Debbie Webb, Pensions Board Chair at the Institute and Faculty of Actuaries, said:
“It is good to see the initiatives set out in the speech seeking to increase pension scheme investment to support more growth in the UK economy, particularly where it is also likely to improve long term outcomes for savers.
“However, it is important to recognise that pension funds already own and contribute to UK assets in a range of ways such as Government bonds, equities, and infrastructure. The assets most appropriate for investment will always depend on the pension fund and its structure whether defined benefit (DB) or defined contribution (DC), open or closed. Any investment decisions need to be taken in this context.
“If DC schemes invest in appropriate growth assets, there is an opportunity for improved outcomes for savers. Similarly, we are strong supporters of Collective Defined Contribution (CDC) schemes and believe they have the ability to deliver good long-term outcomes for members while also facilitating higher allocations to growth assets for longer than is usually possible in other schemes. We look forward to changes to CDC legislation to allow a wider range of schemes.
“We support the initiatives to put an appropriate process for consolidation in place, that would provide options for some DB schemes
However, there are complexities associated with DB consolidation which would make any compulsion in this regard highly undesirable.
“This package of measures must be set against the context that the primary purpose of a pension fund is to provide a retirement income for its members. The fiduciary duty that a pension fund holds to its scheme members means that investment in new assets should only take place where longevity is weighed and there is an appropriate risk/return ratio. It is important that these measures are carefully calibrated to match both growth requirements and policyholder protection concerns, and we would not be supportive of any initiatives that sought to compulsorily require schemes to invest in particular asset classes, or to consolidate.”
Kate Smith Head of Pensions at Aegon comments on the Mansion House speech: “If we were ever in any doubt, the Chancellor’s Mansion House speech confirms just how important pensions are to the UK economy.
“The Mansion House Compact is a key step towards encouraging greater investment in private equity by unleashing the superpower of Defined Contributions pensions. It is critical that this is done in a way that improves member outcomes. Increasing the future value of members’ pensions must be the top priority. It’s right that trustees and others governing pension schemes remain focussed on acting in members’ best interests and this should include considering a wide range of investments, without being overly swayed in any particular direction.
“Clearly the Chancellor is looking at a range of government pension initiatives through a dual lens of improving member outcomes and supporting UK economic growth. We welcome the next steps to support this, especially those around delivering a new cross-pension value for money framework and looking for workable solutions to deal with the growing issue of small frozen pension pots. We look forward to being actively involved in these initiatives.”
Jon Hatchett, Senior Partner, Hymans Robertson says: “We welcome the direction of travel for DC schemes announced by the Chancellor. If we get this right, in the medium to long term it will be great for DC savers. It will be an improvement to see an uplift of 12% uplift for those saving into DC pensions from the age of 18. However, it will do very little for the generation of DC savers reaching retirement in the coming years. Our modelling has shown that many of these people will not be able to afford even a moderate standard of living in retirement based on the PLSA’s Retirement Living Standards.
“CDC broadens our options, but we don’t want a new one trick pensions pony. There are wider forms of risk sharing available* and the Government should be encouraging innovation more broadly. Providers offering longevity pooling can let people focus their pension savings on their own income in retirement, rather than passing on a bequest on their death. In a stroke, that can allow savers that want or need more income to get around 20% extra a year.”
David Brooks, Head of Policy at leading independent consultancy Broadstone, commented: “Amid confirmation of a string of well-trailed announcements, the Chancellor also conjured a rabbit out of the hat with the unexpected creation of a permanent regime for superfunds.
“Government backing for these long-awaited vehicles will certainly be a fillip for smaller defined benefit pension schemes struggling to attract insurers in a congested market. While superfunds have long been in the offing, weighty question marks remain over how long these reforms will take to implement and create a competitive environment.
“Many schemes will have recently benefitted from improvements in funding levels through the increase in gilt yields over the past 18 months and a viable alternative to the insurance market will certainly be an attractive option.
“Combined with the reforms encouraging schemes to invest across different asset classes, the Chancellor’s speech is explicitly aimed towards boosting investment across the UK economy. While higher returns will always be welcomed by pension savers, the government and pensions’ sector must work together to ensure member security remains at the very heart of these reforms to avoid undermining hard-earned trust in the industry.”
LCP CEO Aaron Punwani said: “I’m delighted that LCP’s ideas are finding favour at the heart of government, as there is potential here for a real win-win. DB pension scheme funding has been transformed in the last decade with far more talk today about surpluses than deficits. There is the potential for these huge funds to be invested for long-term growth creating a larger ‘pie’ to be shared around, whilst ensuring DB member benefits are fully secured. The beneficiaries could include younger savers in Defined Contribution pension arrangements, many of whom have very modest pension pots, as well as the members of the DB schemes who will enjoy the possibility of benefit uplifts. But we will all benefit if the vast sums currently sitting in DB pensions could be used to invest in our long-term future as an economy and as a society”.
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