Hunt: These new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes. Photo: HM Treasury
Chancellor Jeremy Hunt has today (2 March) announced proposals to force defined contribution (DC) plans to publicly disclose their level of investment in the UK and improve the performance of poorly performing schemes.
Under the chancellor's plans, which have been announced by HM Treasury ahead of next week's Spring Budget, DC funds would be required to disclose their levels of investment in British businesses, as well as their costs and net investment returns.
They would also need to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10bn in assets.
In addition, poorly performing schemes would not be allowed to take on new business from employers - with The Pensions Regulator and the Financial Conduct Authority (FCA) being given a "full range" of intervention powers.
HM Treasury said while the rollout of auto-enrolment (AE) has resulted in a substantial increase in the amount of investment UK pension funds can deploy, from £90bn in 2012 to approximately £116bn in 2022, the current disclosure requirements for DC pension funds were "inconsistent" and do not require a breakdown of their UK investments.
It added this made it difficult for policymakers and members to understand where assets were invested - noting that by ensuring pension funds disclose where they invest and the returns they can offer members, it would make it possible for employers and savers to compare schemes to make "informed choices".
HM Treasury said the measures came as part of its broader value for money framework (VfM) reforms to improve the outcomes for savers and to consolidate the DC market and to ensure schemes are focused on securing good returns for savers.
HM Treasury said the plans were subject to a consultation by the FCA, which would set out the next steps for these reforms in a consultation in Spring. It added the government and FCA have existing powers which can be used to implement the UK investment disclosures if necessary to ensure these disclosures are made by 2027 but noted primary legislation would be required to introduce the full framework, something the government would bring forward "as soon as parliamentary time allows".
Hunt said: "We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers - and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes.
"British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers."
Secretary of state for work and pensions Mel Stride added: "The incredible success of AE has opened up a huge opportunity to grow the economy, boost British businesses and fuel our futures. It has helped us transform the pensions landscape over the last decade.
"And our VfM framework will take this one step further, focusing pension managers on their number one priority - securing the best possible returns for savers - as well as providing a boost to the wider economy."
TPR chief executive Nausicaa Delfas commented: "Millions of people rely on a pension to support them in later life. That's why it's so important that we make sure all pension savers receive value for money.
"With more disclosure helping to spark competition between schemes, and enhanced powers to crack down on poor performers, we can really deliver for savers, now and in the future."
Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy Nigel Peaple noted the industry has "long supported" transparency in asset allocation for schemes and the introduction of a VfM framework.
He said: "We have engaged closely with the FCA and Department for Work and Pensions as they have developed their proposals - which to be successful will need to work across the whole of the DC market. We are pleased to see the government continued affirmation that, in all cases, investment decisions must be taken in the interest of pension savers.
"Earlier this week, the PLSA, in a joint statement with the ABI, set out four ways in which government could take action to encourage greater investment in the UK. These are to increase the level of AE contributions into workplace pensions, to set the right regulatory regime, for example greater flexibility for pension fund investment and the introduction of a VfM regime, ensuring there are a pipeline of good investment opportunities in the UK, and proceeding with the consolidation of pension schemes that is already underway."
