Government proposals to leverage the capital tied up within the pension system to achieve its growth ambitions fail to demonstrate that there is a clear benefit for pension members, says Broadstone.
In response to the government’s Pension Investment Review: Unlocking the UK pensions market for growth, Broadstone said that while the focus on productive finance must be framed as providing a clear benefit for scheme members, the evidence is not clear that this is the case, with the government actuary department’s own modelling showing only marginal benefit.
Broadstone said there also needs to be far greater clarity on how the objective of productive finance is to be achieved by the government’s proposals.
According to the financial services consultancy, there is concern that the £25 billion target is too large and feels “arbitrary” with little evidence to support its purported benefits. While a lower number of providers would be of benefit, Broadstone said the government would need to strike a careful balance to avoid upsetting market competition and innovation.
Instead, the firm is calling upon the government to focus on creating products that are compelling for investment via tax breaks, first loss protection or other downside protection, clear societal value and low cost.
David Brooks, head of policy at Broadstone, said: “The Government is aiming to leverage the capital tied up within the pension system to achieve its growth ambitions. It is evident why it is prioritising this mission given the rocky start to the year for the UK economy and knock-on consequences for the nation’s standard of living.
“However, while its aims are understandable, there are areas which need far more detail. It is absolutely critical that any reforms provide a clear benefit for members and the evidence from the Government itself does not offer that reassurance.
“The focus, instead, should be on the creation of the products needed to stimulate greater investment from pension funds of all sizes into the UK economy. If the products and benefits can exist then, whether a scheme has £5 billion or £50 billion in assets, the allocation would be made.”
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