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The controversial changes in UK law are not consistent with what the pastors promised, and can hurt the outcomes of millions of savers after retirement, some pension experts warn.
The Pension Plan Bill, which is expected to become law next year, proposes that regulators will empower regulators to invest minimum amounts in private markets to a contribution (DC) scheme defined.
“The provision is not framed as a reserve and does not commit to harming pension savers,” said Charles Landell, former chairman of the Financial Conduct Bureau.
“This is unfortunate. The insistence of intervention seems very unconvincing to begin with. I’m worried that this could undermine trust in pension savings.”
This power is paralleled with the new rule that by 2030, workplace DC schemes must have assets of at least £25 billion in default funds.
Some experts warn that the move to empower regulators will force pension funds and allow them to invest in line with voluntary mansion agreements.
Under the agreement, 17 of the UK’s largest DC workplace pension providers have pledged to invest at least 5% of their assets in the UK private market by 2030 if their assets are attractive enough.
Zoe Alexander, director of policy for the Pension and Lifetime Savings Association Trade Group, said drafting the authority to apply asset allocation tests to the bill “a voluntary commitment of the Mansion House Accord can be a regulator-led condition.”
“The drafting raised concerns as the government previously stated it was intended to maintain its obligations,” Alexander said, adding that state intervention in investment decisions “can erode trust and potentially lead to lower returns.”
The move is part of a broader reform of the government designed to integrate UK fragmented systems and launch kickstarted growth by encouraging more domestic investments with UK funds.
Pension regulators also say they are actively encouraging them to adopt long-term investment strategies that support both member outcomes and national growth.
The ability to set asset allocation targets comes with the December 2035 Sunset clause. The default fund must meet the £25 billion threshold and then the power will expire if it is not already in use.
The government argues that pushing to make more DC workplace funds invest in the private market will improve the outcome of the saver, but its own actuarial sector research shows only a small outperformance of the portfolio with private market holdings.
A person close to the Treasury idea said the power to mandate asset allocation is not expected to be used automatically along with the approval of a default fund, reaching £25 billion.
They said the department is aware of concern that the bill’s provisions are “inadequately clear” in this regard and will modify them as needed.
The Treasury said the authority to set asset allocation targets “is there as a backstop,” adding that “we don’t need to use it as we are confident that the scheme is moving in the right direction and focuses on savings diversification and investment returns.”
