Defined contribution pension funds will have to publicly disclose their level of investment in the UK, the Treasury has revealed.
This is part of chancellor Jeremy Hunt’s pension fund reforms aimed to boost British business and increase returns for savers.
According to the Treasury, the current disclosure requirements for DC schemes are inconsistent across the market and do not require a breakdown of UK investments.
The government said this makes it difficult for policymakers and savers to understand where investment driven by auto-enrolment is going.
Under the chancellor’s plans:
- DC pension funds by 2027 will have to disclose their levels of investment in British businesses, as well as their costs and net investment returns.
- Pension funds will also have to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10bn in assets.
- Schemes performing poorly for savers will not be allowed to take on new business from employers, with TPR and the FCA having a full range of intervention powers.
Hunt said: “British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”
Care is needed
Kate Smith, head of pensions at Aegon said while it “made sense” for poorly performing schemes to not take on new business until they improve, she warned care was needed to properly define what a ‘poorly performing’ scheme was.
She said: “Different schemes can adopt different investment strategies which can lead to divergence in returns in the short term, making it important to assess investment performance over a sufficiently long timeframe.
“Just as schemes can be different, so too are the employers they serve. One key aspect of the consultation will be making sure comparisons against larger schemes of over £10bn produce meaningful results.”
Jon Greer, head of retirement policy at Quilter said the chancellor will have to “walk a fine line” between encouraging investment in the UK economy and ensuring pension funds are not exposed to excessive risks or costs.
He said: “Though these reforms could have a direct impact on workplace pension savers in terms of outcomes, for the majority it will mean very little.
"This is because workplace pension saving is driven heavily by inertia and the level of engagement is already known to be very low, and these reforms are unlikely to do anything to change that.
“However, what it will do is make it easier for policymakers to assess the extent to which default funds are holding UK investments and this is the key point.
"The UK’s stock market is in relative decline – in the past two decades the number of liquid stocks has been shrinking and trading volumes have stagnated, without pension fund investment the outlook is not encouraging.”
Greer also highlighted these reforms showed the direction the chancellor is heading in for the Budget this week (March 6) suggesting his aim will be to introduce reforms that will boost investment in UK businesses.
“This might mean he is more likely to favour the idea of the rumoured ‘British Isa’. It also fits with the government’s Mansion House compact, which urged pension funds to invest at least 5 per cent of their assets in unlisted equity,” he added.
alina.khan@ft.com
