The Society of Pension Professionals (SPP) has responded to the HM Treasury/DWP consultation on unlocking growth in the UK pensions market.
The SPP has set out how investments made by UK pension funds already play a vital role in supporting economic growth and are a major source of long-term investment in the UK economy before going on to state, “…the industry broadly agrees it can still do more and is very much committed to doing so, as evidenced by the generally positive manner in which most of the industry has reacted to Government announcements on the need for an increased commitment to productive finance”.
However, the SPP caution that “ some of the current proposals are likely to have unintended consequences for scheme members, whose interests we believe should be at the heart of any pension policy reforms”
The SPP response further warns that, “…it is unclear if a minimum pension fund scale of £25bn AUM is needed or that scale alone will drive any substantial additional investment …in UK productive assets, let alone deliver better saver returns.”
The SPP suggest that to achieve the Government’s desired policy objective of better saver returns, “Government may wish to consider introducing industry league tables, constructed using a concise set of metrics that holistically assess member outcomes and are calculated by an independent trusted source. This would incentivise providers to aim for the size of AUM that would be most conducive to allocating investments with the most attractive net of fee risk-adjusted returns.”
With regard to exemptions, the SPP states that, “… if the Government decides to proceed with a minimum AUM requirement then it should consider a broad exemption for smaller funds that outperform their larger peers; an exempt growth period during which time any new arrangements can focus on building scale; and exemptions for schemes that serve niche markets such as Sharia compliant default arrangements and CDC schemes.”
If Government proceeds with all or any of the proposals in this consultation, the SPP stresses that, “…the sequencing in which these and other proposals are rolled out will make a very significant impact on overall costs and member experience. The SPP therefore urges policy teams to work through the optimal order of events to avoid duplication of cost and …to provide industry with a clear timetable of such sequencing.”
Sophia Singleton, SPP President, said; “We support the Government’s overarching objectives to both invest more in the UK and boost saver returns. However, we aren’t convinced that these proposals are the best way to achieve this."
"A minimum pension fund scale of £25bn AUM isn’t necessarily going to drive additional investment diversification or deliver better saver returns but could lead to unintended consequences of reducing competition, stifling innovation and potentially disadvantaging some minority groups."
"As we have set out in our response, if the Government does decide to proceed with a minimum AUM requirement then it should be at a much lower level and Government should consider a broad exemption for smaller funds that outperform their larger peers; an exempt growth period during which time any new arrangements can focus on building scale; and exemptions for schemes that serve niche markets such as Sharia compliant default arrangements and CDC schemes."
"We share the Government’s desire to make things better as soon as is practicable but getting these policy decisions right is paramount to achieving this.”
The SPP consultation response can be read in full here:
