Julian Mund: The mandation power risks distorting the market, compromising saver outcomes and eroding trust in the system
The government must withdraw the power that would allow it to direct how pension schemes invest UK workers’ retirement savings from the Pension Schemes Bill, Pensions UK urges.
The trade body said that, as drafted, the reserve power extends "significantly beyond" the government's stated intention of supporting the Mansion House Accord, a voluntary commitment by 17 of the largest workplace pension providers to invest at least 10% of their defined contribution (DC) default funds in private markets by 2030, with 5% of the total allocated to the UK.
It said the bill was now at a "crucial juncture" in its passage through parliament – noting the report stage presented "one of the last opportunities for amendments to be introduced and pushed to a vote".
Pensions UK welcomed the broader aims of the Pension Schemes Bill – including reforms that reduce system complexity and improve saver outcomes – but said that, if the mandation power is exercised, it would "hamper free and open market competition aimed at driving better saver outcomes and put those outcomes at risk".
It added that decisions on how savers' hard-earned money should be invested should not be a political choice.
Pensions UK said that, if the power remains in the bill, it was essential the legislation should allow no more direction by government than the minimum necessary to deliver its stated intention.
As such, it called for three key critical safeguards:
- A cap on the percentage of investment that can be mandated, aligned with the 10% and 5% voluntary Mansion House Accord targets already supported by the government.
- Strengthening of the report that is required before the power can be introduced.
- A reduction in the duration of the sunset clause from 2035 to 2032 to reduce the political risk to schemes.
Pensions UK also stated it was "vital" that government continued to facilitate a pipeline of UK investment opportunities and a regulatory environment which supports the aims of the Mansion House Accord.
Chief executive Julian Mund said: "Pensions UK strongly supports most of the provisions in the Bill, and wishes to see it passed. But the mandation power risks distorting the market, compromising saver outcomes and eroding trust in the system.
"The current drafting of the provision goes far beyond the scope of the Mansion House Accord and could be used to direct investment in very broad terms, either by this Government or a future one. Should the power remain in the bill, it is critical that it is aligned to the standards set by the Accord, and that it goes no further."
