In light of the UK government’s current goals for pensions investment, Emma Douglas, chair of the Pensions and Lifetime Savings Association (PLSA), said the association is working with the Treasury and the Department for Work and Pensions (DWP) to make sure the issues with their proposals are fully unerstood.
Douglas opened the PLSA Investment Conference 2023 in Edinburgh this week by saying: “You can’t have missed the debate about pension fund investment in the growth of the UK economy – through a possible mandatory investment in a future growth fund, through consolidation of DC [defined contribution] schemes, through the Long-term Investment For Technology and Science [LIFTS] initiative, by proposing further concentration of assets within the LGPS [Local Government Pension Scheme]. I could go on.”
She pointed out that the PLSA worked on finding ways to help schemes invest more in illiquid UK assets since the establishment of the Pensions Infrastructure Platform in 2013, the Patient Capital review in 2017, and by participating in the Productive Finance Working Group since 2020.
Referring to the Treasury and DWP’s proposals, she said: “We think it’s important that your views and interests are represented robustly.”
She added that John Chilman, PLSA’s policy board chair, is involved in roundtables with the chancellor, while Nigel Peaple, director of policy and advocacy at the PLSA, has met the economic secretary to the Treasury and the minister for pensions on the same topic.
Douglas added that the associaiton supports investing in UK growth, but it supports it where the aim is to achieve the best outcomes for savers.
She continued: “We have identified a number of ways that the government can take action to encourage more investment in the UK, by doing more to increase the right kind of investment opportunities, by changing the regulatory and fiscal regime, and by ensuring the market for automatic enrolment funds focuses on long-term performance for scheme members.”
She pointed out that in responding to government’s consultation on LIFTS in April, PLSA said that the success of any investment vehicle will depend on its investment case and whether it fulfils trustees’ fiduciary duty.
She added: “We also raised the question of the whether there is a coherent strategy around these various initiatives.
“They’re definitely a step in the right direction, but are they part of a cohesive framework that will help identify investment opportunities that work in the interests of both scheme members and UK growth?”
TPR calls on trustees to focus on protecting savers
The Pensions Regulator echoes the PLSA’s views on pension fund trustees stepping up and protecting savers form economic volatility.
In a blog, Louise Davey, director of regulatory policy, analysis and advice, stated this week that although equities have enjoyed a stronger year to date, bonds have continued to suffer in a climate of rising interest rates and high inflation.
“Headlines such as ‘UK gilts tumble again as inflation fear spreads through market’ have been common in the press recently, and trustees must take note,” she wrote.
“In line with their fiduciary duty, trustees need to ensure key requirements are met, including continuing to support savers in so-called ‘lifestyle’ funds, and to ensure investment strategies support stronger saver outcomes in the years to come,” she added.
Older savers are being disproportionately impacted as historically lower-risk investments are suffering, Davey said, adding that interest rate rises, widely predicted going into 2022, are also impacting long-duration bonds, highlighting the need for trustees to ensure their bond investments align with member choices at retirement.
She said: “Trustees need to focus primarily on outcomes, not just driving down costs. In pursuit of this, they must ensure they receive good and timely information on performance and risk for different member cohorts, and the attribution of those risks.”
Trustees also need to ensure their default pre-retirement strategy is targeting the right outcome and is fit for purpose in the current market environment, she noted.
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