Ricki Sunak’s first speech on financial services in the House of Commons came on the day we absorbed a Biden and a vaccine win. It was a bad day for viruses but a good day for the markets which bounced about with irrational enthusiasm. While all this was going on, Sunak’s plans went largely unreported – only the FT has given his speech much coverage.
The headline shows how complex Government messaging has to be over the weeks ahead.
Sunak sets out ‘green’ post-Brexit financial services regime
The content of the speech needed to address the three immediate priorities for the Chancellor
- Bounce Britain back after an appalling year of Covid-lockdown
- Maintain “equivalence” with the EU after December 31st to ensure BAU for UK financial services
- Ensure that investment both in Government debt and in UK equity promotes Britain’s commitment to be carbon-neutral within 30 years
There are many people who see Brexit, Covid and climate change as unmanageable problems and adopt a fatalistic approach to the future, Sunak doesn’t appear to be among them.
The speech sounded more like the autumn budget we never quite got. Sunak told MPs…
- he will grant equivalence to EU and European Economic Area states on financial services,
- pledged the launch of Britain’s first “green gilt”
- launched a review of the listing regime to attract fast-growing technology companies to London
- proposed a new regulatory approach for “stablecoin” initiatives — involving privately issued digital currencies
- announced plans to launch the country’s first green gilts
- announced that Britain would become the first country in the world to make large listed and private companies disclose the threats to their business from climate change by 2025, including pension schemes.
- hoped to have the UK’s first long-term asset fund launched within a year to encourage investment in illiquid assets such as infrastructure and venture capital.
If some of this sounds familiar it is because much of this policy is in the Pension Schemes Bill and forms the heart of the DWP’s agenda for UK pension schemes. With DB pension funds de-risking , green gilts will immediately attract the attention of consultants and trustees keen to work out how a shift to Government bonds can improve their commitment to E,S and G factors.
Those schemes with headroom to invest into growth assets (sadly mostly DC schemes) will be looking with interest at opportunities from exposure of the long-term asset fund, while trustees contemplating TCFD reporting will have the comfort of knowing that they are not alone- it will be a reporting requirement for insurance companies banks and large companies as well.
In the context of the Treasury’s agenda for financial services, it is now possible to see why Guy Opperman is so adamant that pension schemes should play a part in building back better. Opperman, unlike Webb and Altmann, plays to a gallery of those “above his pay grade” ( a phrase he uses regularly). This sense of being a part of a wider political enterprise has been lacking from pension ministers and those lobbying for amendments to the Pension Schemes Bill and TPR’s DB funding code should be mindful of that.
He should also be aware of his boss’ expectations!
Our pension funds are key to making this happen alongside our asset managers. UK is in a great place to make this happen and bring other countries with us https://t.co/yHrAYcALR4
— Therese Coffey #HandsFaceSpace #DontPassItOn (@theresecoffey) November 9, 2020
Pensions a part of building back better
Pensions are governed by old men who have served their working lives within the EU, without the mental and physical stress of a global pandemic and without fear of a broken climate. Sure there have been other threats, but never such a triumvirate of significant headwinds.
To meet these three threats to our long-term financial well-being, the old men will need to change, many will need to step down and make way for younger ,gender diverse and more attuned successors. Those that remain will have to adapt and adopt new ways to invest, report and consider risks and reward.
The financial crisis of 2008-9 was relatively easy to fix. The legacy of the pandemic and the economic consequences of Brexit will take longer to work through. But we have to address the changes they bring. Most of all we need to recognize the paradigm shift in behaviours we need to display and encourage if we have any hope of averting climate change and building a society where social fairness and governmental standards improve.
Pensions own a great slice of Britain and have a critical part to play in transforming financial services so that it plays a part in resolving the crisis we are currently in. We cannot stand by and await a bad fate. We need to rise to the challenges , as Rishi Sunak and other Government ministers (Opperman among them) appear to be doing.
But no matter how well intentioned we may be, open pension schemes cannot invest pension funds into patient capital and be subject to the proposed DB funding code. Something has to give and let’s hope it’s the intransigence over Clause 123 of the pensions bill, of TPR’s senior management – or both.
Hi Henry I totally agree that pension schemes should be used to help us build back better, but in the face of tPR’s potential new funding code, this opportunity will be minimised, not maximised. Pension schemes need ‘green equities’ not just ‘green gilts’ – they need the upside of early stage illiquid investments that they can use to deliver increased returns over time which have been taken away from them by QE attempts to boost growth, which have resulted in diminishing pension prospects
Ros, I totally agree with you. If TPR implements the DB funding code proposals as they have been presented, the opportunities for the trillion pounds invested in DB pension funds , finding their way to patient capital are reduced if not extinguished.
How can British industry bounce back if it is lashed to the ground by its pension schemes?