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Where should our £1.6tn be invested?

henry tapper

I want to know how pensions can be reorganised to meet the needs  of members, sponsors and the taxpayer whose money keeps Government going.

The Government has now issued a press release outlining refreshingly ambitious plans to unlock the UK’s DB schemes to support the country.

Of course “the devil will be in the detail” of exactly what is changed, and how much impact that has.

But, today, I’m focussing on the bigger picture. The Prime Minister and Chancellor have set out some hugely ambitious objectives to release large scale DB surpluses for a number of admirable aims.

Of course they will have to get the detail right, and I do think relatively strong policy action is required. But having set out such strong ambitions, Numbers 10 and 11 have given a very clear mandate to policy-makers to ensure the real-world impact of their changes matches the scale of the Government’s ambition.

I am not sure whether Steve is referring to this release from TPR or the original press release from the Prime Minister’s office. You can read it here prime ministers follow chancellors when they think they’re safe. Judging by the bulk of serious comment, Reeves and Starmer have got it right. Steve Hodder is on the mark whichever press release he refers to.

I was also  interested in this comment

 

John Hamilton Pension Scheme Chair, Group Taxation Director, Group Pensions Director at Stage

Pension Scheme Chair, Group Taxation Director, Group Pensions Director at Stagecoach Group Limited

All very fascinating and with the potential to provide a significant and much needed economic fillip to the UK.
Two critical factors need to be understood and addressed:

1 – investment does not equal productivity. The magic sauce comes from enterprise. The Govt needs to allow/support pragmatic recycling of the trapped surpluses by businesses to support enterprise and growth. A top-down statist approach won’t work. Beware LGPS consolidation.

2 – the 2021 Act is heavy handed and criminalises risk (including investment) in pensions. That part of the Act must be repealed or suitable modified. Good soundings come to nought with such a sword of Damocles threat. Not all investment will be successful, but without failure there can be no learning nor winners. Embrace investment (i.e. risk) and growth.

If the Govt is serious about growth then the Regulation underpinning pension investment ( and our economy) needs to be supportive, or at a minimum not dragging in the opposite direction, please.

I was also interested by the frustration of a pricing actuary for bulk purchase annuities

Does the unleashing of pension surpluses imply that PRA regulations and the Matching Adjustment on annuity providers are far too restrictive?

Maybe the MA Reforms should have gone a bit further than reshuffling deckchairs?

Once all the corporate sponsors are gone, will HMT turn to the annuity business to support the gilt spread and for the next ‘big bang’?

These are the debates we should be having with people looking at pensions from the perspective of annuity specialist, pension regulator, occupational scheme manager and trustee and policy consultant.

We need to think about what we , as a £1.6 trillion industry, should be discussing where that money should go. We have an investment conference organised by the PLSA in the second week of March.

I want to hear from the likes of Steve Hodder, John Hamilton, Miles Smith and the Pension Regulator on what this £1.6bn should be invested in. If we see a commonality between insurers and pension schemes I will be surprised and pleased. If we see the PRA, FCA and TPR acting with one intent I will be equally pleased. But I think  the insured community is a long way from the pension world, doing different things. Right now we have conflated bulk annuities with pensions in the same way as the “pension annuity” is confusing retail investors

I think it important that we recognise that pension schemes are “re-risking”, not “de-risking”, that the Pensions Regulator is a risk based regulator but that it is in place to ensure risk is taken appropriately, not to take risk away. Sarah Smart was right to say on a recent podcast that TPR is regulating risks, she did not say they were here to de-risk.

Our £1.6 trillion should, in my opinion, be invested for growth as it is the money that will pay not just our generations pensions, but those of generations to come. We are not the last generations. We do of course need insurance – we need certainty that money will be in place and certainty is critical, we need to have a 99.5% certainty and a pension protection fund, the retail market needs its own compensation scheme for roguery and major ill-judgement.

But to suppose that we can invest this money individually is , for the most of us, wrong. Most of us do not want to be SIPP investors, we want collective schemes , investing for  promises decades away in fulfillment. We want these promises to be made with certainty, with backstops, with insurance that comes from collective consideration for the mass of people.

I am looking forward to discussions that concentrate on doing the best we can, not avoiding the worst that can go wrong.  I hope that PLSA in March will focus on achieving growth, not just for the economy, but for our future pensions!

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