10 questions that will shape the Pensions Review

The government has published 10 questions designed to inform the first phase of the Pensions Review.

The questions cover consolidation issues for defined contribution (DC) schemes and the Local Government Pension Scheme (LGPS), as well as value for money and domestic investment behaviours and incentives.

Issued jointly by the Treasury, the Department for Work and Pensions and the Ministry of Housing, Communities and Local Government, the questions set out the departments’ priorities for the Pensions Review.

It follows the terms of reference for the review, which were published last month.

For the LGPS, the departments want information and feedback on the relative success of the various pooling models, including data on performance, cost savings and investment in alternative assets.

The review will also “engage extensively on next steps with regard to LGPS consolidation”, the government said, including liaising with funds, pools, trade unions and the Local Government Association.

For DC schemes, the questions include specific requests related to the potential roles of single employer trusts, master trusts and group personal pensions (GPPs) in a more consolidated DC market.

The call for evidence is open until 25 September.

“Once in a generation” opportunity
Patrick Heath-Lay, chief executive officer of People’s Partnership, described the Pensions Review as “a once in a generation chance to shape the future of the UK’s pension system, towards better consumer outcomes and supporting UK growth”.

“It’s important that the review looks at Canada and Australia, which set the gold standard for pension systems, that operate under strong fiduciary governance and produce the kind of outcomes the UK government has said it wants,” he added.

Calum Cooper, head of pension policy innovation at Hymans Robertson, said: “Given DC workplace schemes and the LGPS are important parts of the UK’s retirement savings environment, it is reassuring that the government is seeking information and solutions from the pensions industry, and wider, to ensure it can deliver its policy objectives most effectively.”

He highlighted the consideration of investment returns net of fees, which he said would aid the effective consideration of unlisted equity and infrastructure assets in portfolios as the costs involved in managing these are often higher than for listed assets.

Cooper added: “With already an enviable track record in delivering fantastic saver outcomes and strong investment returns net of fees, we also look forward to helping the LGPS and government identify how to continue this success and contribute to boosting UK growth.

“To do this will require action from the LGPS but also support and input from the government to identify the most effective vehicles and investments.”

The questions that will shape the Pensions Review

The questions in full are:

• What are the potential advantages, and any risks, for UK pension savers and UK economic growth from a more consolidated future DC market consisting of a higher concentration of savers and assets in schemes or providers with scale?
• What should the role of single employer trusts be in a more consolidated future DC market?
• What should the relative role of master trusts and GPPs be in the future pensions landscape? How do the roles and responsibilities of trustees and independent governance committees (IGCs) compare? Which players in a market with more scale are more likely to adopt new investment strategies that include exposure to UK productive assets? Are master trusts (with a fiduciary duty to their members) or GPPs more likely to pursue diversified portfolios and deliver both higher investment in UK productive finance assets and better saver outcomes?
• What are the barriers to commercial or regulation-driven consolidation in the DC market, including competitive and legal factors?
• To what extent has LGPS asset pooling been successful, including specific models of pooling, with respect to delivering improved long-term risk-adjusted returns and capacity to invest in a wider range of asset classes?
• What are the respective roles and relative influence of employers, advisers, trustees/IGCs and pension providers in setting costs in the workplace DC market, and the impact of intense price competition on asset allocation?
• Is there a case for government interventions, aimed at employers or other participants in the market, designed to encourage pension schemes to increase their investment budgets in order to seek higher investment returns from a wider range of asset classes?
• What is the potential for a more consolidated LGPS and workplace DC market, combined with an increased focus on net investment returns (rather than costs), to increase net investment in UK asset classes such as unlisted and listed equity and infrastructure, and the potential impacts of such an increase on UK growth?
• What are the main factors behind changing patterns of UK pension fund investment in UK asset classes (including UK-listed equities), such as past and predicted asset price performance and cost factors?
• Is there a case for establishing additional incentives or requirements aimed at raising the portfolio allocations of DC and LGPS funds to UK assets or particular UK asset classes, taking into account the priorities of the review to improve saver outcomes and boost UK growth? In addition, for the LGPS, there are options to support and incentivise investment in local communities contributing to local and regional growth. What are the options for those incentives and requirements and what are their relative merits and predicted effectiveness?