‘Nuclear’ intervention from Bank of England casts further doubt on government plans to mandate pension scheme investment strategy
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News that the governor of the Bank of England has registered his opposition to Government plans to tell pension schemes how to invest casts doubt on whether these plans will go ahead, according to LCP Partner, Steve Webb.
The Pension Schemes Bill, which was debated in the House of Commons for the first time on Monday (7th July) includes a clause which would allow the Government to tell DC pension schemes how to invest. The aim of the clause, which the government says is a backstop power which it hopes not to use, would be to force schemes to invest a minimum proportion in assets such as UK infrastructure and UK private markets.
So far, progress on driving forward investment in these areas has been via voluntary agreements such as the recent ‘Mansion House Accord’ commitment by 17 schemes and providers to invest 10% in private assets, of which 5% would be in the UK. But the government controversially decided to give itself a power to force schemes to invest in a particular way, partly to put pressure on providers to meet these voluntary commitments.
But the governor of the Bank of England, Andrew Bailey, has today said (according to the Press Association):
“We’ve had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful in this effect. However, I do not support mandating, I don’t think that’s appropriate. I think reforming the pensions industry does require a lot of heavy lifting but it needs to be done.”
He stressed that he hopes changes will be "natural".
Commenting, LCP Partner and former Pensions Minister, Steve Webb said:
“The governor will not have chosen lightly to be so critical of government policy, and his ‘nuclear’ intervention will be very unwelcome at DWP. But the governor speaks for many in thinking that the government is crossing a line if it presses ahead with plans to tell pension schemes how to invest. Whilst pension assets can certainly be used more productively, it is ultimately for the trustees of pension schemes to decide how to invest in the best interests of their members, and not for ministers to tell them how to invest. This challenge raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months”.
