Pensions sit at the confluence of a number of different aspects within society. From an individual perspective, they are emotive and likely correlated with individual views on politics, work and financial security. From a policy perspective, they raise difficult questions related to intergenerational fairness, regulation, tax and the need for long term planning in decision-making. And from an economic perspective, given the huge sums of capital invested by pension schemes, they are key players in the quest for financial stability and growth.
Given all of these considerations, it is not surprising that pensions feature regularly on politicians’ “to do lists” in some way or other. Although it does feel that the UK pensions industry might be struggling from initiative-fatigue in places.
If you cast your mind back a mere 5 years, the prevailing concerns for DB schemes were around regulator powers, employer covenant and scheme funding in the context of a string of high-profile sponsor employer insolvencies. While a number of the proposals made at that time by the DWP were eventually enacted in the Pension Schemes Act 2021, it is notable that the revised scheme funding framework has not yet been brought into force. And given the recent Work and Pensions Committee’s report on liability driven investments instructs DWP and TPR to halt their existing plans for a new funding regime pending a full impact assessment, the future of the proposals is currently unclear.
Fast forward slightly, and you might recall the buzz around DB consolidation. Despite an earlier DWP consultation on DB scheme consolidation, pension “superfunds” were a notable absence from the Pension Schemes Act 2021. The promised legislative framework has not since appeared, and although there is regulatory guidance in place, no superfund transactions have been reported to date.
Moving onto a more recent episode that perhaps some in the industry might rather forget, the “mini-Budget” of 2022 and the resulting LDI crisis. This has very much shifted the focus of policy onto the “investment” pillar of integrated risk management. Examples of questions now under consideration – the impact of pension scheme investments on overall economic stability, the appropriate level of regulatory oversight of scheme investment and how schemes are advised and governed when it comes to investment matters.
And, at the risk of being a declinist, so to the need to boost economic growth in UK plc – the latest political hot topic. Numerous commentators and press articles have recently pointed out the gradual shift of DB pension fund portfolios out of equities and into bonds over the past decades, and the resulting loss of potential investment capital. More radical ideas to redirect pension capital include the proposal by the Tony Blair Institute to create “GB superfunds” of £300bn to £400bn with the scale for long term diversification of investment, and for professional governance – our blogpost “Expanding the Pension Protection Fund: an investment in the future?” covers this in more detail.
And so, the stage is set. It has been reported that, at his Mansion House speech, the Chancellor will set out proposals for encouraging the diversification of pension capital so that British companies, UK economic growth and, of course, British pensioners, might benefit. Apparently, a further nod towards pensions consolidation might also be on the cards. Given the seemingly stop-start nature of pensions policy in recent years, renewed direction should be welcomed. And, perhaps, we might then be able to finish some of the things we started.
For further information, please contact:
Alison Goudarzi, Linklaters
alison.goudarzi@linklaters.com
