Pensions UK has urged the Government to withdraw the power that would allow it to direct how pension schemes invest UK workers’ retirement savings from the Pension Schemes Bill.
As drafted, the reserve power extends beyond the Government’s stated intention of supporting the Mansion House Accord, a voluntary commitment by 17 of the largest workplace pension providers to invest at least 10% of their defined contribution default funds in private markets by 2030, with 5% of the total allocated to the UK.
While Pensions UK welcomes the broader aims of the Pension Schemes Bill, including reforms that reduce system complexity and improve saver outcomes, it warned that mandation would hamper free and open market competition and put saver outcomes at risk.
Decisions on how savers’ money should be invested “should not be a political choice”, the industry body said.
It argues that if the power remains in the Bill, it is essential that the legislation should allow no more direction by government than the minimum necessary to deliver its stated intention.
Pensions UK is calling for a cap on the percentage of investment that can be mandated, aligned with the 10% and 5% voluntary Mansion House Accord targets already supported by the Government; strengthening of the report that is required before the power can be introduced; and a reduction in the duration of the sunset clause from 2035 to 2032 to reduce the political risk to schemes.
Julian Mund, chief executive of Pensions UK, said: “Now is the time to drop the reserve mandation power from the Bill.
“Pensions UK strongly supports most of the provisions in the Bill and wishes to see it passed. But the mandation power risks distorting the market, compromising saver outcomes and eroding trust in the system.
“The current drafting of the provision goes far beyond the scope of the Mansion House Accord and could be used to direct investment in very broad terms, either by this government or a future one. Should the power remain in the Bill it is critical that it is aligned to the standards set by the Accord, and that it goes no further.”
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