Pensions Expert’s full round up of what chancellor Jeremy Hunt said in his Budget speech, how the industry reacted, and more key data and information.

Chancellor Jeremy Hunt laid out a number of pensions-related measures in his Budget speech to parliament on 6 March.

While many had been announced in advance, his speech and the accompanying documents held additional details on plans for boosting investment in the UK, improving value for money, and the controversial ‘pot for life’ proposals.

Pensions Expert has dug into the detail to find out the key points and summarise the initial industry reaction.

UK investment disclosures

What the chancellor said:

Jeremy Hunt reaffirmed the announcement over the weekend that he intended to introduce a reporting regime for pension schemes to disclose their allocations to UK equities.

“I remain concerned that other markets such as Australia generate better returns for pension savers with more effective investment strategies and more investment in high quality domestic growth stocks,” the chancellor said in his speech to parliament.

“I will introduce new requirements for defined contribution [DC] and local government pension funds to disclose publicly their level of international and UK equity investments. I will then consider what further action should be taken if we are not on a positive trajectory towards international best practice.”

The Financial Conduct Authority will consult on the reporting requirements in the spring, the Treasury said. Meanwhile, the government said it planned to introduce “equivalent requirements” for the Local Government Pension Scheme “as early as April 2024”.

“The government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing,” the Budget document stated.

What the industry said:

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, said: “While pension schemes already invest very heavily in the UK – approaching a £1trn per year, especially via the gilt market – it makes sense for the government to introduce incentives – regulatory, fiscal or reporting – that attract DC pension fund money towards UK investments, while also ensuring that investment decisions must be taken in the interest of pension savers.”

However, Matt Tickle, chief investment officer at Barnett Waddingham, said the announcement was “an expectation with no incentive”. He added that, in combination with further scrutiny of performance, the poor recent returns from UK equities risked putting defined contribution (DC) schemes in “a remarkably difficult position”, especially given the high proportion of oil and gas companies listed in the UK, which could challenge sustainable investment strategies.

“Pension schemes will not thank Mr Hunt for his announcements today,” Tickle said. “Their responsibility must be to their members, not changing with the winds of government policy or party. But with other changes on the horizon and regulatory pressure coming from all angles, there are some tough months ahead.”

Laura Myers, head of DC at LCP, added that trustees will “fiercely guard their right to invest in the way they think is best for their members rather than increase allocations to UK investments purely because of government pressure”.

Key data:

Private sector defined benefit schemes allocated on average 12.8% of their fixed income portfolios to UK investment grade debt, according to the Pension Protection Fund’s Purple Book data. They allocated on average 7.6% of equity portfolios to UK listed securities. This data did not specify UK assets held in real estate, infrastructure or unlisted strategies.

Meanwhile, DC master trusts allocate an average of 6% to UK equities as of 2023, according to the Pension Policy Institute’s DC Future Book.

Further reading:

Value for money and performance monitoring

What the chancellor said:

At the despatch box, Hunt said: “We will give new powers to the Pensions Regulator and Financial Conduct Authority to ensure better value from defined contribution schemes by judging performance on overall returns not cost.”

Value for money reforms currently being developed by the FCA and the Pensions Regulator (TPR) will “highlight where schemes are focusing on short-term cost savings at the expense of long-term investment outcomes”, the Treasury said, as well as where size and scale may be a barrier to better outcomes.

The FCA’s spring consultation will also cover benchmarking proposals, which the Treasury said should include investment returns, cost and “other metrics”. Schemes will be required to measure their performance against at least two other schemes managing more than £10bn in assets.

The Budget document confirmed that the government intends to give both regulators “the full range of regulatory powers available” to act on poor performers, including a new business ban and even winding up a scheme “where necessary”.

Further reading:

Mansion House Compact

What the chancellor said:

In the Budget document, the government said it was working with the Association of British Insurers (ABI) to “finalise a framework for monitoring progress on the Mansion House Compact ahead of its first anniversary”.

What the industry said:

Hannah Gurga, director general of the ABI, said: “We fully support the chancellor’s focus on encouraging greater investment in the UK, economic growth and putting savers at the heart of decisions…

“We’re delighted to be working with government to finalise a framework for the Mansion House Compact, which aims to increase investment in unlisted equities by 2030.”

Further reading:

Long-Term Investment for Technology and Science (LIFTS)

What the chancellor said:

Hunt said the government wanted to “make sure there are vehicles to make it easier for pension funds to invest in UK growth opportunities”.

The LIFTS proposal was launched last year with the aim of facilitating greater investment into UK science and technology companies, and the first asset managers to participate were announced today (6 March).

Schroders Capital, the specialist private markets arm of UK-listed asset manager Schroders, has been awarded £150m by the British Business Bank to invest into UK science and technology companies, with Phoenix Group matching the investment.

In addition, the British Business Bank has awarded ICG £100m to invest in life sciences companies based in the UK. This is also being matched by Phoenix. The mandates are subject to “ongoing commercial discussions” as well as internal governance processes at the companies involved.

What the industry said:

Andy Briggs, CEO at Phoenix Group, said LIFTS would give his company opportunities to provide “stable, patient capital to the UK’s most innovative businesses to accelerate their growth, while delivering potential higher returns to our customers”.

Louis Taylor, CEO of the British Business Bank, said LIFTS was “a potentially game-changing initiative” that aimed to catalyse more than £1bn of funding for science and technology companies from investors including pension schemes.

Further reading:

‘Pot for life’ proposals

What the chancellor said:

“We will continue to explore how savers could be allowed to take their pension pots with them when they change job,” the chancellor said in parliament.

In the accompanying Budget report, the government stated that it “remains committed to exploring a lifetime provider model” in the long term. It said it would carry out further analysis and industry engagement “to ensure that this would improve outcomes for pension savers”.

What the industry said:

Former pensions minister Sir Steve Webb, partner at LCP, said the wording of the Treasury’s ‘Red Book’ indicated that the government could be reconsidering its initial plan.

“From a heavily trailed announcement in the autumn and talk of a new ‘legal right’ [to choose a pension provider], today’s Budget simply talks about ‘exploring’ the idea, and needing to be sure first that it would improve things for savers,” Webb said.

“Once we see the full consultation response, where there was overwhelming opposition from consumer groups and industry experts, it is to be hoped that this idea will now be quietly dropped.”

In its ongoing discussions, the government should put more work into the potential impact of removing employers from the “heart of pension saving”, said Kate Smith, head of pensions at Aegon. “Most employees are simply not equipped to make the decision to choose their own pension scheme and unless the right protections are put in place, this could mean poorer member outcomes for many,” she added.

Paul Waters, head of DC markets at Hymans Robertson, emphasised that there were already several other ongoing initiatives aimed at addressing fragmentation in the DC market, such as consolidation and the pensions dashboard. These should be the focus of current policy work, he said, while “radical developments like the lifetime pension model should be longer term policy considerations”.

Further reading:

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