pensions minister leaves door open to mandatory UK investments

While speaking at the Pensions and Lifetime Savings Association’s (PLSA) Annual Conference in Liverpool, pensions minister Emma Reynolds did not dismiss the possibility of “mandating” pension fund investment into the UK.

When asked if the government is “in favour” of pension fund investment freedom and is steering clear of mandating such investments in the Pensions Review, Reynolds stated that “all options” are being considered.

“There will be some more clarity around this [in the Pensions Review].

“We’re obviously not going to be micromanaging the decisions that are being made on behalf of their [funds] member, but we do think that there is quite a lot of potential to drive more investment into the UK,” Reynolds told delegates as the government’s budget on 30 October looms.

Chancellor Rachel Reeves launched what she described as a “landmark review” into pensions in July to boost investment, increase pot size and tackle waste in the pensions system. The review is led by Reynolds, who holds a joint role with both the Treasury and the Department for Work and Pensions.

The government announced the first phase of the pensions review in August, focusing on driving scale and consolidation and “tackling the fragmentation and inefficiency” in the £365bn Local Government Pension Scheme (LGPS).

Addressing delegates at the PLSA, the pensions minister confirmed that the government’s initial findings following the consultation on the first phase of the Pensions Review will be published in an interim report this Autumn, with measures released in 2025.

‘Test on fiduciary duty’

Speaking to Room151 on the sidelines of the conference, Neil Mason, the chair of the PLSA’s local authority committee, commented that: “Mandating would be an interesting test on fiduciary duty”.

“I have said previously that we shouldn’t invest in the UK just because the government tells us to as this could seriously undermine our fiduciary duty.”

Mason stressed that what the government should give LGPS funds in the Pension Review is “policy certainty”. “This will give us a structure and allow us to invest domestically. There are so many benefits that we can exploit in domestic markets, that is what I would hope to see from the government,” he said.

“I think if we work constructively with the government, we can and are creating opportunities, and make markets,” Mason added.

‘Carrots, not sticks’

Also speaking on the sidelines of the conference, David Murphy, chief executive of NILGOSC, the administrator for the LGPS in Northern Ireland, told Room151, “The hint that mandating UK investment is not being ruled out is not welcome.

“However, I believe HM Treasury has a good understanding of fiduciary duty and how it applies not only to DC [defined contribution] but also to the LGPS and therefore how legislation could be problematical.

“The government should continue its focus on making the UK more investable rather than forcing investing in the UK.”

Interestingly, in a later session of the day, Lord Alok Sharma, president of COP26 and former UK secretary of state of Business, Energy and Industrial Strategy for the former Conservative government, commented that he is “not a fan of mandating”.

I prefer to offer “carrots, not sticks”, he told delegates.

Canada

Reynolds’ speech to delegates comes as the government hosted its inaugural International Investment Conference at the Guildhall in London on Monday to help “advance opportunities for investment and growth across the country”.

In her speech, Reynolds continuously mentioned and compared UK pension funds to “superfunds” in Canada and other parts of Europe, which have higher allocations to alternatives in comparison to UK funds.

“Looking to Canada and the Netherlands, we see funds from poor pension contributions are invested into a wider range of assets like infrastructure, start-ups and private equity, which can boost returns for the wider economy,” Reynolds said.

Commenting on her reference to Canada, Mason stated: “I do look at the Canada example with a slightly raised eyebrow for two reasons: The investment case for private markets, basically cheap credit, was a specific to a point in time. This case is no longer as strong, and second Canada doesn’t invest all that much in Canada”.

Consolidation and the Maple 8

This also comes as chancellor Rachel Reeves met with the so-called Maple 8, a group of large Canadian schemes in August, to hear how consolidating UK pension funds could boost the economy. With her ambition to create a “Canadian-style” pensions model for the UK’s LGPS.

Talking to Room151, Mason stated that this was a key message that stuck out to him in the pensions minister’s address at the PLSA conference.

“The thing that came through to me was the message which has been very consistent from the government: consolidation.

“We can’t in the LGPS complain about inconsistent policy or messaging from government as their messaging has been very consistent ever since they came to power, in fact, before they came to power,” he added.

It remains unclear whether the government is considering fund consolidation or pooling consolidation within the LGPS, but a significant majority of the sector does not believe either will achieve the government’s ambitions in the anticipated time frame.