James Carter, Head of Platform Product Policy, Fidelity International, comments on the announcements made as part of the Chancellor of the Exchequer Rachel Reeves’ Mansion House speech.
We are hugely encouraged by the Chancellor’s Mansion House speech and the more detailed content in the published documents, which sets out proposals for reforming the defined contribution (DC) pension market. Most importantly, it is clear that the collaborative approach taken by the Government over the summer, actively engaging with industry, has led to a package of proposals which demonstrate a real understanding of the function of the UK DC market. The imperative of improving DC savers’ outcomes and supporting UK growth will be best and most quickly achieved through a set of connected policies such as these.
Creating a scale of assets to facilitate broader investment opportunities (e.g. private assets) can be achieved by “collecting” individual schemes on provider platforms and through common investment strategies designed and deployed by providers. The Government’s proposals focus on pooling DC schemes’ assets, removing barriers to transferring assets out of underperforming schemes and considering the role of advisers and employers in supporting the consolidation. This wide-reaching approach is extremely welcome.
We are also pleased to see the Government’s support of policy to allow the effective and orderly consolidation of schemes by allowing firms to easily transfer pension assets from underperforming schemes. It is important that firms are able to act decisively and quickly where better outcomes can be achieved by consolidating assets into a different pension scheme.
We welcome the opportunity to work with the Government through the consultation period and beyond to build out the detail of how these policies will be taken forward. As ever with pensions, there is a great deal of detail to work through to ensure the intended policy is delivered successfully.
Directing pension assets in members’ best interests
We continue to believe that pension schemes must be allowed to direct pension assets in members’ best interests, without a mandatory requirement to invest in specific markets or assets. We are pleased to see the Government not proceed with policy to require specific allocations in domestic markets at this stage.
We are highly supportive of emerging efforts to unlock ‘productive capital’ from defined contribution schemes. For our defined contribution clients, whose investment horizon is measured in decades rather than years, we believe there is strong alignment in objectives of private market investments and member objectives. We believe that the package of policies put forward by the Government will support the natural growth
of UK allocations.
We do believe there are additional ways in which the government could raise potential returns for investors while also supporting companies that are considering listing in the UK. For example, removing or reducing the burden of stamp duty for equity transactions, putting us on a level footing with other markets.
With these bold policies designed to support better pension member outcomes we welcome confirmation that the FCA will shortly consult on transformational changes to financial advice and guidance. It’s essential this gap is addressed to support savers. We would also like to see regulatory consistency across different tax wrappers which do the same job for customers (replace their earned income in retirement), to further support
savers making informed decisions.
Rebalancing risk attitude
The Chancellor last night referred to the way in which the regulatory environment has evolved since the financial crisis, and the unintended consequences of a system which has sought to eliminate risk-taking. We welcome her call to rebalance the UK’s attitude towards risk and look forward to the opportunities this will create to better support savers’ needs.
Policies need to strike a delicate balance between protecting consumers from harm while allowing innovation to flourish. High-quality regulation is absolutely essential, but the system has become skewed towards protection and safety in avoiding loss (often with a significant amount of bureaucracy, rules and cost involved), rather than in maximising good outcomes for savers and investors over the long term.
If regulators and policymakers attempt to strip all risk from the system, we will remove from people the opportunity to make the very personal decisions based on their own personal trade-offs to achieve the outcome that they themselves want.
