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Poorly performing pension schemes will be banned from taking on new business as part of a major shake-up of Britain’s £120bn workplace pensions market, under Government plans unveiled ahead of next week’s Budget.
Chancellor Jeremy Hunt on Saturday announced measures to improve the returns of millions of savers by forcing superannuation funds to publish data comparing their performance with that of rivals, a requirement successfully introduced in Australia.
The Pension Regulator (TPR) and the Financial Conduct Authority (FCA) would have “a full range of intervention powers” to manage poorly performing pension funds, the Treasury said. Such powers could include a ban on funds taking on new business by employers.
The pension reforms are part of Hunt’s efforts to stimulate the economy and will include a requirement for so-called defined contribution pension funds to disclose how much they invest in the UK from 2027.
“We have already set out on a journey to boost growth, unlock capital for our most promising businesses and improve outcomes for savers – and these new rules allow employers and savers to see how their money is being invested and how returns compare to other programs,” Hunt said.
“UK pension funds appear to contribute less to the UK economy than their international counterparts as they invest less in our domestic businesses. These requirements will help focus attention on how to improve overall returns and outcomes for savers.”
Nausicaa Delfas, chief executive of The Pensions Regulator, said that with greater disclosure helping to stimulate competition between schemes, and greater powers to crack down on poor performers, “we can really deliver for savers, now and in future”.
Yvonne Braun, director of long-term savings at the Association of British Insurers, welcomed the plan to compare the performance of pension providers. You said that “focusing the pension system on value rather than just costs will be extremely beneficial for savers”.
Take-up of company pensions has grown by more than 10 million since reforms requiring employers to automatically enroll staff in company pension plans came into force in 2012, with around £116 billion invested each year, according to government estimates.
The Treasury said it was introducing mandatory disclosure for investments in the UK because inconsistent reporting by defined contribution pension funds “sometimes makes it difficult for politicians and savers to understand where this money is being invested”.
So-called defined benefit pension funds are already subject to disclosure requirements on their asset allocation.
Further details of the proposed reforms will be set out in a consultation by the Financial Conduct Authority later this year.
The FCA objected to some aspects of Hunt’s disclosure requirements because there was no evidence that consumers or markets were harmed by the absence of such disclosures, the Financial Times reported earlier this week.
Nigel Peaple, spokesperson for the Pensions and Lifetime Savings Association, the workplace pensions trade body, said: “Investment must be in the interests of pension savers and we look forward to working with the Government and the FCA to define the right reference parameters”.
Additional reporting by Ian Smith