Superfunds & UK Pensions: Cause for Concern or Game-Changer?

24th July, 2023

  • Will you PLEASE just stop moving?

    Firstly, I, Adrian Kennett feel the need to make a couple of things clear.

    • What follows isn’t necessarily the view of my Employer and shouldn’t be viewed as such.
    • I’m not a particularly political person. I exercise my vote (as I think it is important to recognise the freedom we have in this country to do so), but I honestly don’t have strong feelings towards any particular political party.

    Right, caveats out of the way – lets move on.

    I spend a lot of time sitting on the sofa with my family.  My wife, and two kids.  I’d love to say that we watch decent television, but broadly, we just watch rubbish.  And recently, as I’m sat there I’m drawn to the fact that my kids, despite having done a full school day and after-school sports (which included me demonstrating an astonishing lack of netball ability), can’t sit still.  Their constant movement makes me unsettled.  I can’t focus on the 1% Club. Which matters when I only have thirty seconds to carry out a complicated calculation.

    Why is this relevant to pensions?

    Because politicians can’t sit still.  And as a Trustee, that unsettling fidgeting is causing me a REAL problem.

    The time horizon for pensions saving is long.  Schemes which close to future accrual today may well still be paying out benefits in 80+ years.

    Since 2016 we have had eight Ministers for Work and Pensions.  We are on our fourth Under Secretary over that period – that job having been changed from Pensions, to Pensions and Financial Inclusion, to Pensions and Growth and back to “just” Pensions over that period.

    On a different but unrelated note. The Tony Blair Foundation published proposals last month for the future of UK pensions saving.  I refer back to my earlier comments – I’m not a political person. We will therefore skip over the fact that the Foundation, which carries the name of the PM that perhaps did the most damage to defined benefit savings in history (the removal of Advanced Corporation Tax, the drive towards buy-out pricing and funding and therefore the start of the move away from equities into gilts). This foundation is now suggesting what is effectively the nationalisation of UK pensions as the solution to the UK’s economic problems.

    Under the Foundation’s proposals, “superfunds” would be established into which schemes and their remaining recovery plan contributions (calculated on a to-be-determined basis) would be paid, and Employers would be freed from those final salary obligations.  Those superfunds would invest in corporate UK.  And apparently everyone is a winner (apart from perhaps those employed in what is currently the UK pensions industry).

    The Foundation’s proposals appear to have some form of cross-party support.  The current system is broken and does need to be fixed.  The relative position of UK PLC has gone backwards this century.

    Returning to mainstream politics

    Let’s now roll forward to a couple of weeks ago. The Chancellor in his Mansion House speech setting out a vast array of initiatives against the backdrop of unlocking £75bn of pension scheme assets to support UK Growth.

    In the Year 2000, UK Pension Schemes had about 60% in Equities.  Roll forward to today and we stand at less than 20%.  The Government’s answer appears to be “lets re-risk the system” to the benefit of corporate UK (I’m being deliberately provocative there).  Let’s have a market with economies of scale.  A common theme now appears to be developing…

    So, for Trustees – where does this leave us?

    I would suggest that it leaves us sitting on our sofa or otherwise, very uncomfortably.

    How are we meant to plan for our schemes, which have that long time horizon, when there are such noises about the fundamental reshaping of the UK pensions market? How can we look an employer in the eye and say “you have to fund this in full” when no-one clearly knows what “in full” is going to mean if this superfund thing takes off? And how, amidst this uncertainty, do we decide long-term objectives where buy-out may no longer be the default nor the ‘gold-standard’.

    What is going to be more secure?  An insurance policy provided by a UK insurer, with the backstop of FSCS protection, or a “superfund” investing in UK corporate sector? Will the government have to underwrite the backstop to the superfund?

    Politicians have repeatedly tweaked pensions legislation – much of which has protected UK savers (e.g. the introduction of the PPF).  However, the massive uncertainty created by the fact that we have politicians that work to a five year re-election timeframe, and a savings system working over lifetimes is resulting in potentially sub-optimal trustee decision-making.

    Take another example whilst I’m at it.  The Annual and Lifetime Allowances.  Scrapped by the Government in April.  But Labour say they will bring it back.  Where does that leave the plans of people potentially impacted??

    Can we please get to a situation where there is stability which enables people to plan.  If Governments need to do something to adjust the performance of the UK economy, don’t look solely to the ‘soft-target’ of the savings of those who have worked in the past to fix it.  Share the effort with those that work in the future.  Get some cross-party support to stability.

    If you need to change things, take a knife to the lot and do it once.  Not death by a thousand cuts.

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    • Published byAdrian Kennett

      Adrian is a Director of Dalriada Trustees, head of our ongoing Trusteeship practice and an Accredited Professional Trustee. During his 26 years in the pensions industry he has been appointed to some of the most challenging Trusteeship cases, led teams...

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