UK pensions industry calls for flexible approach to investment

In response to the first phase of the Pensions Investment Review, the UK pension industry has warned the government against taking a one-size-fits-all approach and instead to consider a more flexible approach to investment.

The government launched a consultation on the first phase of the Pension Review earlier this month.

The consultation, which closed today, 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). It focuses on three areas: scale and consolidation; costs versus value; and investing in the UK.

Responding to the consultation element, Lizzy Holliday, director of public affairs at NOW: Pensions said it was “crucial” that members’ interest remain the priority while the government is reviewing the pensions landscape.

She said that while scale can provide access to new investment opportunities and lower costs, it’s “important not to lose sight of the diverse needs of pension savers across the UK”.

Holliday said that a one-size-fits-all approach directed by the government could end up harming the very people it’s meant to help.

“Consolidation for its own sake, without considering the broader impacts, could reduce competition, limit choice, and stifle innovation,” she warned.

She added that the government should not intervene by mandating specific asset allocations. Instead, she said the government should encourage change through “clear guidance and transparency, ensuring that trustees retain the ability to act in the best interests of their members, without the risk of unintended consequences from heavy-handed intervention”.

Renny Biggins, head of retirement at The Investing and Saving Alliance (TISA), agreed that trustees and governance committees “must” retain the flexibility to make investment decisions that serve their members best.

He said: “A one-size-fits-all approach would undermine the core objective of providing Value for Money.”

Domestic investment

Biggins added that while global equities have outperformed UK stocks in recent years, the solution lies in incentivising investment in UK productive finance through measures like reinstating the dividend tax credit or scrapping stamp duty, “not through compulsion”.

He urged that in the absence of strong UK stock performance, there is a need for targeted incentives to help stimulate economic growth by increasing both the number of UK investment opportunities and the capital directed towards them.

But he stressed that at the heart of every scheme is the duty to safeguard members’ financial futures.

“If we want to see more investment directed into UK opportunities, we need smart, targeted policies that balance risk and reward, while ensuring members always receive the outcomes they deserve,” he noted.

Scale

Tim Middleton, director of policy and external affairs at Pensions Management Institute (PMI), pointed out that while consolidation can bring economies of scale and improved governance standards, there are a number of risks to consider.

For example, he said that large schemes might become “too big to fail”. A small number of large schemes, he pointed out, could lead to a stifling of innovation.

There is also a possibility of “anti-competitive practices” he pointed out, adding that it might become too difficult for new entrants to the system from becoming established.

However, he said that if the overarching goal is to improve quality for members, “consolidation has the potential to create as many problems as benefits”.

The Society of Pension Professionals (SPP) agreed that consolidation could lead to a “too big to fail” type scenario, but it said that the risk can be “minimised, if not entirely eliminated” with a good regulatory regime in place.

However, similarly to PMI, SPP raised a concern that consolidation could stifle innovation.

It pointed out that If a provider is guaranteed a flow of new members and assets far into the future, then there may be little need for innovation and the need to compete. This would not only be bad for members but could have a knock-on impact on the UK economy if the pensions system is deemed to be unattractive or lacking in appeal.

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