Alison Leslie, Head of DC Investment, Hymans Robertson says: “It is really good to see the Government making moves to improve value for members of DC Pension schemes, especially where they are in poorly performing arrangements. Scale helps provide the ability to access a wider range of asset classes to generate higher returns for members. Scale should improve value for members across all services including investment. However, care will need to be taken to progress to this. There must be a clear governance process to ensure decisions are made for member benefit. There are many well performing well governed smaller schemes in existence. There is also the risk of stifling innovation if the scale of the mega fund is too high and smaller providers, who are currently innovating, are crowded out.”
David Lane, CEO, TPT Retirement Solutions, said: “The Chancellor has sought to use her Mansion House speech to try and harness the collective power of UK pensions. By driving greater consolidation within both Defined Contribution and LGPS markets, she has sought to create pools of capital with the power to supercharge the UK economy. While scale will inevitably create opportunity, particularly within private markets, trustees will undoubtedly remain acutely aware of their fiduciary duty obligations to their members and focus on the best opportunities agnostic of geography. We hope that the Government will continue to do its part in developing a good pipeline of investable projects in the UK. “The proposed reforms to the DC pension market outlined by the Chancellor in the Mansion House Speech are particularly welcome. If we are to build on the early successes of the Value for Money proposals, we need to drive the weaker performers into the arms of the stronger. It stands to reason that good performance and effective management should attract greater inflows and the new proposals we hope will drive this. By encouraging greater scale however, we need to ensure that the fees, performance, and choice equation is augmented. While having bigger schemes is broadly a good idea, we must recognise that consolidation alone won’t solve many of the challenges we face. The Government needs to achieve a shift in buyer behaviour in the DC market with a focus on delivering high quality outcomes rather than simply driving a race to the bottom.”
Andrew Singh, Head of Public Sector Investment Advisory at Isio, said: “The Chancellor’s Mansion House speech is expected to serve as a defining moment for the future direction of the Local Government Pension Scheme, with significant change anticipated. The government is keenly focused on revitalising the UK economy and boosting productivity, signalling that optimising the use of LGPS assets will be a central part of its strategy. Key considerations on the table appear to include LGPS fund mergers, expedited asset pooling, potential mergers of existing pools, and even mandated investment allocations. While much depends on the specific announcements, the strong funding position and complex structure of the LGPS should not be overlooked in policy-making decisions. Nevertheless, substantial governance and fiscal concerns arise in light of new debt rules under Public Sector Net Financial Liabilities (PSNFL), which bring funded pension liabilities, like those of the LGPS, onto the government’s balance sheet.
“Furthermore, the government’s focus on consolidation raises concerns over indirect influence on LGPS investment decisions. By pooling assets into fewer, larger funds, there is a risk of shifting asset allocation decisions away from local control, potentially compromising the autonomy that has been fundamental to LGPS governance. ”
Colin Cartwright, partner in Aon’s UK Investment practice, said: “Aon welcomes measures that improve returns and governance of pension schemes, and which will be to the good of savers and employers that are contributing to these schemes. We also welcome investment in the UK, but any such investments will need to be able to stand on their own merit from a risk and return perspective if they are to be effective and benefit those savers and employers. We look forward to seeing further details on how these proposed reforms will deliver these important elements.”
Tess Page, Head of UK wealth strategy at Mercer, said: “We are supportive of much of the direction of travel confirmed by the Government ahead of the Mansion House speech, which builds on changes outlined by the Chancellor and in the ongoing Pensions Review. A smaller number of world class schemes, with the scale to invest and support savers, is a welcome vision. “While further consolidation is welcome it is unlikely to be a panacea across the board, and we are surprised not to see more focus on single employer DC schemes, which we think was a missed opportunity. “In the LGPS area we agree there are rational reasons to pool assets to achieve economies of scale, but any potential incremental savings from further consolidation needs to be balanced against the significant costs and disruption consolidation of the existing eight pools would entail.
“Given the previously stated focus on fuelling UK growth, we are surprised not to hear more at this stage on potential incentives and ideas where pension funds could play a bigger role. That said, we are pleased to see that decision making bodies will continue to be able to make investment decisions without mandating certain allocations. However, there still needs to be viable investments in the UK for the funds to invest in to ensure they can achieve the best returns for members. We welcome all initiatives to make it easier for institutional investors to invest at scale in UK opportunities, for example the BBB Growth Fund, National Wealth Fund and the recently announced Social Impact Fund. These should also be combined with incentives, either through the tax system or through other risk sharing mechanisms. Otherwise, decision makers and fund managers are likely to arrive at the same conclusion that there are more attractive investments for their members elsewhere.”
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