The UK’s Financial Conduct Authority (FCA) will work with the Prudential Regulation Authority (PRA) and The Pensions Regulator (TPR) to remove inappropriate barriers to investing in productive finance.
Latest data shows that there were £1.4trn in assets in private defined benefit (DB) pension funds at the end of last year – excluding assets in schemes winding up and the local government pension schemes.
There is no data for all defined contribution (DC) market for 2023 yet, but 2022 data shows there were £1.4trn in assets.
At the beginning of March, chancellor of the exchequer Jeremy Hunt said that just 5% of UK pension assets are invested in the UK economy, which is “far less than in other countries”.
Hunt wants UK pensions schemes to invest more in UK productive finance in order to help grow the economy, under his plans he wants pension schemes to invest at least 5% of their default funds into UK private equity.
In his speech today, FCA’s chief executive officer Nikhil Rathi said the FCA will work with the PRA and TRP to manage potential risk and support the development of a more positive ecosystem for UK investment.
He said: “It is not for us as regulators to direct how schemes invest, but we want to remove inappropriate barriers.”
In the meantime, Rathi said the UK financial industry needs to tackle questions about cost, scale, cultural barriers and risk appetite, and how different players in the market work together.
Rathi pointed out that last year, the FCA published rules that broadened retail and pensions access to Long Term Asset Fund (LTAF) and three umbrella funds. Five sub-funds have now been authorised with a strong pipeline and more are expected shortly.
He said that the target assets under management after three years for LTAFs authorised to date is nearly £6bn.
“It is important that those that give advice to schemes, trustees and employers – typically consultants not currently regulated for that service, and we have recommended they should be – are set up and incentivised to provide recommendations focused on long-term value.”
Value for money framework
Rathi added that the FCA’s proposed value for money framework will refocus scrutiny away from a simple view on short-term fees.
The consultation proposals will require operators to be transparent about their investment returns, costs, and other metrics, allowing scrutiny as to whether value is genuinely achieved over the long term.
He said: “The aim is to protect consumers from having their pension savings eroded by languishing in underperforming schemes.
”The framework and focus on overall value encourage consideration of a broader range of asset classes, hopefully leading to diversification and better long-term risk-adjusted returns.”
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