Stewart Hastie, ACA Chair, commented: On LGPS and DC, we applaud the bold ambition in so far that it improves outcomes for the local community taxpayers that fund and underwrite the costs of LGPS and improves outcomes for DC savers, but the devil is in the detail of how to actually implement the ambition and over what timescales. The Australian and Canadian models are not panaceas (big is not always better) and were not achieved over night. In particular, where the Government draws the line on minimum £billions for DC funds and how it might deal with identifying and consolidating “underperforming” funds will be key and we look forward to positive engagement on forthcoming consultations. However, the real disappointment is still the lack of anything on the £1.4trn in private sector DB and taking forward a vision for how these schemes can support economic growth and better outcomes for current and future workers. We would like to see greater support and flexibility being brought forward on how surpluses can be utilised for the sponsors and members (and help with releasing some £100bn to £250bn of surplus over the next 10 years) combined with regulatory guidance that focuses on managing surpluses (as opposed to funding deficits!) to ensure appropriate safeguards are in place and help trustee navigate the requirements of their fiduciary duties. The ACA response to Stage 1 of the Pensions Investment Review focussed on the complex challenges raised by the Government’s agenda on investment and consolidation and the ongoing need for further open-minded consultations with all those involved in pension provision and governance, as well as those relying on pension outcomes.
Mark Searle, Partner and Head of DC Investment at XPS Group said: “Scale is not required to unlock the immediate benefits of investing in private markets for most DC schemes. It is already feasible for schemes of £30m and above to invest up to 20% in illiquid markets. We believe that the stimulus needed to drive investment in private markets is a change in mindset from focusing on minimising costs to maximising long term performance. Using Australia as an example, one reason their DC schemes have such large allocations to these assets is because there is clear evidence that achieving strong risk adjusted returns will win them new business. There isn’t the same dynamic in the UK currently but the introduction of some type of performance-based league tables would help change the mindset.”
Dan Carpenter, Partner and LGPS Investment Lead at XPS Group said: “In order to be successful, it is important to reflect on and address the elements that have to date held back many LGPS administering authorities from greater adoption of the existing pools. These issues include concerns over organisational stability of the pool, combined with limited resources or capabilities leading to gaps in the available offerings. Together this means more than half of assets are currently invested outside of the pools. Not all pools have sufficient capability to provide the full range of services required. The case for greater scale leading to better outcomes is compelling, but in order to drive progress, pools need to be invested in and positioned to attract LGPS participation, rather than administering authorities being coerced into something that they consider sub optimal. This drive needs to be pull rather than push.”
Ian Bell, Head of Pensions at RSM UK, said: “It’s encouraging to see the Chancellor building on previous proposals to focus on consolidation and scale to improve investment opportunities and performance for our DC market and local government pension schemes (LGPS). However, given the slow progress on the LGPS pooling project, which was initially launched by George Osbourne some nine years ago, implementation will remain the challenge in making this happen and at an increased pace. To ensure the government’s pensions strategy is realised, the role of NISTA and the pipeline of investable UK infrastructure projects that are released over the next 10 years will be key. The British Growth Partnership will also help with inward investment into venture capital funds and innovative businesses in the UK. But, given the global marketplace, it isn’t clear how these projects will be made available to UK investors, without the risk of them being snapped up by the global investment community. In addition, once they are scaled up, how can these UK opportunities be made more attractive to pension schemes than other global opportunities? Ultimately Trustees will still have a duty to balance investment return and risk for their scheme members. Clarity is also needed on how LGPS members will see their investments focussed on investment projects in their local community. Currently, the Trustees have the ability to use their funds on suitable local projects, but that element of control will change under pooling. Government has promoted this local focus in the run up to Mansion House, but it’s hard to see how the two ambitions can work hand in hand in practice. As ever, the devil with be in the detail and the consultations will be key to ensure the sector can unlock investment which supports long-term economic growth
Catherine Foot, Director of Phoenix Insights: “The Chancellor’s plans to invest in the industries of the future will play an important role in reducing economic inactivity and it is vital that it lays out a roadmap for transitioning to a net zero economy while ensuring workers are supported to move into greener jobs. Our recent findings highlight that workers aged 40-65 view green jobs as riskier than traditional roles, often due to concerns about pay and job security. To bridge the UK’s green skills gap as part of Government’s new strategy, it is essential to provide better retraining opportunities and ensure that green jobs are advertised inclusively to attract experienced midlife and over-50s workers. This approach will not only support the transition to a greener economy but also ensure that experienced workers can contribute meaningfully to this fundamental sector.”
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