The UK government is trying to achieve consolidation and scale in the investment market with minimal disruption, said Joanne Gibson, the head of the pensions investment review at His Majesty’s Treasury.
Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference in Edinburgh on Wednesday, Gibson said the government is not trying to “undermine freedom of investment choice” through the pensions investment review, which focuses on consolidation and building scale across pension providers.
She said: “We want to give savers access to the best opportunities, including productive finance,” adding that scale gives pension funds negotiating power to play into those asset classes.
She continued: “We can’t ignore the fact that we aren’t investing in the UK. Last week, a UK fintech firm got a Canadian pension fund to invest in it. Why aren’t our schemes doing this?”
She disclosed that 112 schemes submitted “very long consultation responses” to the pensions investment review, while the treasury received 220 responses for the Local Government Pension Scheme (LGPS) consultation.
“The themes of responses were around understanding the impact this is going to have on the sector. There was a lot of support for scale, but less for hard deadlines and the speed of getting there. People asked a lot of questions around the impact on cost, and disruptions to the market for such a big set of changes,” she explained.
While Gibson did not want to share more details on what will be in her final report, she did confirm the pensions bill will include “additional powers and levers to do things”.
Synergies and efficiencies
Speaking on the same panel, Lizzy Holliday, director of public affairs and policy at NOW: Pensions, said the main purpose of pension schemes is to provide pensions and to support pension savings.
She acknowledged there are synergies the government is trying to achieve, but “we need to be very careful about how we do that”.
“The government might start with guidance, disclose and explain, or mandate. These are all possibilities on the table given the urgency that the government views this issue with,” Holliday noted.
But she urged that it is important to think about the practicality and delivery of such synergies.
She said: “If we move to a world of mandation and there isn’t a pipeline of appropriate assets, or that pipeline isn’t sufficient for the amount of assets that the government is looking to be invested, then we come across a really big problem. The more specific you get [in prescribing rules] the more risk you have of unintended consequences.”
And as the scale of assets grows, Holliday said the government will continue looking at the pensions sector, which is concerning.
“My belief is that some of the government’s core objectives could have been achieved in different ways,” she noted.
Holliday acknowledged that scale could achieve efficiencies, but scale in terms of assets under management is “not the only way” to achieve efficiencies.
She said there are questions on where the scale should sit on the provider level – whether it is a single default fund, asset level, or at the provider level.
Instead, this could be done by looking at the business case regulation model, Holliday suggested.
She said the government should look at the provider and the underlying assets, the group structure, the skill and other deliverables of providers and think about the unintended consequences of the policy.
For example, she explained that reducing the number of default funds can make finding a single price point for a single default “really challenging”.
Gibson acknowledged there are risks, noting that competition and innovation should not be compromised.
“We are looking at what it means to have a number of bigger schemes that are managing huge amounts of money for a huge amount of people and how important that is.
“But the government has chosen to do it this way. They want to have in the future fewer bigger schemes, so we have to find a way to get there in the safest way possible without disrupting the market.”
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Pamela is IPE's UK correspondent.
Before joining IPE in May 2023, she spent five years writing about the insurance industry.
During her career so far she won awards for Most Promising Newcomer in 2020 and Best Investigative Article in 2022 from the British Insurance Brokers Association, and was also highly commended at the WTW Media Awards for Insurance Features Journalist of The Year.View full Profile
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