Labour ready to force #pensions to invest in £50bn ‘future growth fund’ https://t.co/UAvne2I7JE

— Josephine Cumbo (@JosephineCumbo) May 22, 2023

The story is the FT’s digital headline and is garnering hundreds of comments, almost all of which are opposed to Government intervention. Here’s one of the milder ones.

“So there is now a cross party consensus on this and there will consequently be some form of policy arms race to push UK long term savings into UK companies by a combination of nudgery , cajolery and legislation”.

There is a consensus and this blog has been talking about it for months. Consolidation will happen – that is one of the desired outcomes of the VFM consultation which will give TPR powers to close down under-powered pension schemes with no prospect of investing for “future growth”.

Rachel Reeves wants it as much as Jeremy Hunt, the DWP are implementing but the Treasury is driving.

And the person who has emerged as the poster-boy for this intervention is the Lord Mayor of the City of London, Nicholas Lyons.

I met with Nicholas Lyons last week and was s a “devils advocate” at a talk he gave at a DC strategic Summit, a stones throw from the Mayor’s parlor.

Like Reeves, Hunt and the Pensions Minister, Lyons is not advocating a 5% demi-tithe on pension schemes as a tax or even a requirement. Right now it is a suggestion with the option of legislation available.

This is not going to happen unless DC investment strategies change and change radically.

1. We are going to have to abandon the broker mentality that persists in scheme selection. This mentality emanates  employer procurement teams and is facilitated by poor consultants who encourage a race to the bottom.
2. We are going to have to put in place new metrics to replace cost based on value and these will be delivered through the VFM Framework
3. Pension schemes are going to have to stop complaining about fiduciary duty and knuckle down. The PLSA needs to take a lead in this.
4. The £3 trillion pensions market is only 30% about DC – the rest is in DB and much of that money is investable in productive capital, if we abandon an end-game that hands the money to insurers to invest in less productive projects
5. The real power-brokers – the insurers at Phoenix, L&G , Aviva, Scottish Widows, PIC, Rothesay and Just work with Lyons, Truell and the power brokers of private equity and credit – on proper products that the public can trust.

Every one of these 5 items is achievable within the next five years -within the term of the next Government – of whatever hue.

But the first test of Government’s capacity to make this happen is only a couple of months off. By the end of July we should have the response to the VFM framework consultation. If that does not deliver a radical plan to force consolidation and demand a re -focussing on value rather than money (price) then we will not get legislation for the framework in this parliament.

That is why projects like the pensions dashboard , CDC and pension decumulation are getting so little attention. The focus of Laura Trott and her boss Mel Stride are on delivering part one of the plan by the next election at the end of 2024 or the beginning of 2025.

Relative to the political imperative of refinancing Britain through pensions, all the special pleading of the pensions industry counts for very little.

There’s one comment on the FT thread which properly addresses the issue with our current investment strategy for UK pensions.

The massive misallocation of capital that trackers, taxation systems and intolerance of investment risk is now after 30yrs+ being felt in the outlook of the UK as capital is sucked increasingly to the very largest market and whole countries such as the UK become starved of capital.

When 30% of the ‘average ‘man’ in the street’ pension is invested in 10 US stocks no wonder the UK is running out of ideas. The end game is an inevitable concentration of western capital in the US unless rules/laws/taxes are changed.

Level the playing field or the UK will continue to sink towards a Sri Lankan style crisis.

We have some very tough decisions to take about pensions in the next few months. My question to Nick Lyons at last week’s summit was simple

Government seems ready – are pensions ready?

Reeves