Jeremy Hunt wants our investment money.
There has been nothing subtle about the government’s approach over the last four months. The opposite in fact. It has made it very clear it wants to channel pensions and savings funds into UK investments to help kickstart growth in productivity.
On the surface, there is nothing wrong with this aim. The UK economy desperately needs investment, and there is around £4.6 trillion in pensions and insurance assets just ‘sitting around’. Putting the two together is an obvious solution.
However, it’s imperative we don’t forget whose money it is, and what it is there to do. This money belongs to UK people. It’s there to hopefully secure their financial later life.
In announcing his Mansion House Compact – getting at least 5% of workplace pension default funds invested in UK unlisted equities by 2030 – the Chancellor claimed this new approach will boost the average pension pot by 12% or £1,000 a year. Obviously, that has to be taken with a hefty pinch of salt. With the demise of the northern section of HS2 still fresh, it is abundantly clear nothing in UK investment is a ‘gimme’.
Any such investment has to be done in the best interests of members. And most of them haven’t actively bought into this decision, instead just remaining in an automatically enrolled default fund, and trusting the pension scheme won’t mess up this investment. They could end up with 12% growth each year. But they could end up with lower-than-average growth and a higher yearly charge to boot.
Although it started with the Mansion House compact, the Government sees other easy ‘wins’ in the pensions and savings space.
The message that big is beautiful has been hammered home when it comes to talking about pensions regulation. This includes the proposal to solve the small pots problem by building a clearing house to channel funds to the biggest master trusts, and to set the penalty for failing the Value for Money criterion as consolidation. The DWP and The Pensions Regulator want fewer small schemes and bigger better-run ones.
The latest attack on small pension schemes, however, is audacious.
Most pensions schemes in the UK pay a general levy to the DWP each year to pay for The Pensions Regulator, the pension parts of Money and Pensions Service (MaPS) and the Pensions Ombudsman. The DWP wants to impose an additional £10,000 bill for every pension scheme with fewer than 10,000 members. This is going to squeeze many pension schemes out of existence – especially small defined benefit schemes and particularly SSASs. This is ironic. SSAS members are trustees of the scheme, knowledgeable, engaged, and with the schemes’ lower levels of regulation, can be counted as one of the few pension parties who don’t often need the services the general levy is funding.
If the government wants to improve governance in SSASs there are other ways to achieve this – for example requiring a professional trustee. But better governance is perhaps not their primary aim.
Another possible land grab for investment funds may come in the Autumn Statement. There are rumours circulating that the Treasury is considering a ‘GB ISA’, where all or part of ISA funds are directed to UK investment.
AJ Bell has been campaigning for much-needed ISA simplification over the past few years. This creation of another ISA type – bringing the total of ISA types to seven – would be the opposite of simplification.
If the Treasury wants to encourage UK-based investment, then there are other ways to do this – for example by scrapping stamp duty on UK investment or exempting investments in UK companies and funds held in an ISA from inheritance tax.
Directing investment toward the UK could help immensely in boosting the UK economy, bettering all our lives, and could provide a good investment return. But this has to be done with an eye on protecting peoples’ investments and bringing them along on the journey.
So while I understand the government’s aims, to achieve this can we have a little more carrot please, and a lot less stick?
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