Torsten Bell, the UK pensions minister, has claimed that the controversial ‘reserve power’ element of the Pension Schemes Bill will ensure change happens and commitments are delivered.
During this week’s evidence session for the Pension Schemes Bill, Bell said savers would be better served by change, claiming that it does not make sense that the UK industry is a “complete outlier” compared to other pension systems around the world and its exposure to a wider range of assets.
He pondered: “Is there a good reason why the UK [defined contribution] DC pension landscape has a particularly large exposure to equities, rather than to a wider range of assets that we see around the rest of the world? No.”
This is why Bell said the Mansion House Accord was created, and alongside scale measures, value for money measures and other approaches, it will facilitate a greater exposure to a wider range of assets.
“The industry is saying that is what is in savers’ interest, and they are right to do so. And ultimately, we’ve got to step back and say, Look, we’re not in the business of just making individual, random decisions about the pension system.”
He added that the objectives set out by the voluntary Mansion House Accord – which will see signatories invest 10% of their default funds in private markets, with 5% directed towards UK investments – are low compared to other countries.
Bell claimed that in private, the industry is “very clear” that there is a risk of a collective action problem, pointing out that the commitments set by the Mansion House Compact under the previous government have not been delivering.
“And why have they not been delivering? Because of the collective action problem, of the risk of being undercut by somebody else that isn’t making that change, because of the nature of a market which is too focused on cost and not enough focused on returns,” he explained.
“There is a reason the first Mansion House Compact wasn’t delivered. Do we want to be here in 15 years and say: ‘Well, actually, we all signed up to it. We all said it needed to happen, but it hasn’t.’ ?”
He answered: “No, I’m not prepared to do that. So change is going to come. Everybody says change needs to come because it’s in members’ interests, and all the reserve power does is to say it is going to happen.”
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