Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The House of Lords has voted against a law proposed by the government to allow ministers to force pension funds to invest a minimum amount in private assets.
In a vote on Thursday, 217 peers voted to remove a “reserve power” enabling ministers to mandate asset allocation targets from a bill due to become law later this year, compared with 113 in favour of keeping the proposal.
The government has made pension reform a cornerstone of its plans to kick-start the economy, but any indication that policymakers could force pension funds to invest in specific assets has met with fierce resistance.
Last May, ministers co-ordinated a voluntary accord at Mansion House with 17 of the UK’s largest pension providers to invest at least 10 per cent of their assets in private markets by the end of the decade, half of which would be invested in the UK.
The government hopes the commitment — alongside the creation of pension “megafunds” of at least £25bn — will push £50bn of investment into UK scale-up companies, infrastructure and property.
Alongside the Mansion House accord, ministers proposed the “backstop” power to allow regulators — implementing laws set by government — to force schemes to invest a minimum amount in certain assets, including private equity, private debt, venture capital and property.
Baroness Sharon Bowles, a Liberal Democrat peer, told the Lords on Thursday that her objection to the move towards “mandation” was “one of principle, why should the government override trustees?”, adding that the record of intervention was “not good”.
“Nothing prevents a government choosing its preferred assets, including those that no one else will touch, and compelling 22mn savers to invest in them,” Bowles said. “That is not the route to pensions security.”
At a conference in Edinburgh last week hosted by the Pensions UK trade group, pensions minister Torsten Bell said the “only purpose” of the reserve power in the bill was to “backstop the accord goals” and that “we will ensure that is put beyond doubt”.
Bowles said that if the industry did not deliver on the accord, “it will be because opportunities are not there at the right price or at the right risk. Mandation does not solve that — it simply overrides fiduciary and professional judgment.”
Ministers have tried to reassure critics that they have no intention of using the backstop power. The Conservatives have vowed to scrap it if they are in government.
Helen Whately, shadow secretary of state for work and pensions, said mandation was a “power grab that no government should have. Pensions are people’s hard-earned savings, not pots of cash for whatever government of the day to spend on projects.”
The measure is part of the pension schemes bill, which is being scrutinised in the Lords as it makes its way through parliament.
Sir Steve Webb, former pensions minister, said that while it was unlikely the government would drop its plans for a reserve mandation power entirely, it “might be forced to some sort of concession in response to the scale of the defeat today”.
A government spokesperson said the pension reforms would unlock “billions of pounds for the UK economy” and any requirements under the reserve power “will be consistent with the principles of fiduciary duty”.
Leave a comment