The majority of measures in the Pension Schemes Bill will help ensure pension schemes maximise the value they provide to members, remove complexity and reduce the cost of administering pensions, according to Pensions UK, the industry body most recently known as the PLSA.
In a submission to the Pension Schemes Bill Public Bill Committee, Pensions UK welcomed measures to put superfunds on a statutory footing, address the small pots problem, introduce the Value for Money regime and ensure trustees can make choices about the use of defined benefit (DB) surpluses.
However, emphasising pension schemes’ legal obligation to act in the best interests of members, Pensions UK said it believes in a pensions sector that puts fiduciary duty at its heart, with free and open market competition to drive better outcomes for savers.
As such, there are aspects of the bill that raise concerns because they introduce risks, and over the long-term, especially related to broad new powers for the government to direct pension investment.
Therefore, Pensions UK is seeking amendments to safeguard pensions in five areas.
The first addresses defined contribution (DC) mandation.
Here the government has taken a reserve power, with a sunset clause of 2035, to set out how DC Master Trusts invest.
Pensions UK does not believe this power is needed and a voluntary relationship with the industry, as set out in the Mansion House Accord, is a better way to proceed.
Instead, it believes that the sunset clause should at a minimum be limited to 2032, and the legislation governing the amount that funds should invest should be in line with the accord. This sets out that a minimum of 10% of assets should be invested in private markets, half of which (5%) is in the UK.
Two, is on LGPS mandation.
The bill currently provides broad powers for the government to set criteria for how LGPS Pools operate. This could include how pools invest. The pools will manage the money of over 7 million savers, and are large, sophisticated, FCA-authorised investors.
Pensions UK says the government should not be seeking to interfere in how they run their money and the powers in the bill need to be much “more specific about the intention behind the drafting”.
The third point addresses superfunds.
“We are pleased to see the long-awaited statutory regime for Superfunds,” said Pension UK. “We support new provision to deliver secure saver outcomes and hope the changes bring innovation and competition to the market – including new provision from buy-out providers.”
Parts of the current provisions do, however, noted the industry body, cut across fiduciary duty and include anti-competitive measures which should be amended.
“Only trustees, in conjunction with their employer, should decide their end-game solution,” said Pensions UK.
Fourth, is the issue of surplus.
Pensions UK favours giving trustees more flexibility in accessing surplus funds, from well-funded schemes, subject to appropriate safeguards.
“We welcome the statutory override and support provisions that give trustees the authority to decide how surpluses can be released. This will ensure savers’ best interests are protected,” said the group. “We would also support amendments that would allow trustees to use surpluses to enhance DB member benefits, boost DC contributions or establish CDC schemes without the 25% tax penalty being applied.”
Lastly is the Value for Money (VFM) framework.
Pensions UK supports measures to introduce the value for money regime and to establish a new regime to support members in decumulation.
These areas do need further clarification though, said the body. For example, “it is not clear” how the grading criteria for VFM will work at present. This is important because it will determine who can and cannot operate in the market.
Zoe Alexander, director of policy and advocacy at Pensions UK (pictured), said: “We are concerned that broad new powers to direct investment introduce avoidable risks to savers and must be approached with significant caution. The best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not mandatory basis.”
Alexander will give evidence to the Public Bill Committee on 2 September.
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