Pension providers call for stronger regulation of advisers

Investment and employee benefits consultants should be regulated more closely and brought within the pensions industry’s value for money framework, according to pension providers.

The Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI) made the call for greater scrutiny in a wide-ranging joint statement aimed at facilitating greater investment into growth assets and strengthening the UK pension system.

The trade bodies said investment consultants should be brought within the regulatory remit of the Financial Conduct Authority (FCA) – a move that was initially recommended by the Competition and Markets Authority in 2019 following its review of investment consultants and fiduciary managers.

“The quality of external advice is crucial to decision making, both when trustees make investment decisions, and when employers choose a pension scheme for their staff,” the PLSA and ABI stated.

Regulating investment consultants, including bringing them into scope of the value for money framework, would “ensure strong and uniform standards across the investment management industry”, the associations said.

They also urged the government to scrutinise how employers select master trusts, including any advice received from corporate financial advisers, “to ensure the recommendations are based on value for money and saver outcomes, rather than costs alone”.

Employee benefit consultants should also be regulated to ensure they too focus on value for money and member outcomes, the trade bodies said.

The PLSA and ABI recommendations

The call formed part of a wider set of recommendations for the UK pension system to help make progress on the Mansion House Compact, including changes to regulations to ensure they “work better for investment and savers”.

They called for amendments to defined contribution regulation to ensure value for money guidelines focus on performance rather than cost, which would help facilitate more investment into illiquid assets such as venture capital and private equity.

The associations also emphasised the need for “high corporate governance standards” to be maintained.

On investment opportunities in UK growth assets, the trade bodies urged more collaboration between government and the private sector to reduce the barriers to investment in unlisted assets.

Increasing the flow of capital to growth assets and “productive finance” also meant reviewing contributions levels and pension scheme scale. The PLSA and ABI urged the government to press ahead with expanding access to auto-enrolment and raising the minimum contribution level. This would help to grow the overall pool of capital in UK schemes that could be allocated to productive finance.

The associations also called for consolidation of small schemes to continue as this would improve scale and the ability of schemes to invest in illiquid assets. However, they emphasised that this should be done “in the best interests of members”.

Nigel Peaple, director of policy and advocacy at the PLSA, said the recommendations were “the right way to support growth in the UK and to look after the interests of pension scheme members”.

Yvonne Braun, the ABI’s director of long-term savings policy, added: “We need to ensure people save enough, regulation works, there is an effective pipeline of investment opportunities, and much greater consolidation. All this will drive UK growth, and we will continue to work with our partners at PLSA and with government to advance this agenda.”

Investment freedom

The joint statement follows research published by the PLSA ahead of its annual investment conference that showed most pension funds were open to investing more in the UK.

The trade body’s survey of 113 pension fund managers found that 70% would increase their UK allocations if the government introduced “specific fiscal incentives”.

However, respondents also strongly supported continued independence with regard to investment decision-making. The PLSA said schemes “believe firmly in the importance of always ensuring the outcomes benefit scheme members” as a priority.

While schemes are open to investing in UK growth assets and supporting sustainability initiatives such as the government’s Green Transition projects, such investments should always be in members’ best interests and should not be mandated, the research indicated.