Chancellor Jeremy Hunt announced new regulations for DC pension schemes to disclose investments, introduced a ‘British Isa’ with a £5,000 annual allowance for UK assets, empowered regulators to assess schemes based on overall returns, and promised consultations on ‘pot for life’ measures.
Additionally, he announced a 2 per cent cut in National Insurance Contributions (NIC), reducing the rate from 10 per cent to 8 per cent starting April 6th, with self-employed NIC reduced to 6 per cent.
Hymans Robertson head of DC investment says: “The Chancellor’s initiative to disclose investment within the UK is aligned to the Mansion House reforms. The FCA will be concerned that this disclosure may lead to an expectation that more be invested in UK assets where potentially the investment case for doing so doesn’t stack up. There is a friction here potentially between the ambitions of Mansion House and the FCA’s duty to make sure initiatives protect members and the market framework.
“Return drivers are the key consideration of asset allocation decisions alongside diversification and risk management. If the investment case stacks up recommendations will be made to invest in the UK. Many argue however that the case for significant investment in the UK does not currently exist.
“The announcement on benchmarking against other schemes is not unexpected particularly against the largest >£10bn plus in assets. This will drive consolidation in the market. However, consideration still needs to be given to those schemes where, due to structure, it is and has been difficult if not impossible to move, for example those with GMP underpins. A solution to that has not yet presented itself and this remains a big problem.
“We look forward to the consultation to understand better how the Chancellor envisages various aspects of the measures will work.”
Hymans Robertson head of DC markets Paul Waters says: “Although it’s good that the Government has issued an update on the lifetime provide model, (‘pot for life’), there are a number of other initiatives in play to tackle our fragmented pensions system, such as consolidation and the pensions dashboard, which should be given time to deliver first, before pot for life. Only then will we know if we’re tackling the right problem. Radical developments like the lifetime pension model should be longer term policy considerations.”
WTW Investments business managing director Pieter Steyn says: “Using carrot before stick, the Chancellor is seeking increased UK investments from savers as well as a more pragmatic approach to cost comparison. We agree that value for money rather than lowest cost should be the focus and we welcome greater DC transparency and all efforts that improve savers’ engagement with their pensions. We look forward to participating in the consultations to help drive better retirement outcomes for DC investors.”
Barnett Waddingham chief investment officer Matt Tickle says: “The British ISA offers retail investors an impressive tax incentive to invest in London-listed shares, but the approach with institutional investors is more stick than carrot; an expectation with no incentive, and a threat of ‘further action’ if UK equity allocations don’t increase. Given the poor performance of the FTSE all-share compared to global equities since 2010, and combined with the Chancellor’s focus on returns and value, DC pension schemes are being put into a remarkably difficult position. It’s a rock and a hard place; returns for members versus a political push for a cash injection into the country. What’s more, the UK market is heavily weighted towards oil and gas – further investment into UK equities could disrupt schemes’ existing sustainable investment strategies.
“Pension schemes will not thank Mr Hunt for his announcements today. Their responsibility must be to their members, not changing with the winds of Government policy or party. But with other changes on the horizon and regulatory pressure coming from all angles, there are some tough months ahead.”
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