The UK Treasury, the Department for Work and Pensions (DWP) and the Ministry of Housing, Communities and Local Government (MHCL) have published a call for evidence inviting input, data and information to inform the first phase of the Pensions Investment Review.
The first phase aims to boost investment, increase pension pots and tackle waste in the pensions system. The review will focus on defined contribution (DC) workplace schemes and the Local Government Pension Scheme (LGPS).
The review highlights three main areas: scale and consolidation; costs versus value; and investing in the UK.
Under scale and consolidation, the government wants to know what potential advantages, and any risks, there are for UK pension savers and the UK economic growth from a more consolidated future DC market as well as what should the role of single employer trusts be in a more consolidated future DC market.
The government also wants to know what the relative role of master trusts and group personal pensions should be in the future landscape, as well as how the roles and responsibilities of trustees and independent governance committees compare.
In addition, the government is asking what the barriers to commercial or regulation-driven consolidation in the DC market are and how successful has LGPS pooling been.
For costs versus value, the government is asking DC and LGPS stakeholders what are the representative roles and relative influence of employers, advisers, trustees/independent governance committees (IGCs) and pension providers in setting costs in the workplace DC market, and the impact of intense price competition on asset allocation and if there is a case for government intervention.
Lastly, for the investing in the UK part of the review, the government wants to know what is the potential for a more consolidated LGPS and workplace DC market, combined with an increased focus on net investment returns instead of costs, to increase net investment in UK asset classes such as unlisted and listed equity and infrastructure and potential impacts on UK growth.
It is also asking what the main factors behind the changing patterns of UK pension fund investment in UK asset classes are and whether there is a case for establishing additional incentives or requirements aimed at raising the portfolio allocations of DC and LGPS funds to UK assets or particular UK asset classes.
Patrick Heath-Lay, chief executive officer of People’s Partnership, said: “The launch of the call for evidence into the government’s pensions review is the first step in a once-in-a-generation chance to shape the future of the UK’s pension system, towards better consumer outcomes and supporting UK growth.”
He said it was “important” that the review looks at Canada and Australia, which set the “gold standard” for pension systems, operating under strong fiduciary governance and producing the kind of outcomes the UK government has said it wants.
He added that in these markets pension funds are characterised by scale, strong fiduciary governance and expert in-house investment teams that invest in the interest of the saver.
“This combination of focus will produce the diversification the government has indicated it wants, together with better value retirement outcomes for savers,” Heath-Lay noted.
Calum Cooper, head of pension policy innovation at Hymans Robertson, added that given DC workplace schemes and the LGPS are important parts of the UK’s retirement savings environment, it is reassuring that the government is seeking information and solutions from the pensions industry, and wider, to ensure it can deliver its policy objectives most effectively.
“We are particularly glad to see that the government is focussing on investment returns net of fees, as opposed to costs. This is important as unlisted equity and infrastructure investment costs, an area the government are keen for DC and LGPS funds to invest in, are often higher,” he said.
Cooper said there are “significant opportunities” for the government to help the industry to improve outcomes for DC pension savers. “For example, leveraging the increasing scale of today’s DC schemes to access new investment opportunities, and enabling more sophisticated default retirement propositions to be introduced,” he continued.
Stephen Budge, partner at LCP, added that it was “great to see” the new government continuing the strong focus on improving DC pensions and in particular, driving innovation in investment strategy on behalf of savers.
He said: “This has been a long road, but importantly, we are starting to see meaningful change and increasing flows into private markets through a growing number of DC pension arrangements and master trusts.”
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