‘Challenging balance to strike’: Industry reacts to Pensions Review

The first phase of the review, which will begin this week with a series of industry engagement meetings, will focus on ways to encourage pension schemes to invest in UK productive assets.

It will also feed into the development of the Pension Schemes Bill, announced in the King’s Speech last week.

Adrian Kennett, director at Dalriada Trustees, welcomed the flurry of activity inside the first few weeks of the new administration, but warned that there was “a challenging balance to be struck”.

“On the one hand, investment in productive assets in the UK might provide attractive returns for pension savers,” he said. “On the other hand, mandating an investment in potentially sub-optimal assets, while it might help balance the chancellor's books, isn't going to help deliver for pensioners.

“It must be very tempting for the incoming chancellor to seek control of the assets in UK schemes during challenging economic times.”

Patrick Luthi, CEO of NOW Pensions, said there was an “urgent need for a strategic and consensus-driven approach” to addressing the UK’s pension issues.

“It will be key for member outcomes to remain front and centre of initiatives – both in terms of investment policy, and also the delivery of initiatives such as Value for Money. Maintaining the primacy of fiduciary duty will help ensure that focus,” he said.

“Creating a sustainable future for members must also remain a fundamental priority, and we are keen to see integration of this imperative in any new investment policy developments.”

Maintaining a member focus

The second phase of the Pensions Review, slated for later this year according to Saturday’s announcement, will focus more on improving retirement outcomes.

Maggie Rodger, co-chair of the Association of Member Nominated Trustees (AMNT), said: “We are pleased to see a clear focus on scheme members, particularly in the wish to see better outcomes as soon as possible for defined contribution (DC) pension savers.”

Rodger said the association would continue to engage with the Department for Work and Pensions and in industry roundtables on the reforms to “advocate for good retirement outcomes for all workers”.

“Discussion is good but delivery is key,” she said.

NOW Pensions’ Luthi called for the second phase of the review to focus on a “roadmap for the future of automatic enrolment” as well as a more strategic approach to policy development and “key safeguards” to keep members at the centre of decision making.

LGPS consolidation

One of the biggest aspects of the first phase of the review was the government’s intention to address “fragmentation and waste” within the Local Government Pension Scheme (LGPS).

Iain Campbell, head of LGPS investment at Hymans Robertson, said his company had previously highlighted “significant savings” that could be made through “delivering better value for money”.

“Pooling is high on the agenda to help meet this end,” Campbell said. “Work has already begun on refining how funds should approach pooling and our recommendation is that it's a good thing, but care needs to be taken that funds are allowed to continue to take an approach that suits their needs.”

He added that any changes needed to balance “efficiency, diversification and resilience” for the benefit of LGPS members and taxpayers.

“This will allow the LGPS to continue to go from strength to strength, while exploring further ways to make savings and delivering on their purpose of paying pensions and maintaining stable contribution rates for employers,” Campbell concluded. “Now is a great time to take stock and seek to go further, together.”

Further reading

Chancellor fires starting gun on Pensions Review (22 July 2024)

‘Fragmentation and waste’: Government sets sights on LGPS (22 July 2024)

What is – and isn’t – in Labour’s Pension Schemes Bill (17 July 2024)

Chancellor vows ‘big bang on growth’ to boost investment and savings (government statement, 20 July 2024)