Laura Myers and Steve Webb say there is a better way forward on DC investment
Government proposals on defined contribution (DC) megafunds are flawed and should be replaced by a ‘comply or explain’ regime for DC investments, Lane Clark & Peacock (LCP) says.
In an exclusive article for Professional Pensions today (13 January), LCP partners Laura Myers and Steve Webb say proposals put forward as part of the chancellor's Mansion House speech in November would be unlikely to improve member outcomes, take considerable time to implement and cause massive cost and disruption.
They added that, despite this, the proposals – the consultation on which closes on Thursday (16 January) – may still fail to deliver its stated objectives of investing more in the UK and generating UK growth.
Myers and Webb said: "Our view is that instead of using scale as a proxy for UK productive finance, the government should instead be explicit about the types of investments that it wants to see. This would include defining whether it is all UK investment for example or only certain ‘productive' assets."
Once this has been done, Myers and Webb said a new ‘comply or explain' regime for DC scheme investments – one which goes beyond existing disclosure requirements – should be introduced.
They explained: "The idea is that the government would define what it means by productive finance, set out where it believes investment is needed and then expect the pensions industry to play its part.
"Trustees and providers would retain their freedom to invest in the best interests of members but would have to explain to the regulator if they had concluded that this was not compatible with a specified minimum allocation to, for example, UK infrastructure."
Myers and Webb said one attraction of this approach is that it would likely encourage an increased supply of investible domestic assets much more quickly – and do so in a way which has a significantly lower level of disruption across the industry.
They said the approach also had the merit that it should be possible to focus on where funds under management as a whole are invested, regardless of whether they are in the trust world or the contract world or in one default or many.
"In short, our advice to ministers is to be explicit about what they want to achieve and to regulate for that rather than using the proxy of scale and hoping that this will indirectly and eventually lead to the same outcome."
