A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/uk-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://www.pensions-expert.com/investment/a-step-too-far-mandatory-uk-investment-remains-a-threat-after-pension-investment-review/69437.article
https://www.privateequityinternational.com/uk-investments-should-not-be-mandated-say-local-pensions-lgps-conference/
B] The Issue
The UK pensions industry has welcomed the launch of the voluntary initiative to be known as the Mansion House Accord, which sets government investment ambitions for UK workplace pension providers. The government has previously toyed with the idea of mandating investments in private markets, which Mansion House Compact signatories warned could lead to unintended consequences.
The new initiative calls for UK workplace pension providers to invest 10% of their default funds into private markets, with 5% of the total allocated to UK assets where possible.
C] Expert Reflections
Stephen Budge, partner and head of DC investment strategy at LCP, said: “It is good to see that the government has backed off on threats to force pension schemes to invest in line with the government’s priorities. The Mansion House Accord is undoubtedly a bold and positive step for pension savers. The threat of compulsion has been heeded, with providers stepping up.”
Budge added that by committing more to private markets, members stand to benefit from access to new sources of long-term returns, such as infrastructure, growth businesses and green energy. He said: “What’s not to like? Done well, this could mean better outcomes for members over time, through stronger growth and more resilient portfolios.”
Alison Leslie, head of DC investment services at Hymans Robertson, agreed that a voluntary accord signals a “meaningful and purposeful way of putting to work billions of pounds of pension scheme assets”. “We have seen great examples of UK investment delivering good returns for local areas through the LGPS pools to date, and believe there are good opportunities to invest in the UK for DC savers as well. The Mansion House Accord will deliver better member outcomes whilst supporting the economy that many savers will retire into.”
Leslie pointed out that “too often” the two ambitions are viewed in isolation, but looking at them as a complete picture is “necessary” for both ambitions, and the developments today signal a big step forward in building UK saver pension pots for a UK worth retiring into.
According to Iain McLellan, director at Isio, the choice to keep the initiative voluntary represents a “collaborative approach of working with the largest holders of DC funds in the industry rather than taking a more confrontational approach of introducing any legal mandatory minimums”.
“It will be interesting to see more detail on the definition in the Accord for what assets meet the UK private market allocation and how the government can help ensure that a pipeline of these assets can be expanded. Without this expansion, any increase in investment will just raise prices, resulting in the opposite of the wider aims to improve value for members.”
However, Sonia Kataora, partner and head of DC investment at Barnett Waddingham, highlighted that while for now the initiative is voluntary, “the government seems unabashed about further enforcing investment if its ambitious targets aren’t met. What we cannot afford to lose with this new development, is a diligent focus on member outcomes. We are already hurtling towards a retirement crisis, with low contribution rates and a lack of realistic financial planning – savers simply cannot afford underwhelming returns on top of that.
“What we cannot afford to lose with this new development, is a diligent focus on member outcomes. The solution to this lies in better value assessments, rather than a myopic focus on costs. So long as the net returns of private markets are good, most UK pension savers will get on board with using their money to improve the health of UK infrastructure and other productive assets.”
Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, said that while the initiative signals ambition, the real test lies in delivering the regulatory and economic conditions that make UK markets genuinely attractive to pension funds.
She said: “For those running UK pension schemes, the ultimate responsibility is to act in the best interests of members. Pension funds will invest where opportunities align with long-term value and security.” She added that it is the government’s role to foster an environment where UK investments are viable, competitive, and deliverable.
“Without the right economic conditions, pension funds cannot – and should not – be expected to prioritise UK assets over better-performing alternatives,” she said. Forrest Hall added that commitments are “easy to sign” but delivering the right framework for success is “harder”. She said: “The government must focus on creating the conditions that allow pension funds to act in members’ best interests – ensuring that UK markets are not just an option, but an attractive and sustainable one.”
D] Finally
It will be very interesting to see how long the UK government will allow free investment options to pension institutions and how long she can hold off the currently increasingly popular nationalist sentiments.
Let’s hope the main focus will be on what is best for the participants as the pension shortage is already big enough as it is!