Pension fund ‘doom loop’ will not be resolved by Hammond’s investment strategy, warns RSM UK

This week, former chancellor Philip Hammond put forward his thoughts to tackle underinvestment and weak growth in the UK.

Hammond suggested that pension trustees have become too risk averse due to successive pieces of regulation, advising that the government should focus on steering UK pensions funds back towards investing in UK assets.

Ian Bell, head of pensions at RSM UK, comments: ‘The latest strategy put forward by Hammond is all stick and no carrot, adding further pressure on pension trustees without real understanding or long-term planning. With so much ongoing uncertainty on a range of measures, coupled with frequent changes of ministers, trustees have had a lot to cope with in recent years. It is no surprise that those in the Defined Benefit space have become risk averse, especially as de-risked investment strategies are now putting many schemes in a funding position where buy out seems achievable in the short term. Hammond’s approach to tackling the ‘doom loop’ is unhelpful without holistic, long-term, cross party regulation. With next year’s general election looming, these recommendations are unlikely to make a difference even in the short term.’

He added: ‘Trustees are continuing to navigate unresolved issues including the General Code, pensions dashboards and funding regulations, and they need clarity from the pensions minister on these matters before layering on additional regulation. Last month’s Mansion House Reforms update delivered in the Autumn Statement has also contributed to more challenges for trustees, and despite promising to unlock long-term investment, the ‘pot for life’ proposals for Defined Contribution members will take years to implement. It will also require educating and improving workers’ financial literacy around pensions, to ensure they are protected and are fully informed about the best fund options available to them. A joined-up approach between government and industry is urgently needed to approach these issues, however, with political change potentially on the horizon next year, the probability of this happening anytime soon is uncertain.’