2 March 2024
If you are covering HM Treasury’s embargoed announcement that Jeremy Hunt plans to ask pension funds to publicly disclose how much they invest in UK businesses, please see the following comment from Jon Greer, head of retirement policy at Quilter:
“The Chancellor’s pension fund reforms are aimed squarely at supporting British businesses and the economy, but they also pose some challenges for the workplace pension industry. The new disclosure requirements will increase transparency and accountability, but they will also put pressure on pension funds to justify their asset allocation decisions. The Chancellor will have to walk a fine line between encouraging investment in the UK economy and ensuring that pension funds are not exposed to excessive risks or costs. The government’s consultation with the Financial Conduct Authority will be crucial to strike the right balance and safeguard the interests of both savers and businesses and no doubt there may be some resistance from the FCA if it doesn’t see the disclosure of UK investment necessary to prevent or address a specific consumer harm.
“Though these reforms could have a direct impact on workplace pension savers in terms of outcomes, for the majority it will mean very little. This is because workplace pension saving is driven heavily by inertia and the level of engagement is already known to be very low, and these reforms are unlikely to do anything to change that. However, what it will do is make it easier for policymakers to assess the extent to which default funds are holding UK investments and this is the key point. The UK’s stock market is in relative decline – in the past two decades the number of liquid stocks has been shrinking and trading volumes have stagnated, without pension fund investment the outlook is not encouraging.
“The Chancellor’s pension fund reforms also show the direction of travel ahead of the budget because they signal his intention to boost investment in UK businesses – albeit stopping short of mandating it. This might mean he is more likely to favour the idea of the rumoured ‘British Isa’. It also fits with the government’s Mansion House compact, which urged pension funds to invest at least 5% of their assets in unlisted equity.
“There is nothing inherently wrong with the introduction of a new tax wrapper which offers tax efficiency to people wanting to invest solely in British equities. However, it should not be part of the ISA brand as it complicates something that is already causing issues for consumers. The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance.”
