The chancellor and the secretary of state for work and pensions have jointly written to the Financial Conduct Authority and the Pensions Regulator providing information on the pensions investment measures announced at Autumn Statement 2023.
In the letter, dated to today (November 22) and signed by Jeremy Hunt and Mel Stride, they outlined the government’s vision for the pensions market in 2030.
This included ensuring there are suitable retirement options for savers, "supported by a pension provider market that is challenged to deliver value for every member".
Addressed to FCA chief executive Nikhil Rathi and TPR CEO Nausicaa Delfas, it explained in detail the measures that were announced at the Autumn Statement.
The letter said the measures have been set out to improve pension saver returns, increase opportunities for investment and boost growth in the UK’s capital markets and high-growth companies.
“This package progresses the pension reforms set out at Mansion House in July and is informed by the three golden rules: to secure the best possible outcomes for pension savers; to prioritise a strong and diversified gilt market; and to strengthen the UK’s competitive position as a leading global financial centre,” it read.
“We collectively believe there is an opportunity for savers to get better outcomes from their pension arrangements.
“The time to take action to improve outcomes is now. Any delay would be first and foremost damaging to savers in relation to being able to expect security in retirement.”
Hunt and Stride said it would have negative consequences for the UK economy where pension fund investment decisions are driven by an excessive focus on lower costs rather than long-term value for savers.
“A strong economy benefits savers through the returns on investment it provides as well as the public services funded through tax receipts,” it read.
“At Mansion House, the government set out a bold intention to deliver a programme of reforms, following industry consultation, to enable pension funds to provide a better offer to the nation’s pension savers.”
The letter said higher transparency of individuals’ pension provision, investments, and options at retirement is needed by implementing the pensions dashboard to show total pension entitlement across a number of schemes.
The chancellor also announced the exploration of a lifetime provider model which would enable individuals to have one pension pot for life.
This would help provide better outcomes by reducing the barriers to engagement and increasing people's control over their pension pots.
In order to have a more consolidated market, the letter said fewer but larger, well-run, defined contribution schemes delivering value for their members would be key - including automatic consolidation of deferred, small pots and through diversified investment strategies.
It said consolidation of those that cannot offer this would be needed.
Other measures to offer a more consolidated approach included:
- More scope for defined benefit schemes to invest in productive finance through a legislative framework for DB superfunds, and new consolidation vehicles.
- A handful of local government pension scheme pools, increasing the scale and opportunity to invest in a larger diversity of high return assets.
- Creating the environment for collective defined contribution schemes, offering more predictability of income in retirement.
Finally, the letter listed that enabling pension schemes to invest in a diverse portfolio would be through encouraging alternatives to DB de-risking and buyout, “where schemes are well funded with a strong employer covenant”.
Increasing the standards of investment expertise and trustee skills will also enable pension funds to create diversified investment strategies, as well as expanding the range of investment vehicles to ensure a sufficient range of opportunities for pension scheme investment in high-growth UK companies.
The letter also said that prioritising a system that ensures long-term value of pension schemes over short term cost, would help with this.
“This is a long-term agenda and will need all parts of the pensions delivery and regulatory system to operate in alignment with this vision,” the letter said.
“We recognise the significant work both regulators are already undertaking in this space to drive forward such initiatives as VFM, decumulation, ensuring effective trusteeship, new guidance to trustees and advisers about investing in private markets and the cooperative approach that has been evident in doing so.
“The future decisions we take will be informed by the vision we set out here.”
sonia.rach@ft.com
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