KEEP CLEAR- unexploded pension bomb

The DWP’s full frontal assault on poor value occupational pensions will be launched shortly.  The intent of Guy Opperman and his policy team at the DWP is to consolidate the occupational DC pension market with intent to improve member outcomes.

Small schemes with high fixed costs will be encouraged to think about their value to members not just in terms of investment outcomes but by considering the opportunity cost of paying a retinue of advisers, administrators and pension managers rather than use the money on improved member contributions.

The DWP will shortly be issuing further guidance on how small and large occupational DC schemes will compare themselves and launching another consultation on the barriers to consolidation. I understand that Guy  Opperman will be leading the charge.

The consultation will also focus on the investment strategies of many larger schemes which Government consider are currently lacking in ambition. Further promotion of the private as well as public equity markets, infrastructure and even investment through venture capital will be encouraged.

Judging by some of the comments on Charlotte’s thread, both on linked in and twitter, the pensions industry is far from ready for this kind of shake up.

Charges up?

Coupled with the assault on poor value occupational schemes, there is a much broader assault on what is being referred to as “red-tape” and this includes the pension charge cap.

A report by the task force for innovation, growth and regulatory reform, published on Tuesday night, contained 100 recommendations, including allowing pension schemes greater freedom to invest in innovative start-up businesses while maintaining “prudent protections”.

It identified the calculation method for the 0.75 per cent charge cap on fees and administrative expenses as the largest obstacle to defined contribution pension funds backing private equity and venture capital funds.

This low-cost fees approach has pushed pension funds to invest in cheaper fund management options, such as passive investing in the stock market, rather than high-performing ‘illiquid’ assets that require more costly, active management, the report argued.

The report suggested that changes be made to the calculation to help pension funds to invest in funds that back fast-growing companies. Earlier this year, the industry warned against government plans to loosen the charge cap to allow these kind of investments.

Cross Governmental support includes the Treasury

Meanwhile the Treasury are working on the new Long Term Asset Funds which are designed to provide wrappers in which such investments can sit. Though we won’t see these LTAF’s till November, they are likely to challenge pooled insurance funds as a means to deliver these ambitious new strategies.

Indeed there is some dispute as to whether the “permitted links” regime which governs what sits within an insured pooled fund, will allow such investments to be made.

Disruptive capital

I have seldom seen Government so fired up to change pensions and I reckon we will shortly have a  red-letter day for the UK pension industry.

The niceties of the pension  consensus are going to be assaulted by a Pension Minister , backed by big Government. The bomb is about to be detonated and you are getting fair warning!

I’m really looking forward to be chairing a panel this afternoon that will include the architect of much of the DWP’s proposals, the Pensions Regulator who will be required to monitor progress and enforce change and a representative of one of the large schemes Government wants to use to do the consolidation.

If you are on the buy-side of the argument (pension managers, trustees etc.) you can still ask to attend using this link

Register Interest to Attend Consolidation Masterclass — SG Pensions Enterprise

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to KEEP CLEAR- unexploded pension bomb

  1. Hi Henry
    I must admit that I believe the charges are not the most important obstacle to wider diversification. The problem is more about the need for daily pricing and rapid transferability – DB scheme costs are far lower than the 0.75% in most cases, because they can diversify their asset allocation without the pressure of daily pricing and ready transfers as well as having the economies of scale of course. So, I fear that just increasing the price cap will not be the silver bullet to open the floodgates for alternative investing. However, I do agree that having overarching large pension fund pools that people can use for pensin investments in infrastrucutre, for social housing projects, for clean growth initaitives can help if they permit in specie transfers, so that the pricing and liquidity issues are minimised for DC. But then who will run these? Is there an industry investment group?

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