Pension industry in need of 'big reform' to deliver higher returns, Chancellor says
By Sophie Smith
Chancellor, Jeremy Hunt, has said that Britain’s pension industry is in need of “big reform” to ensure that savers are getting good returns on their pension investments, confirming that work is underway to address these concerns.
According to The Telegraph, Hunt suggested that defined contribution (DC) schemes in particular will provide the “biggest opportunities to unlock investment into high growth British industries”.
The Chancellor also revealed that GlaxoSmithKline chairman, Jonathan Symonds, is currently providing informal advice on the best way to get higher returns on DC pension investments, and has joined the Chancellor’s council of economic advisers, alongside four other economists.
According to The Telegraph, Hunt pointed to the pension systems in Australia and Canada as an example, explaining that the super funds in these countries have the ability to make large scale investments in a range of assets, compared to the UK’s larger number of smaller schemes.
"And countries like Australia and Canada have found a way of making sure that they get better returns by consolidating their pension fund industry in a way that makes it easier for them to invest in unlisted and potentially higher growth vehicles and that’s the thing I think needs to be worked on," he stated.
Hunt was also asked if pension schemes should be forced stock invest in the stock market, as opposed to saver but potentially less rewarding bonds.
Commenting in response, Hunt stated: “It’s not something I would instantly be comfortable with, because I think one of the strengths of the City is that we give financial institutions complete freedom to invest where they think they will get the best returns for the people whose money they’re looking after.
"But we’re looking at all these issues. My concern is that pensioners and future pensioners are not getting the returns that they could expect."
Hunt previously argued that it would be "critical" to unlock DC pension fund investment in his Spring Budget earlier this year, with a consultation on plans for a Long-term Investment for Technology and Science (Lifts) scheme, which will aim to support DC investment into "innovative UK companies", currently underway.
The government has also faced external pressure to encourage greater investment in these areas, with the Capital Markets Industry Taskforce, for instance, arguing that there is "substantial opportunity' to deploy pension capital into UK economy.
Some steps towards this have already been taken, with the Financial Conduct Authority (FCA) recently giving regulatory approval for Schroders to launch the UK’s first Long-term Asset Fund (LTAF), an open-ended investment vehicles designed to help investment in assets such as venture capital, private equity, real estate and infrastructure.
In addition to this, the government recently confirmed plans to exclude performance-based fees from the regulatory charge cap, in an effort to drive DC illiquid investment.
