I am not a regular reader of Investment Week but maybe I should have. Here is the former pensions minister, now City Minister, telling an audience that they should stop sitting on their and their clients money and putting it to work. This should be sending a shudder through those at regulators who have spent most of this century telling us to de-risk.
Ok she’s talking about Cash Isas and not the pension schemes she has left behind but there is one over-riding message that is that we as a nation have to take a big step towards long-term investment. Here’s Christian
Economic secretary to the Treasury and City minister Emma Reynolds has admitted the UK has “failed to drive an investment culture”, as it shied away from risk following the Global Financial Crisis.
Speaking at a House of Lords Financial Services Regulation Committee hearing today (5 February), Reynolds noted that consumers currently hold “hundreds of billions of pounds” in Cash ISAs, and argued that the widely held notion that cash is a good investment needs to be overturned.
According to the most recent figures from HM Revenue & Customs, in the 2022-23 financial year, £71.6bn was subscribed to adult ISAs, with the vast majority (around £40bn) in Cash ISAs.
Allowing people to invest their money “is part of consumer protection”, she said, while being quizzed about the regulators’ secondary objectives of facilitating economic growth and bolstering international competitiveness.
Well done Emma Reynolds for recognising that consumer’s can be protected in the long term by investing in real assets that deliver better returns than cash and debt instruments.
“We have regulated ourselves into a system with zero risk but that is not good for consumers,” the minister argued suggesting that just talking about risk “is not going to help” and that more needs to be done to encourage risk-taking.
She noted that in other countries, there is a much more open view around investing, noting the Australian superannuation fund and American 401k.
“We need to create an investment culture in the UK”, one that recognises the need to take on more investment risk in favour of greater returns, as “we certainly lack it”, she added.
When asked about how to practically go about introducing greater risk appetite in the system, as the committee argued the Financial Conduct Authority may not want to be at the receiving end when things go wrong, Reynolds said that parliament needs to play an active role as much as the government and regulators do.
“There are always risks of things going wrong […] but risks need to be proportionate to the actors.”
Emma may remember a time when investment was collective and those who could not afford to invest for themselves, benefited from collective investment that gave them the consumer protection of long term growth without the cost of individual investment.
There are many who read this blog, Labour peers among them, who remember a time when wealth started building up so that those who needed help in later life, could have it , with the benefit of professional investment and the management of people who understood pensions. That is a world that still exists though it has been unable to grow for much of the past 25 years by a regulatory culture set against the kind of investment that existed last century.
A regulatory secretary at the Treasury moved the hearing’s focus onto financial services firms, calling for the greater risk-taking approach to be extended to institutions and not only onto consumers.
Catherine McCloskey agreed that firms should be encouraged to take on more risk
“where appropriate” and that the onus for such a shift in attitudes should not only rely on consumers. Ultimately, she continued, “it is up to businesses to determine their risk appetite but we are keen to encourage them to look at it”.
Reynolds agreed that there was a problem with driving investment into the UK, after the committee highlighted that most domestic companies nowadays can only manage to raise funding from international players.
“There are things the government can do to facilitate the pipeline of investment”, she said, pointing to the recent reforms to defined contribution schemes and the Mansion House compact encouraging pension funds to invest more in private assets and with more of a home bias.
It would seem that the attitude of Rachel Reeve is now a Treasury attitude. Our pension minister is part DWP and part Treasury. We are to hear from him (if not earlier) at the PLSA Conference on March 11-12th.
I look forward to hearing from Torsten Bell and more from the Treasury whose attitude to risk seems to be changing.
hear, hear. Though the elephant in the room is the TPR’s relentless pursuit of de risking over the past decade, which led to the loss of £600 billion for UK pension funds and thus their corporate sponsors.
So who is going to “insure” risk taking pension schemes when it all comes crashing down? I imagine that when that happens (not “if”) it’ll be the Pensioners and other savers who pay the price whilst the alleged financial whizz kids and government ministers just shake their collective heads and say “it’s not our fault, you should have been more careful with your investments”. This is people’s lives in their old age we are talking about, but nobody seems to notice that or care about it!
The simple answer to your point, is that with DC pension pots it is the individual who bears the investment risk and who may have to realise the risk at a fixed point in time (e.g. switching from accumulation to decumulation or even switching from one investment profile to another). In DB arrangements, as we know from experience, it is the scheme sponsor who bears the risk – but in this case, the scheme sponsor has the opportunity to spread the risk over a longer period and if the scheme with new contributions being paid in, the lower purchase price of fresh investment means they are likely to offer higher yields running into the future.