The Mansion House Pensions Avalanche
The natural inclination is to ‘do’. It is human instinct. Do something; do anything; do everything. Never is that urge stronger than when what looks like seismic changes appear in the rear-view mirror. The type of changes like those outlined by Chancellor Jeremy Hunt in his Monday night Mansion House speech. His brief stint at the lectern feels like it will lead to some sizable sand shifting.
But rather than instantly flapping to round up the ducks to get them in line, sometimes just letting things unfold can be the wisest cause of action. Acting smart does not necessarily meant acting sharp. And so, if there is one thing we should bear in mind, it is this – until you know exactly what it is you must do, it is best not to rush your fences.
First though, what did the Chancellor say? Well, as many tipped, a high-level framework for what a new pensions investments landscape may look like was outlined. But – as, in fairness, the Chancellor pointed out himself – he simply laid down a direction of travel. The exact route, and even the mode of transport, remain TBC.
There is too much potentially going on to draw it all together neatly here, and so instead, here is a bird’s eye view of what is going on.
The Government is concerned by a (relative) lack of UK-based investment in UK high-growth markets. It is keen to change that. And it thinks that pension funds, with a little cajoling, could be the best way to go about doing so.
Pension savers will remain at the heart of things, their interests always paramount. Perhaps that should not have needed saying, but the Chancellor said it anyway. But alongside that, there is a keenness to encourage funds to invest in gilts and strengthen the UK’s financial status. Some of the barriers to investment entry will be removed. This should increase the appetite for (a little more) risk, without compromising safety.
Behind the scenes, the Chancellor, the Lord Mayor and the CEOs of some of the country’s largest DC schemes have come up with and then signed up to the “Mansion House Compact”. That involves those schemes, by 2030, allocating at least 5% of their default funds to unlisted equities. That will, it is hoped, lead the other horses to refreshments.
To help with scale, the intention is to consolidate, consolidate, consolidate DC schemes, while for DB schemes, folks are searching for a viable alternative to buy-out. This will allow schemes to manage liabilities while keeping cash invested where the Government wants it.
Trustees are also in their sights, with a suggestion that we need to focus a stronger microscope lens on trustee knowledge and skills. In a more complex market, it’s hard to argue against the idea that those who deal with other people’s money should be “pensions ninjas”. But it’s also important not to put off the very individuals whose help will be needed to make a success of all the other changes.
Now, if you’re reading this, you probably also clocked before the event that the Chancellor’s speech was hardly a secret. And so a glut of papers has been published in the days following – eight, at last count. These include analysis, new consultations, and consultation responses. They cover a variety of topics, from Value for Money to expanding CDC schemes, from consolidating DB schemes to the skills, capability and culture of trustees.
If you’re looking for a brief overview of the post-speech literature, then you will find all the details in our Alert.
Otherwise, please know that we at Sackers – plus your investment consultants, your actuaries, and other advisers – are here to help you. It is our role to distil all the fresh information and filter the most important bits directly to you.
And the ‘important’ bits will differ depending on who you are and where you are at. The expansion of DB consolidation will not pique your interest if your scheme is DC only. Likewise, if you’re a DB scheme on the cusp of buy-in, keeping up with CDC scheme developments will not top your priority list. If you’re reading this as an employer, your priorities may be very different to your trustee readers. You get the picture – there is no one-size-fits-all approach, and there is certainly no instant solution.
It will take some time for all consultations to close, for proposals to filter through. It will take longer still for decisions to be reached and law enacted. There is no need to be the first past the post at this stage. Frankly, that is not possible – no one knows just where those posts will be nailed in yet.
The Chancellor has removed the cork and decanted the bottle. But like any fine wine, rather than stick it straight into glasses to drink, it needs time to breathe. And there ends the analogy bingo.