Public opinion is not broadly supportive of government plans to encourage pension schemes to invest in assets, infrastructure or projects to boost the UK economy, preferring a focus on pure investment returns.
Research commissioned by the Centre for Progressive Policy (CPP) raises questions about the government’s aim to deregulate pensions in order to drive a ‘big bang’ in investment to help the UK recover from the Covid pandemic and advance the levelling-up agenda.
This research found that just 17 per cent thought investing in companies or assets that would benefit their local area should be a priority for pensions. In contrast 82 per cent said the return on investment should be prioritised, regardless of the social benefits. Meanwhile 54 per cent said the fees they are charged should be a priority.
Last year the Prime Minister Boris Johnson and then-Chancellor Rishi Sunak — now a candidate for prime minster — published a letter calling for an “investment big bang” in pension investment in UK assets, similar to what has happened in Canada and Australia. It said action by pension and investment funds could “unlock hundreds of billions of pounds…to drive the UK’s recovery”.
To start this process, the government has been consulting on changes to the regulatory charge cap, set by the Financial Conduct Authority in 2015 to protect new savers from high fees and charges. By looking at increasing the cap, the government’s intention is to help pension funds invest in new assets including infrastructure, which often have higher performance fees.
There are concerns though, that increasing the cap means the potential for higher costs for millions of low- and middle-income savers, which over many years can result in significantly lower returns.
The CPP calculates that a UK worker paying fees at the current cap of 0.75 per cent will see the size of their total savings pot cut by around 16.5 per cent as a result of fees over a 40-year period. If the cap were to increase further to 1.2 per cent of assets.
The government has for now paused on its proposal to exclude performance fees from the charge cap, but the CPP says there remains a persistent drive to deregulate in this area to meet wider economic and political goals.
The CPP says that while there is undoubtedly great potential for investment in local infrastructure to bring benefits to local economies, this needs to be carefully balanced with the need to protect the retirement savings of millions of pension-holders by keeping charges and fees low over the long term.
CPP director of policy and research Ben Franklin says: “A plan for economic recovery and growth should be the heart of our next Prime Minister’s agenda. While pensions savings can play a role in delivering this, it must not be done at the at the expense of retirement incomes and by raising fees against savers’ wishes.
“The extraordinary policy success of auto-enrolment means that almost 20 million people are now participating in a workplace pension, including many middle and low earners.
“It’s clear from our research that people prioritise two things: return on investment, and affordable fees. Government’s plans for unlocking capital for new infrastructure must be guided by these two principles.”