Jeremy Hunt, chancellor of the exchequer, has announced plans to bring forward new requirements for defined contribution (DC) schemes and local government pension schemes (LGPS) to publicly disclose the breakdown of their asset allocation in UK equities.
The 2024 Spring Budget report stated that across the pensions industry as a whole, data suggests investment into UK equities has fallen to around 6%.
The government will work closely with the Financial Conduct Authority (FCA) to set requirements for the market.
Requirements for LGPS will be introduced in April 2024. The government will review whether further action will be taken if this data does not demonstrate that UK equity allocations are increasing.
Tim Middleton, director of policy and external affairs, at the Pensions Management Institute, said: “Whilst we remain supportive of initiatives that will increase investment by pension schemes in the UK economy, we are concerned at the implied suggestion that this would involve some form of coercion. We believe that trustees should retain absolute control of their investment policy and would like to see clarification of exactly what the Chancellor is proposing.”
Alison Leslie, head of DC investment at Hymans Robertson, said: “The chancellor’s initiative to disclose investment within the UK is aligned to the Mansion House reforms. The FCA will be concerned that this disclosure may lead to an expectation that more be invested in UK assets where potentially the investment case for doing so doesn’t stack up. There is a friction here potentially between the ambitions of Mansion House and the FCA’s duty to make sure initiatives protect members and the market framework.
“Return drivers are the key consideration of asset allocation decisions alongside diversification and risk management. If the investment case stacks up recommendations will be made to invest in the UK. Many argue however that the case for significant investment in the UK does not currently exist.
“The announcement on benchmarking against other schemes is not unexpected particularly against the largest >£10bn plus in assets. This will drive consolidation in the market. However, consideration still needs to be given to those schemes where, due to structure, it is and has been difficult if not impossible to move, for example those with GMP underpins. A solution to that has not yet presented itself and this remains a big problem.
“We look forward to the consultation to understand better how the Chancellor envisages various aspects of the measures will work.”
Philip Smith, DC Director at TPT Retirement Solutions, said: “There is a risk the government’s policy to force schemes to publish how much they invest in the UK will conflict with its policy to compare scheme investment performance.
“While many trustees will be open to investing more in the UK, we expect they will still prioritise the investment performance, in line with their fiduciary duty.
“However, even if schemes do increase investment into UK equities, it may not provide the boost to the economy that the Chancellor hopes. Many large UK-listed companies such as those in the oil and gas or mining sectors, earn significant amounts of revenue from business overseas.”
