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The UK government’s plan for pension reform has been called into question after Bank of England governor Andrew Bailey said he did not think it was appropriate for ministers to mandate investment in British assets.
The pensions schemes bill includes a contentious power to allow regulators to force pension funds to invest a minimum amount in private markets.
The government has said it hopes not to use the “backstop power”, and that plans to consolidate defined contribution (DC) schemes will drive more investment in British infrastructure, property and fast growing companies.
On Wednesday, the BoE governor joined a chorus of criticism against the measure. “We’ve had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful in this effect.”
“However, I do not support mandating, I don’t think that’s appropriate,” Bailey said in a press conference. “I think reforming the pensions industry does require a lot of heavy lifting,” he added, but stressed he hoped any changes would be “natural”.
Sir Steve Webb, a former pensions minister and partner at consultancy LCP, said Bailey “will not have chosen lightly to be so critical of government policy” and his “nuclear” intervention would be unwelcome at the Department for Work and Pensions.
The challenge from the BoE “raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months”, Webb said.
Some pension experts have called on the government to drop the measure in the pensions bill that allows regulators to force a minimum investment amount in private markets, arguing that it is not framed as a reserve power.
“We agree with the governor of the BoE that the best route for increasing pension fund allocation to UK investment is for the sector to work in partnership with government on a voluntarily, market-led basis and in a way that is consistent with member interest,” said Zoe Alexander, director of policy at Pensions UK trade group.
Under a voluntary commitment called the Mansion House Accord, 17 of the UK’s largest DC workplace pension providers have pledged to invest at least 5 per cent of their assets in UK private markets by 2030, provided the assets were sufficiently attractive.
The pensions bill was introduced in parliament last month and had its second reading this week. It is expected to become law next year.
