commons has chosen to override the House of Lords’ judgment on this, as well as bypassing overwhelming industry opposition to this reserve power.”
Many industry figures have previously pointed to the Mansion House Accord as an example of how pension schemes can be encouraged to invest in domestic private assets on a voluntary basis, and many signatories to the accord already claim to have hit the proposed targets before mandation becomes law.
Matt Tickle, chief investment officer at Barnett Waddingham, says: “We are disappointed, if not surprised, that the Lords’ amendments have not been retained. Whilst the revised wording is a small move in the right direction, it does not fundamentally change our view. Placing mandation powers on the statute book is not, in our opinion, in the best interests of members or the wider economy. Saver outcomes must always come first, and it is important that trustees are able to fulfil their fiduciary duties, protecting members’ retirement savings.”
However, Smart Pension has been more supportive of the mandation clause in its current form, labelling it as a “smart compromise.”