LCP has published an open letter to Pensions Minister encouraging her to use the Mansion House reforms to ease inter-generational issues over the future of the planet by getting pensions invested for a purpose.
The timing is not great, the letter was published the 8th November, the reforms that LCP were hoping for, have largely been ditched, but LCP knew that. The letter now reads as a lament for what might have been or a marker for a future Government.
As well as Steve and Lasaya, the article has Charlotte O’Leary, CEO, CEO of Pensions for Purpose as co-signatory.
It is right that we put markers in the sand at this sad juncture. The progress we make towards a just transition will face challenges and the sad failure of the Kings Speech to see through the agenda launched but a few months ago , should not deflect from pension’s long-term purpose.
Protection supporting prosperity
The letter is a cry in vain to the Pensions Minister to support LCP’s proposal that the PPF be able, subject to a super-levy to offer schemes full protection in the event of the employer’s covenant supporting a long-term investment strategy failed. You can read about the proposal here.
This proposal has now run out of time to be enabled by legislation in this parliament. In any event it received scant support from the PPF who had suggested a premium for the super-levy which would have rendered the cost unsupportable but all but the most die-hard believers in keeping calm and carrying on pensions (rather than going to “buy-out).
With gilt yields where they are. the prospect of most well-heeled DB plans falling into the PPF seem remote, but as recent events have shown, many household names, including the BBC , have been fingered in the press as providing unsustainable pension plans. The reality is that the plans are sustainable but need a stronger covenant than a beleaguered sponsor might be able to give.
LCP may have to give up on the PPF supporting the prosperity deriving from pensions investing in purpose and use what is available to them today. I hope that they will work with the suppliers of capital to support DB pensions continuing investment in productive finance and advise their clients to use capital backed journey plans.
The use of surplus to narrow the gap between DB and DC
The debate on how DB surpluses had best be used is also covered in LCP’s letter to Laura Trott. A further casualty of the failure to legislate on the back of the DB Options paper, is the issue of how DB surpluses could best be deployed.
One of Laura Trott’s stated aims when taking her office as Pensions Minister was to reduce the gap between DB and DC pensions. LCP’s proposal is that a surplus in a DB plan could most fairly be used to bolster employer contributions to a DC plan. This is elegant and no doubt would have found favor in a consultation that was leading in the direction of fairer pensions for all. But sadly that principle has been ditched as so much else.
The purpose behind the LCP letter is clear and is just, sadly Government policy isn’t.
A marker for the future?
The letter to Laura Trott was not drafted overnite, it has the hallmark of weeks of work and was no doubt intended to reinforce the messages of a pensions bill that saw through the much-consulted-on Mansion House reforms,
It has been published anyway and in such a way that makes it clear that the long-term issues that the paper addresses are not going away.
Like inflation and higher interest rates, the issues of inter-generational fairness and especially of the sustainability of the planet will still be there for the next Government.
The letter may be addressed to Laura Trott, but it could as well be addressed to our future. Unless we adopt the purpose the letter so eloquently talks about, the future is not a bright one.
Well done LCP.
This is s clear and powerful plea for a change in direction on pension policy in the UK from one the biggest players in the industry. And quite frankly if we don’t start to re-invest then all these insurer or Gilt backed promises will come to nought.
The intellectual and moral case has been made. The long term political ramifications of not changing will also be obvious – the younger (non pension non property owning ) debt ridden underinvested generations just will not bear the costs ( of their parents pensions).. The shorter term political impact of change will be diffiicult, and there lies the problem.
But LCP have provided a clear manifesto . Others in the Industry must support and repeat these messages so it is overwhelming obvious what must be done.