On 25 May 2024, the UK prime minister Rishi Sunak declared that the nation’s general election would take place on 4 July 2024, officially starting a pre-election period preventing central and local government from making any announcements about government initiatives.
Under the Conservative government, chancellor of the exchequer Jeremy Hunt introduced a package of reforms known as Mansion House reforms. The overall aim of the reforms is to support growth across the UK economy by unlocking capital for high-growth companies and increasing returns for savers.
A number of consultations have been launched earlier this year, including ‘pot for life’, defined benefit (DB) surplus extraction, and the potential role of the Pension Protection Fund (PPF) as a public sector consolidator on which the government is still to publish a response to.
With a growing expectation that there could be a change in government following the election next week, what could it all mean for the Mansion House reforms?
Mary Cahani, director of UK institutional at Invesco, acknowledged that the Conservative government has “ambitious plans” for pensions and pointed out that some reforms have already been implemented, such as an interim regime for DB superfunds and the Mansion House Compact.
But the number of reforms are yet to be implemented and Cahani said that there’s some uncertainty about how the Conservative government’s “in-flight reforms will be carried forward”.
However, she pointed out that based on Labour’s manifesto, the industry can expect a comprehensive review of the pension system focusing on improving outcomes for pension savers and increasing investments in UK markets.
She added: “There is also a strong emphasis on continuing the consolidation of workplace pensions.”
Cahani said it is “unlikely” that Labour will reverse the progress achieved by the Conservative government, such as the Mansion House Compact, if it comes into power.
Dan Mikulskis, chief investment officer at People’s Partnership, agreed with Cahani and said that, irrespective of who wins the election, he expects there to be a “strong focus on domestic investment by pension schemes”.
“We have no objection to investing domestically but DC pension funds are primarily there to fund savers’ retirements”
Dan Mikulskis, chief investment officer at People’s Partnership
“We have no objection to investing domestically but DC pension funds are primarily there to fund savers’ retirements. We want to see private market assets wherever they are located generating a return well ahead of what we can get in listed markets, after fees. Pension funds will have to work constructively with government to ensure that policymakers’ objectives can be met, and the best interests of savers maintained,” he said.
He added that whichever party wins, there needs to be change both inside and outside the asset management industry.
“The current split on charges for some less liquid asset classes strongly favours asset managers. We would like to see a split of economics that leaves more of the value-added in the hands of members,” Mikulskis noted.
And outside of the asset management sector, he said there needs to be a pipeline of investible infrastructure projects and a stable political and policy environment that is more conducive to long-term investment.
Iain Pearce, head of alternative risk transfer solutions at Hymans Robertson, echoed the others by saying that he expects the Mansion House agenda to continue by whoever forms the next government.
“All parties have a focus on growth, and the productive assets held within the industry are viewed, as a way, to stimulate growth through reform with no investment required from the government,” he said.
Could there be a delay?
Pearce added that it has been “clear from the onset” that legislation to enact the Mansion House agenda would not be possible until after an election, noting that the current uncertainty has been “priced into ongoing discussions” with many trying to “glean insights” from the leading parties of their thoughts.
But he acknowledged that “one clear casualty” of the general election has been the updated superfund guidance which The Pensions Regulator (TPR) was expected to issue in June.
Pearce said: “Importantly, this is anticipated to set the rules for profit extraction which are crucial to help that market grow and mature.”
However, he said that a delay of a few weeks in this guidance should not be significant for on the health of this important but still emerging market. However, Pearce said that any material delay due to signalling by a new government will be an unwelcome cause for concern, both in terms of superfund market and as a “acid test” of whether government is able to provide the clarity needed to “rouse the animal spirits “of the wider industry with the Mansion House agenda.
Matthew Arrends, head of UK retirement policy at Aon, agreed that the industry never expected “rapid movement” following the Mansion House reforms.
“It does take time to assess asset opportunities or what’s right to include in DC funds or emphasise the need to include productive finance in DC portfolios,” he said, but noted that this taking longer is not a bad thing as the industry has been asking for “stability and consistency in pensions policy”.
“They’ve told us in surveys that there is so much change going on in the pensions landscape and that they are having difficulty resourcing that change, and question whether the change is really helpful,” he added.
“This would help pension schemes digest the changes that are already happening and implement those effectively before the next round of changes happens.”
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