Prime Minister Rachel Reeves refused to rule out strong British pension funds investing in domestic assets, escalating tensions in the pension industry hours after announcing a new £50 billion luxury home deal.
The government celebrated the voluntary commitment of 17 leading UK determined contribution pension providers, with at least 10% of its default funds invested in the private market by 2030, half of which is estimated to be £25 billion, involving UK investments. But when Reeves called the agreement a milestone, she also opened the doors to introduce authorizations if voluntarily progressed stalls.
“I will never say it, never say it,” Reeves told Bloomberg. “But I don't think it's necessary.”
Her remarks sparked uneasiness in the pension department, which has long opposed any move to authorize asset allocation, arguing that such steps would conflict with the trustee’s fiduciary obligations in the best interests of the members.
Sources close to the Treasury Department show that the upcoming pension investment review (in the coming weeks) will recommend granting the government temporary powers to implement binding investment goals if voluntary commitments are insufficient.
While officials say the use of these powers may not be required, the recommendation alone has drawn sharp criticism from the industry.
“We believe the most sustainable solution is to create the right incentives, not the mission,” said Phoenix Group, a spokesperson for the Phoenix Group, who is one of the signatories to the Mansion House Accord.
Mercer UK’s head of retirement and investments responded to the concern, saying: “We don’t think the task is the right step, but again, we think it’s unnecessary.”
Royal London policy director Jamie Jenkins said the industry has long suspected the government would reserve the right to authorize, but warned the public of rebound: “If people think the government is telling them how to invest in retirement savings, they could have a strong negative reaction.”
Jo Sharples, senior director of AON, warned that any shift in decision-making responsibility could lead to plans to obtain suboptimal assets or overpayments of assets, neither of which are in the best interest of the member. ”
Although Reeves guarantees that voluntary routes are still desirable – “This week's agreement shows you don't need to use authorization”, the agreement itself is seriously warned. Providers stress that their commitments remain in compliance with fiduciary obligations and comply with governments and regulators to provide so-called “key enablers” such as regulatory reforms and improving market infrastructure.
The Scottish widow, owned by the Lloyds Banking Group, did not sign the agreement, a sign that some people are seen as cautious amid growing political pressure.
Debate on voluntary and mandatory investment strategies is intensifying as the government hopes to release long-term capital to boost economic growth in the UK, especially from the country’s vast pension funds. The findings of the review, when published, could mark a critical turning point in how UK retirement savings are managed and deployed.
