The British government is set to limit the controversial reserve power clause, which dictates pension funds partially invest in UK-based assets, in its upcoming Pension Schemes Bill.
The government has published an amendment to the bill, which is scheduled to return to the House of Commons on 15 April for consideration of other possible changes added by the House of Lords, the UK’s second chamber.
The amendment limits the extent to which the government can ‘mandate’ how defined contribution (DC) pension schemes invest. This would be limited to no more than 10% of total assets held in default funds and no greater than 5% in UK-based assets.
This is in line with targets introduced by the Mansion House Accord, a voluntary agreement signed by 17 of the UK’s largest DC pension providers to invest more of their assets in unlisted investments both globally and in the UK.
The industry has repeatedly called on the government to remove the clause or amend the sunset clause, which extends beyond the current government.
Despite the government stating it does not intend to use the power, pensions minister Torsten Bell said in March: “The only purpose of the reserve power in the Pension Schemes Bill is to backstop the [Mansion House] Accord goals.”
However, the minister made no commitments to update the sunset clause.
Before returning to the House of Commons for its final stages, the Bill has been debated in the House of Lords over the past few months, where peers voted 217 to 113 to remove the power.
While many pensions experts welcomed the development at the time, the amendment would still have needed to be scrutinised and agreed by the House of Commons.
Julian Mund, chief executive of Pensions UK, said: “Pensions UK firmly supports the passage of the Pension Schemes Bill, which enacts a series of critical reforms in savers’ interests.
“The amendment to the reserve power which mandates DC pension schemes’ asset allocation, addresses our most serious concern and brings the legislation in line with the government’s stated intention of acting only as a backstop to the Mansion House Accord.”
Mund added that Pensions UK would like to see the sunset clause brought forward to lessen the political risk attached to the power.
He said: “These are changes that Pensions UK has consistently called for, should the reserve power remain in the bill, and we are pleased that the government is listening.”
