Extra powers for regulators and government to enforce consolidation will be included within the Pension Schemes Bill, which will be introduced before the summer, the head of the pension investment review has confirmed.
Speaking at the PLSA investment conference in Edinburgh today, Joanne Gibson, HM Treasury, the head of the pension investment review, said the response to the consultation, which will bring fundamental changes to the structure of the UK defined contribution sector, will be published in spring.
She said while the consultation was committed to the government’s objective of fewer, bigger pension providers, which by definition meant some would leave the market, she was focused on ensuring the sequencing of the reforms meant they could be implemented in a way that minimised market disruption.
She said: “We are not trying to undermine freedom of investment choice. We want to give savers access the best opportunities, including productive finance.
“And scale gives you negotiating power, to play into those asset classes. We can’t ignore the fact that in the UK we aren’t investing in the UK. Last week a UK fintech firm has got a Canadian pension fund to invest in it. Why aren’t our schemes doing this?
Gibson said: “We are now at the point of coming to decisions in the next few weeks. the final report will be out in the spring. That will be in the Pensions Schemes Bill which will be introduced before the summer, depending on Parliamentary time.”
“On the DC side we got 112 very long consultation responses. Even the minister read all of them. On the LGPS we got 220 responses. The themes of responses were around understanding what impact this is going to have to the sector. There was a lot of support for scale, but less for hard deadlines and the speed of getting there. People asked a lot of questions around the impact on cost, and disruptions to the market for such a big set of changes.”
Speaking on the same panel, Lizzy Holliday, director of public affairs and policy at Now: Pensions said: “The starting point is fiduciary duty. Our main purpose is to provide a pension, but that doesn’t mean there aren’t synergies.
“The government might look at guidance, comply and explain, or mandating. Across that spectrum, you need to look at the practicalities. If we move to a world of mandating schemes and there isn’t a pipeline of assets, we come across a big problem. And the more specific you get [in prescribing rules], the greater the risk of unforeseen consequences.
“As the scale of assets grows, you can see government looking at this sector. Does this cause me reason for concern? Probably. My belief is that some of the government’s core objectives could have been achieved in different ways. There are questions on where scale should sit on the provider side. Is scale within a single default fund, at the asset level, or at the provider level? We would say look at the provider and the underlying assets, the group structure, the skills and other deliverables of providers. And we also need to think about the unintended consequences of the policy. For example, if you have a broad section, finding a single price point for a single default fund is difficult.”
Gibson said the Treasury was alive to the issue of systemic risk in a sector that could have 95 per cent of assets within perhaps 30 schemes, but said that consolidation was the number one priority of the government.
She said: “We are looking at what it means to have a number of bigger schemes managing a huge amount of money for a huge amount of people. But the government wants fewer, bigger schemes. So we need to get there without causing too much disruption to the market.”
She added that phase two of the pension review, currently paused, was still on the agenda, but that investment needed to be sorted first. She would not be drawn on whether single employer trusts are to be brought within scope, but said their exclusion from the consolidation policy plan was being looked at.
She added that the government was addressing the potential complexities of implementing consolidation at the same time as rolling out the value for money framework.
She was asked how new defaults with private market allocations that did not have track records would be treated. She said: “This is where VFM frameworks will come in. That will put all the schemes on a level playing field in terms of comparable data. That will be used by providers, employers and individuals to see what is happening with their pension.”
Holliday pointed out the complexities that this presented to providers who do not have, or are not close to the proposed £25bn or £50bn asset threshold, in meeting the other obligations that are being presented to schemes.
Holliday said: “If you are not sure you are going to exist in five years’ time, it is difficult, as there are expensive commitments required by these rules that have a long lead in time.”
