Pensions Minister Torsten Bell told the UK retirement industry to “chillax” after being warned that new powers to mandate domestic investment “strike at the heart” of fiduciary duty.
Financial Times journalist Josephine Cumbo raised concerns about mandation in a debate at the Pensions UK Annual Conference on Wednesday with political economist Will Hutton.
Cumbo said reserved powers to force domestic pension funds to increase capital allocations to domestic investments – contained in the current Pensions Schemes Bill – posed unacceptable risks to savers for whom “every basis point counts”.
Although she described mandation as “pressure dressed up as patriotism”, Cumbo acknowledged that pension funds could play a bigger role in the UK investment landscape, but said “incentives not interference” were required.
“Once a lever exists, the temptation to pull it grows,” she said.
In a plenary speech, Bell insisted that mandation was a backstop measure aimed at supporting the aims of the recently signed Mansion House Compact (MAC), which commits large UK pension schemes to private markets investments in the UK.
He said the government was seeking to address scale barriers in order to help UK schemes to invest in wider range of assets. “It’s a slight distraction. I think we should all chillax. Comply or explain is in the bill,” added Bell in response to calls for a less interventionist approach.
Speaking later to reporters, Bell rebutted Cumbo’s concerns over the risks of mandation being used and expanded by future governments.
“It doesn’t allow future governments to use pension investments as a tool for other parts of their policy agenda. That’s why there is a sunset clause. This is not a permanent state of affairs. It’s about delivering MAC over the next few years,” he insisted.
Debating in opposition to Cumbo, Hutton said unusual action needed to be taken to address a “classic collective action problem” which was starving innovative UK firms of much-needed investment.
Proposing a minimum 25% UK public equity allocation, with the threat of losing tax relief on contributions if targets were missed, Hutton welcomed the government’s efforts to consolidate the UK’s pensions system.
“But we need to bring this consolidated horse to water,” he added. Hutton’s position is supported by a report released last year by the Capital Markets Industry Taskforce.
Bell also confirmed that ongoing consolidation of the UK’s public and private pension schemes would be accompanied by a consultation of the future of trusteeship, to be launched this autumn, in response to concerns over risks posed by concentration of roles within a small number of professional providers.
“Professionalism is not a dirty word. Expertise is essential. But increasing professionalising is not without risk,” he said.
