TPT supports the Government’s objective of increasing scale in workplace pensions in principle but argues that the detailed framework must align with how assets are invested and governed in practice. Measures to increase scale will have to recognise existing scale, measure it consistently and avoid creating artificial distinctions or governance conflicts.
TPT believes the regime should support larger, better-governed investment pools without overriding sound investment design, excluding assets that already contribute to scale, or weakening the accountability of trustee boards. Ultimately, TPT believes that scale should support better outcomes, not become an end in itself. TPT’s specifically calls for the regime to:
Include all assets contributing to the same investment scale: TPT welcomes the proposed Common Investment Strategy (CIS) definition as an appropriate way of identifying where assets share the same investment strategy and decision-making framework. However, where assets satisfy both CIS and same-scheme (connected) criteria, including common governance and investment decision-making, government must not create further arbitrary distinctions based on scheme structure and policy exemption status.
Avoid governance conflicts for connected schemes: The established common-control test is workable, but common ownership alone should not allow separate schemes to aggregate where independent trustee boards set different strategies. Any aggregation should reflect where strategic investment decisions are actually made and avoid creating conflicts between trustee responsibilities.
Define MSDAs by substance: Technical or inadvertent defaults, and differences arising only from charges, administration or sectional structure, should not split what is effectively a single investment proposition. However, genuinely distinct investment strategies should continue to be recognised separately.
Accommodate distinct ethical and belief-based defaults: Where a separate investment strategy is used to satisfy specific member and employer needs, smaller arrangements should be accommodated. The Government should provide greater clarity on what would qualify for this treatment, as forcing consolidation in these cases could move members out of an arrangement designed around those preferences without clear evidence that outcomes would improve.
Ruari Grant, Head of Policy at TPT, said: “We support the Government’s objectives regarding scale in principle, but the framework needs to recognise where scale already exists in practice. Where assets are invested under the same strategy, governance and decision-making framework, their legal or sectional structure should not prevent them from counting towards any scale measurement.
“Ultimately, scale should be a means to achieving better outcomes for members, rather than an end in itself. The rules therefore need to distinguish between artificial fragmentation and genuinely different investment propositions, while giving trustees sufficient flexibility to design strategies that effectively meet members’ needs.”
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