The Government must move more quickly to reform the UK pensions market if a ‘superfund’ that pumps cash into shares is to become a reality, experts have warned.
City figures are pushing for changes to the UK’s legacy £1.4 trillion ‘final salary’ pension market to boost wealth growth and bring capital into the stock market.
In a consultation in July, the Department for Work and Pensions revealed plans for a major overhaul of the market, including increasing the role of the Pension Protection Fund to act as a central body that can absorb and consolidate other schemes.
A consolidated ‘superfund’ made up of the UK’s fragmented pension schemes has been floated as a possible solution to the lack of investment in domestic companies.
There has been a stir in the market amid widespread changes in efforts to invest pension cash in domestic companies. Pension investment in UK companies has declined over the past two decades, and only four percent of the market is now held by pension funds, up from 39 percent in 2000.
However, experts have now warned that the market needs to be more fundamentally redesigned if ministers want to boost the flow of cash into the market.
Steve Webb, former pensions minister and now an adviser to the LCP, said, “On the surface, DB superfunds should align perfectly with the government’s desire to have a small number of large pension funds invest for growth.” city am
“But there has been a long period of regulatory uncertainty and there is still no legal framework for the basis on which Superfunds will operate.”
Webb said that, while the government is now “talking more positively about consolidators”, more needs to be done to “give trustees and investors the confidence to move forward”.
The government is hoping to unlock deep pools of pension cash in Britain’s retirement funds and emulate the superfunds seen in countries like Australia and Canada, which invest more in domestic companies and get better returns than UK schemes. achieve.
Currently the UK pensions market is far more fragmented, with around 5,200 schemes across the DB with an average of less than £400 million under management. Steps are also being taken to consolidate the UK’s fragmented and newly defined contribution pension market, where around 27,000 schemes currently operate.
Raj Modi, global pensions head at PwC, warned that consolidation is still a “minority game”, and consolidation in the DB market is still some way off under the current regulatory framework.
“There’s some movement over there [The Pensions Regulator] But this is incremental, not transformative,” Modi said. city am,
“There’s nothing so transformative that all the plans say ‘let’s move to consolidation’.”
Ministers are looking to start some movement towards consolidation with the latest consultation. However, the Department for Work and Pensions recognized that moving too quickly could have major negative consequences.
“The Government is keenly aware that changes to the way assets are invested at this level could have a significant impact on the economy, both positive and negative, so we need to proceed with caution and ensure the safety of the UK as a whole. The impact of any suggestions on the economy would need to be understood.” The government had said in July.
The plans have also received vocal support from big-name industry bodies and regulators.
The Prudential Regulation Authority last week expressed concern that regulatory guidelines could slip for funds and force insurers into buy-outs. Speaking to MPs at a Treasury committee hearing, Sam Woods, chief executive of the Prudential Regulation Authority (PRA), concluded that Superfunds are acceptable “as long as they do not weaken the protections of insurance companies”.
The Association of British Insurers has also raised concerns over the Government’s Pension Protection Fund proposals, saying they risked “creating moral hazard in DB scheme decision making” by distorting the fast-growing insurance buy-and-sell market, in which large insurers Buy corporate pension plans.
In a statement to City AM, the Department for Work and Pensions said it was “committed to a permanent regulated Superfund arrangement” and would introduce legislation “as soon as we get parliamentary time”.
A spokesperson said, “This will ensure we maintain momentum and strengthen the legacy of this important innovation.”
Source: www.cityam.com
