Regulatory change: the gift that keeps on giving

This?article was first published ?on?Actuarial Post .

As a pension policy manager within Aviva’s workplace business, it is my job to keep up to date with regulatory change, so for me Monday 10 July was like Christmas day. At the start of the week, the Chancellor delivered the Mansion House speech, and the following day the Pensions Minister announce a raft of potential reforms impacting UK pension schemes and their members.

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After having unwrapped each government gift, it became apparent there was a key theme running through each one – government’s desire to see pension savings invested in a broader range of assets and in particular, private equity and venture capital. The aim is to help grow fledgling UK companies, the economy more generally, and potentially boost savers’ pension pots.

This was the focus of the Mansion House Pension Compact, which has been signed by several major UK pension scheme providers, including Aviva. Signatories have agreed to an objective of investing 5% of assets held within their default funds in private markets by 2030.

Past performance has shown that private markets have outperformed public equities over the long term, and an assessment by the Government Actuaries Department showed an uplift in pension pots over a 30-year term, especially if fees for private equity investments are negotiated down.

The Department for Work and Pensions (DWP) announced that the small pots solution could be a multiple aggregator model, which has the potential to bring small pots together into a few authorised aggregator firms. This would open the opportunity for aggregators to invest a proportion of those assets in private markets, and the possibility for it to catalyse consolidation within the Master Trust market. The solution would take time to implement, with the potential need for a centralised service to identify which aggregator should receive the small pots, but it is good to see progress.

The theme of private market investment also runs through the value for money framework. The proposal is to disclose the split of assets in default funds across all pension schemes and not just occupational pension schemes, which is currently the case. The aim is to prompt trustees and pension providers to consider their rationale for including - or not including - each of the eight asset classes currently defined by the DWP.

When it comes to helping people make decisions at retirement, the direction of travel is that trustees must offer a range of retirement solutions to meet the retirement income needs of their members either within their scheme or through signposting to another provider. It is proposed that in time this should include decumulation only collective defined contribution (CDC) schemes. This could create a need for trustees and their advisers to carry out due diligence on any schemes they partner with and could be another opportunity to channel investment into private markets.

The focus of all these reforms is on more innovative investment strategies. A raft of new regulation is, in turn, likely to increase pressure on trustees which is recognised in the call for evidence on trustee skills, capability, and culture. The proposal for a registration regime could allow the Pensions Regulator (TPR) to track the training and accreditation status of each individual trustee and ensure they have the necessary skills to deliver what is expected of them.

Trustees who choose to maintain their pension schemes, rather than wind them up, may well find they receive the gift of textbooks and tests to ensure the regulator is satisfied they possess the skills to deliver the best outcomes for members.

Dale Critchley, Policy Manager for Workplace Savings and Retirement, is an expert commentator with over 30 years’ experience in a variety of roles within the workplace benefits market. He is an Aviva spokesperson specialising in issues relating to workplace pensions and is regularly featured in the media.