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Are our pension schemes the treasury’s piggy bank?

henry tapper

The Treasury must not use our pensions as their piggy bank-warns Richard Butcher

Yesterday I published a series of tweets from Jo Cumbo on the difficulties the Pensions Regulator would have balancing the interests of members and sponsors with the interests of Rishi Sunak in getting schemes to invest in the nation’s infrastructure.

uneasy bedfellows

Former DWP Pension Minister Ros Altmann was quick to ask a question which has been troubling me.

IS there a clash looming between DWP and HMT? If pensions are to invest in illiquid long-term assets, with potential to boost growth and deliver much better returns than gilts, the charge cap and daily pricing will need to be reconsidered for DC schemes and tPR funding code needs to be rethought in terms of ‘risk’ management. Managing pension risks is about balancing asset classes in a diversified portfolio, not just aiming to remove all risks other than in gilts (which clearly do still have risk relative to pension liabilities given the negative returns and lack of matching gilts)

Ros Altmann’s comment, (which can be found at the bottom of the blog) go to the heart of the matter.  The trustees are being asked to consider risk in by the Pensions Regulator in the narrow sense of “de-risking liabilities” . At the same time they are being required to think of risk in quite a different way by the Treasury.

The DWP and its regulator is now looking – (perhaps to avoid this conflict) – to find money for the Treasury’s Long Term Asset Fund (LTAF) and similar illiquid investments from DC pots – where the risk of the fund not performing will land on DC savers. This I take to be the purpose of much of its consultation on consolidation , changes to the charge cap and “improving DC member outcomes” by investing in “less liquids”.

Mindful of the debate going on in her native Australia, Jo Cumbo has now produced a second thread of tweets from a conversation with Richard Butcher, Chair of the PLSA , an independent trustee and a former IGC Chair. In this thread we see the conflicts between these conflicting regulatory requirements – in action.


The Government has been scrupulous in introducing its TCDF reporting requirements on pension schemes, not to intervene in the investment strategy of the trustees. The tactic is to ensure that trustees consider the environmental and social consequences of their investments in good governance and Government hopes this will result in good outcomes such as disinvestment from high carbon assets and reinvestment in more socially and environmentally sound projects.

This fiduciary duty is firstly to members – to ensure pensions are paid and secondly to sponsors to make sure these payments are affordable.

But green bonds are not the same as qreen equities. If trustees buy into risk free Government gilts that fund investment in sustainable projects, then it is Government paying the coupon and trustees are merely swapping one set of gilts for another. This is easy for trustees and presents little challenge.

The problems come when the call is to invest in much riskier green equities (at least in the short term)

The message is clear, trustees should not be underwriting Government projects, they can lend to them but they should be cautious about owning them.

Cumbo then turns back to her conversation with the Pensions Regulator and considers the same questions with regards “savers”, by which I assume she means savers in DC pensions.

Here the issue is precisely the same – “who takes the risk of an investment failing?”
The Pensions Regulator’s response is telling.

This is precisely the message many open DB schemes are trying to give the DWP and TPR as the Pension Schemes Bill is debated in parliament and the DB funding code consultation considered in Brighton. If investing in growth assets such as envisaged in the LTAF is considered by the Treasury in our interests, how can restricting such investment , as the DB funding code seems to do, not be opposed to the public interest?

Josephine Cumbo’s conclusion is that Government is sending out confusing messages to trustees and members. I would agree, the messaging is not just confusing for DB trustees, it is also confusing for DC trustees. For members who may have both DB and DC benefits – the messaging could be doubly confusing.

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