With the UK’s collective investment risk appetite decreasing, the Investment Association’s (IA) chief executive officer, Chris Cummings, has called for a shift in the industry’s approach to risk and investments.

Cummings said that regardless of who forms the next UK government, the focus will be on the growth agenda and the industry will be “at the very heart of those discussions”.

Therefore, it is important that “we seek to re-establish the importance of taking appropriate risks” to deliver long-term returns to customers and as a result drive the UK economy through efficient allocation of capital, he added yesterday during his keynote speech at the IA’s annual conference in London.

Cummings proposed changes “for the better of the relationship between our industry and the society that we serve” that leads to a “greater understanding of benefits of long-term investment and ensures millions of citizens lead better lives in retirement because their pensions deliver”.


Cummings claimed that for the past three decades a range of factors have combined to dampen the UK’s collective risk appetite, with the industry taking a “safety first” approach and “taking the precautionary principle beyond a point which it was designed for”.

He said some actions to make some outcomes “more certain” resulted in “different risk emerging elsewhere that I think pose a greater harm to society.”

He added: “It landed us in a place which simply does not align with the needs of our life or economy.”

Cummings pointed out defined benefit (DB) pension derisking as an example, saying that it has “strong internal logic” for individual schemes but “significant” external consequences for UK equity investment and the availability of risk capital.

He said that this has been “much discussed” over the years, and now is the time to define the solution.

Automatic enrolment is another example, according to Cummings who said that while 11 million people were “highly successfully” moved into defined contribution (DC) automatic enrolment schemes, it was done with a “charge cap and a forensic focus on costs”.

He acknowledged that this was done to protect savers but ended up conflating price and value.

“We know they are not the same. We all know this has led to too few opportunities to invest in high-growth areas and access the illiquidity premium. Ultimately risks seeking returns could have been better if the focus had been on deliberate and investment-led process open on focusing on outcomes,” he explained.

Therefore, he said, it’s time to think about safetyism in a new way – “to think about it in terms of a new hierarchy of harm”.

Cummings said the focus is too much on the regulation through the lens of products and services, which leads to a “narrow angle of the individual consumer protection” which he believes creates “greater harm”.

He said: “The risk of doing nothing is worse than the risk of not getting it quite right.”

Three-point plan

Cummings proposed a three-point plan to address this problem.

Firstly, he said that investment should be put at the “front and centre” of the country’s pension system.

“Investment is the beating heart of the pensions world and we need to build on the momentum of the Mansion House [refroms] and the other steps to drive the investment agenda with a focus on DC pensions investing both in public and private markets,” he noted.

Cummings said that while he was “delighted” to see more long-term asset funds being launched, more needs to be done, acknowledging that “some things need to happen to underpin these wider changes”.

These include continuing to “press the case” that value is not the same as cost to make sure that the ecosystem underpins the move to greater value, delivering the investment performance, not focusing merely on cost.

In addition, Cummings said the pensions industry needs to move to a “sophisticated scale”, not just a scale with fewer larger schemes but scale “where asset owners engage with investment managers and sponsors of their high-growth funds”.

He said the industry also needs to address contribution rates.  He said: “We need to build on the phenomenal success of automatic enrolment to get DC pensions to the next level, using behavioural mechanisms such as auto-escalation.

He said that rescaled system will have the firepower to address critical capital for the UK. “This can and should be done with government support but not with government mandation.”

Lastly, he said maximising these changes requires a coherent approach to the structure of the UK’s pension system, including the design of tax incentives.

He said that this is most likely going to be an area of focus for the new government in the coming months, but he added that a fresh approach is needed.

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