Matt Tickle, Chief Investment Officer at professional services consultancy Barnett Waddingham, comments: "The British ISA offers retail investors an impressive tax incentive to invest in London-listed shares, but the approach with institutional investors is more stick than carrot; an expectation with no incentive, and a threat of 'further action' if UK equity allocations don't increase. Given the poor performance of the FTSE all-share compared to global equities since 2010, and combined with the Chancellor's focus on returns and value, DC pension schemes are being put into a remarkably difficult position. It's a rock and a hard place; returns for members versus a political push for a cash injection into the country. What's more, the UK market is heavily weighted towards oil and gas - further investment into UK equities could disrupt schemes' existing sustainable investment strategies.
"Pension schemes will not thank Mr Hunt for his announcements today. Their responsibility must be to their members, not changing with the winds of Government policy or party. But with other changes on the horizon and regulatory pressure coming from all angles, there are some tough months ahead."
Tim Middleton, Director of Policy and External Affairs, at the PMI said: “We feel frustrated that the Chancellor has chosen to press ahead with the Lifetime Provider initiative. We noted earlier this year that this was the wrong time for an initiative such as this and are concerned at the disruption this could cause for so much of the good work achieved to date by automatic enrolment.”
Mr Hunt also confirmed the reforms to Defined Contribution schemes announced over the weekend. Middleton added: “Whilst we remain supportive of initiatives that will increase investment by pension schemes in the UK economy, we are concerned at the implied suggestion that this would involve some form of coercion. We believe that trustees should retain absolute control of their investment policy and would like to see clarification of exactly what the Chancellor is proposing.”
The Chancellor has also confirmed that the Lifetime Allowance (LTA) is to be formally abolished from April. Middleton said: “There were sound operational reasons for deferring the LTA’s abolition and we are disappointed that Mr Hunt has not heeded the industry’s concerns. It was frustrating to hear him discuss his reasoning in which he appeared to confuse the Annual and Lifetime Allowances. Unfortunately, this Budget represents both missed opportunities and an ominously authoritarian approach to those who manage the UK’s registered pension schemes.”
Laura Myers Head of DC at LCP, said: "Greater transparency on scheme investments and investment performance is a good thing, and we support measures to improve value for money for members. But the Government needs to make sure that VFM measures accurately assess the performance of schemes over the medium and long-term, and do not distort behaviour by schemes worried about appearing at the bottom of short-term league tables. Trustees will also fiercely guard their right to invest in the way they think is best for their members rather than increase allocations to UK investments purely because of Government pressure".
Philip Smith, DC Director at TPT Retirement Solutions, said: On comparing DC scheme performance. “The Chancellor’s plans to require DC schemes to publicly compare performance data against competitors will pull back the curtain on pensions. Members and employers will be given much greater transparency on how their scheme is performing against others in the market. It is important that this comparison looks at the value for money that schemes provide, considering investment performance as well as fees.”
On publishing how much schemes invest in the UK
“There is a risk the Government’s policy to force schemes to publish how much they invest in the UK will conflict with its policy to compare scheme investment performance. While many trustees will be open to investing more in the UK, we expect they will still prioritise the investment performance, in line with their fiduciary duty. However, even if schemes do increase investment into UK equities, it may not provide the boost to the economy that the Chancellor hopes. Many large UK-listed companies such as those in the oil and gas or mining sectors, earn significant amounts of revenue from business overseas.”
On the pot for life reforms
“The pot for life reforms could be a game-changer in improving retirement outcomes for DC pension savers. The changes could provide members with a better opportunity to understand the benefits accumulated through their DC pension pot. Members would find it easier to engage with their pensions, make investment decisions, and monitor how much they have saved for retirement. In turn, this could encourage people to increase their contributions, so they are better prepared for retirement. Creating the pot for life system will be a huge operational challenge for schemes and employers. However, we believe that ultimately the lifetime provide reforms should provide better outcomes for members."
SPRING BUDGET 2024
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