Pensions - Articles - Pensions can help economic recovery but not as a cash cow


Comment from Steven Cameron, Pensions Director at Aegon, on Andrew Bailey’s comments reported yesterday in the Financial Times on loosening regulations on pension schemes to enable them to invest in higher long-term productive investments, many of which may be less liquid than typical pension assets.

 Steven Cameron, Pensions Director at Aegon said: “It’s good to see the Government recognise the important role pension schemes and their investments play in supporting the UK economy and its recovery from the pandemic crisis. This makes a positive change from the focus in parts of Government often being on how to reduce the tax relief pension savers receive on their contributions.

 “The Bank of England is joining the Government in looking at how to remove barriers or offer ‘encouragement’ so that pension schemes invest more in illiquid investments. This is a worthwhile aim, but it mustn’t take priority over the trustees’ key duty to act in the best interest of members. It’s only the largest pension schemes which are likely to see such investments as viable and this is one reason why the Government is separately looking to drive scheme consolidation so there are fewer, but larger defined contribution pension schemes.

 “Unlike defined benefit schemes, modern defined contribution schemes allow their members to view the value of their pension pot, and switch between funds, on a daily basis. Furthermore, members have a legal right to transfer their pension to other schemes and under pension freedoms can draw their retirement benefits at any time from age 55. Pension rules don’t permit the scheme to defer paying out, which does create issues if part of a member’s entitlement is invested in illiquid investments.

 “Separately, the financial regulator, the FCA has been consulting on introducing mandatory notice periods to property funds to avoid these having to hold large holdings in liquid assets to protect against a spike in encashments. Unfortunately, this would exacerbate issues for defined contribution pension schemes and rather than leading to a greater investment in illiquid assets, could actually reduce their willingness to invest in
  

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