The government’s work on pension systems is acknowledged, but we are concerned about the focus on productive finance and its benefits for members. GAD’s modelling shows only marginal benefits, and there is a need for clarity on the desired asset classes for investment. The VFM work already underway should be prioritised to ensure consistent good outcomes for members, as forcing change could cause disruption and costs.
Key points for achieving the policy goal include:
- Tax Breaks: Consider reversing dividend taxation by reintroducing tax credits or reducing stamp duty for pension schemes.
- First Loss Protection: Government as co-investor/guarantor to absorb some downside risks if assets underperform.
- Low Cost: Ensure investments are as low-cost as possible to avoid value erosion. Government could subsidize or focus on reducing fees.
- Clear Societal Value: Similar to ESG, align members and trustees to understand societal benefits, potentially increasing investment flows.
Summary of concerns and suggestions:
- Scheme Size: The £25bn size limit seems arbitrary and may not lead to necessary private market allocations. Smaller schemes like £10bn or £1bn might be sufficient. Indeed we are concerned about the impact on schemes that include pseudo-master trusts being included and believe that this should be exempt.
- Innovation Impact: Size limits could hinder innovation and new entrants, limiting future choice and development.
- Regulation of Consultants: Regulating advisers and consultants can ensure employers receive comprehensive market support.
- Employer Duty: Employers should have a statutory duty to invest in their schemes and demonstrate commitment.
The government’s policy aim is to release the potential for a dramatic increase in UK infrastructure investment from pension schemes. Under the method proposed, the consolidation of the pensions market will take many years and be a drain on resources. Short-term costs are likely to increase without the guarantee of achieving the policy aim.
The fiduciary duty to provide the best outcomes for members will still hold sway. The government should focus on creating low-cost products that benefit the economy and protect savers from significant downsides.
