11 July 2023
Commenting on Jeremy Hunt’s Mansion House speech, Ian Bell, head of pensions, RSM UK said:
‘When times are tough, history over the last 40 years shows that Chancellors will look to tap into the pensions piggy bank. But are pensions a red herring in the drive to secure better growth funding for UK businesses?
‘Widening the investment opportunities for Defined Contribution (DC) members is clearly a positive proposal, and will be particularly relevant for the younger generation with a longer investment horizon. But we wait to see the results of the DWP consultation on the Value for Money framework, as, despite the listing reforms, the costs of investing in private equities will undoubtedly require changes to auto enrolment investment fee caps.
When available, these funds listed under the new more flexible proposals will be more accessible to global investors with the same value and return ambitions. So, whilst they can be considered by trustees, will demand from the rest of the world push up prices and reduce potential returns? And if the investment is secured from global investors, is the ambition of obtaining this investment achieved with no substantial benefit being felt by UK pension investors?
‘There also appears to be an issue of conflicting policy requirements on DB pension schemes: the Chancellor is looking for an ‘across the board’ increase in the riskiest area of equity investment, while the DWP and The Pensions Regulator require major de-risking, such as investment in gilts and investment grade corporate bonds rather than equities, including unlisted private equity or venture capital. This creates a dilemma for pension trustees.
‘It’s encouraging to see that the Chancellor is looking to work with the pensions industry to give Defined Benefit schemes easier access to the unlisted market, but for many schemes, this will come at a time when their de-risked glide path is in place and buy out beckons in the short term. The Chancellor should maintain his focus on more easily accessible options, such as Local Government Pension Scheme investment consolidation and tapping into Pension Protection Fund assets.’