The industry has reacted to the pot for life and investment disclosure announcements (HM Treasury)
The industry has responded to chancellor Jeremy Hunt’s announcements on confirming a requirement for defined contribution (DC) and Local Government Pension Schemes (LGPS) to disclose the level of investments in the UK.
Commentators have also noted the intention to focus on value for money (VfM), in addition to the reiteration of plans to pursue a lifetime provider model, with many noting challenges around implementation.
Pot for life
Commenting on the government's commitment to the lifetime provider model, TPT Retirement Solutions DC director Philip Smith welcomed the agenda, saying a pensions pot for life "could be a game-changer" allowing savers to better engage with pensions, increase contributions, and make investment decisions - noting while it could be a "huge operational challenge", member outcomes will be improved.
Gallagher UK benefits and HR consulting division chief executive officer David Piltz agreed Hunt's announcement was "positive" for those who back the proposals, adding it could "increase a sense of ownership" over pensions, but that the government should not underestimate the "magnitude… nor the importance" of implementing this.
However, Pensions Management Institute director of policy and external affairs Tim Middleton said the organisation was "frustrated" to hear the plans will still go ahead, adding now is the "wrong time" to bring potential "disruption" to the "good work achieved… by automatic enrolment (AE)".
Lane Clark & Peacock partner Steve Webb noted the "softening" of language around the lifetime provider model - with the new document noting the government would only be "exploring" the model, and only proceed if member outcomes were improved.
"Once we see the full consultation response, where there was overwhelming opposition from consumer groups and industry experts, it is to be hoped that this idea will now be quietly dropped."
Barnett Waddingham partner Martin Willis said Hunt's Budget provided the "bare minimum" on pension proposals, with a "sprinkling of breadcrumbs" for those keen to hear about the pot for life model.
He added the proposals would mean a "massive upheaval" to pensions and potentially cause a "rift" with the more "wealthy and confident" able to benefit more from choice over those with lower levels of financial means, literacy and engagement: "More work needs to be done before the pots for life proposal is ready to float to the electorate".
Aegon head of pensions Kate Smith said the government needs to engage in "more thinking" before proceeding, adding employees are mostly "not equipped" to be able to choose their own provider, and could risk poorer outcomes.
Smart Pension chief executive Jamie Fiveash highlighted concerns about the model being "rushed" and said AE expansion, the dashboard programme and increasing contributions are all "forerunners" to the model being established and "genuine consumer choice" being provided,
People's Partnership policy director Phil Brown added "more work is needed" around administration and regulation before the "enormous" change is enacted, noting it is "years away from delivery", while Hymans Robertson head of DC markets Paul Waters agreed the model should be a "longer term policy consideration".
DC and LGPS disclosures and VfM
Independent Governance Group trustee director and head of professional corporate sole trustee Annabelle Hardiman said the shift on value for money (VfM) for DC schemes towards a focus on investment performance over costs was "surprising" - adding "a focus on returns at the expense of cost" is not in members' best interests. However, the trustee group agreed with the intention to generate "long term growth" for savers, the UK economy, and companies supporting pension schemes.
Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy Nigel Peaple welcomed government's focus on DC asset allocation transparency, adding it "makes sense" for the government to introduce regulatory, fiscal or reporting standards to direct pension money towards UK investments given that schemes already invest heavily in UK gilts.
He reiterated the PLSA's calls to encourage UK investment, including by "improving the pipeline of UK investible opportunities" and through consolidation.
Hymans Robertson head of LGPS investment Iain Campbell said the LGPS disclosure requirements "do not come as a huge surprise" and noted a "shift in wording" towards "UK equities", where previously this was "productive finance" and venture capital.
Head of DC investment Alison Leslie added there could be "friction" between the Mansion House proposals and consumer duty: "If the investment case stacks up recommendations will be made to invest in the UK - many argue however that the case for significant investment in the UK does not currently exist", she added.
She added the potentially strict rules on schemes not meeting the requirements could "create a challenge to fiduciary duty", especially given "great efforts" have been made to diversify pension investments globally.
Isio senior DC investment consultant Jacob Bowman added the requirements may be unwelcome given the already challenging reporting burden - adding the industry would prefer "more carrots… and less sticks".
WTW investments managing director Pieter Steyn agreed with the chancellor on the VfM proposals to focus on outcomes and over costs, as well as efforts to improve DC saver engagement, while LCP head of DC Laura Myers also supported the measures, but noted medium and long term monitoring is essential to ensure schemes are not overly focus on "appearing at the bottom of short-term league tables".
Smart's Fiveash also welcomed the ideas but warned against reporting being "overly prescriptive on investment geography", especially given pension funds already dealing with reporting requirements on net zero and the carbon transition.
PMI's Wakefield noted their support for increasing UK investment but noted concern about potential "coercion", adding "trustees should retain absolute control of their investment policy".
Burges Salmon partner and head of pensions Richard Knight added while the focus on outcomes over costs is notable, the industry will likely be breathing a "sigh of relief" that there are no more "surprising or groundbreaking" announcements in the Budget, given the "extraordinary" amount of regulatory developments schemes are dealing with.
