UK pensions minister adamant government will not mandate investment

The UK government has included a ‘reserve power’ mechanism in the new Pension Schemes Bill, which will give it the power to mandate specific asset allocations; however, the pensions minister is adamant he does not envisage using it.

The government has toyed with the idea of mandating private market investment for some time now. The pensions industry has breathed a sigh of relief when the Mansion House Accord was introduced as a voluntary initiative, and in the final report on the Pensions Investment Review, the government said it was “not necessary currently to mandate investment” in UK private markets.

However, the Pension Schemes Bill launched in Parliament yesterday includes a controversial provision that would allow the government to mandate how pension funds invest. However, speaking to the press yesterday, UK pensions minister Torsten Bell said he does not envisage using the power “at all”.

“The industry has done a good job in setting out what it thinks is in the best interests of its members, and the schemes that have signed up to the Mansion House Accord are the ones that are doing that,” he said.

“Lots of them want to go beyond the baseline metrics that have been set out, but that’s for individual schemes to decide,” he added.

Bell said this is about “very broad asset classes” and different schemes will make different choices, but he warned that the UK pensions industry has a “collective action problem”.

He said he wants the whole industry moving towards this goal, rather than some providers sticking with a “status quo”, focusing on costs and charges. he added that the Mansion House Accord provides the industry with certainty.

Bell has noted that there have been no initial concerns from pension funds around potential mandation.

However, Mansion House Compact signatories have previously expressed concern over the possibility that the government would instruct pension funds to increase their investment allocations to productive assets, noting that it could lead to unintended consequences.

Reacting to the new Bill, Helyne Slade, head of DC investment at Isio, said: “We are pleased to see that private markets investing hasn’t been mandated, but note the government reserves power to do so in the future. We have some concerns about this power as, while in principle private markets could lead to improved outcomes, it is all in the implementation. Doing it badly could be worse for members than not doing it at all.”

Tim Box, chair at the Pensions Management Institute’s policy and public affairs working group, added that he is “disappointed to see the reserve power included in the Bill. He said: “Trustees’ current fiduciary duties towards their scheme members should remain their primary concern when making investment decisions.”

Read the digital edition of IPE’s latest magazine