As the dust settles on the launching of the much-anticipated Mansion House Accord, what have we learnt, and what does the experience of Hungary 15 years ago tell us about how this change is being implemented?
Firstly, we have learnt that you don’t have to sign it. It’s a voluntary pledge, and not everyone is volunteering their signature. Scottish Widows, Fidelity and Hargreaves Lansdown have all declined to take part, while Royal London has signed up this time, having not been a signatory to its predecessor, the Mansion House Compact.
Scottish Widows’ argument is that it is already progressing in private markets and is planning an LTAF launch. Fidelity’s position is more clearly at odds with delivering the UK investments the Government is trying to achieve. It argues that, because UK private markets represent 15 per cent of the global private assets pool, allocating half domestically would create ‘structural bias that will need to be governed’.
I’m not against the Accord – I think it, and Jeremy Hunt’s predecessor, have done a great job in focusing private market asset managers on the DC opportunity. But there is a question as to what happens next. The Mansion House Accord is not legally binding. To do so would put schemes in legal conflict with fiduciary duty. Ministers have hinted at legislation in the event that targets are not met, and the Accord states that progress will be monitored, meaning it will not wait until 2030 before taking further action.
But such a line of action would be fraught with risk for the Government. Firstly they would be on the hook politically in the event that things go wrong and returns are dismal. Secondly, they could face legal challenge under the individual’s right to peaceful enjoyment of their property.
Sequestering assets for government purposes is not a good look for a UK government. Directing investments in UK infrastructure is not quite the same as nationalisation, but it does share some attributes. Viktor Orban did something along these lines in Hungary in 2010-2011, when he nationalised the country’s DC system. Individuals were given the choice of staying in their private funds but losing their right to a full state pension, or moving to the state system and switching to the government scheme. It’s not an approach any UK government wants to go anywhere near.
Will Accord refuseniks gain brownie points amongst advisers for not signing up? It is hard to tell. Doubtless some will respect them for standing up to interference but my sense is most see the Mansion House Accord’s commitments as achievable and largely beneficial.
Another takeaway from the Mansion House Accord is the likely reduction in the number of defaults, and the potential focusing of attention around a single ‘go-to-market’ default fund.
The Mansion House Accord only covers £252bn of DC assets – around a third of the total. Our research shows £667bn in multi-employer DC assets, with probably more than £100bn more in single-employer trusts. While non-signatories represent some of that shortfall, and the exclusion of derisking forms a large part, much of this differential is down to the sheer scale of legacy assets.
These legacy defaults are expected to be consolidated into current, open defaults when rights to bulk transfer without consent, where it is in savers’ interests, come into force, something the industry has been crying out for for years.
Ministers will be keenly watching progress on private market assets. What they do if it doesn’t meet their expectations remains to be seen.