Britain’s biggest private pension fund has rejected government proposals to require more investment in domestic assets amid concerns the policy could disadvantage retirees.
The University Retirement System (USS) has warned the Treasury that forcing schemes to increase allocations for UK assets would be “completely inconsistent” with trustees’ duties to deliver the best results for pension savers.
USS manages over £30bn of assets on behalf of hundreds of employers and around 550,000 pension scheme members.
The fund, aimed at university lecturers and other higher education professionals, has almost half of its assets invested in the UK but has warned against a move that forces managers to invest in a particular country or business area. His concerns were echoed by a number of influencers groups representing the banking and finance sector such as The City UK, UK Finance and the Investment Association.
The Investment Association, which represents the fund management sector, said it “potentially risks channeling large amounts of capital to weak prospects”.
The government has sought industry views on whether it could introduce incentives or requirements aimed at increasing pension fund investment in UK assets to boost growth. Rachel Reeves, the chancellor, has pledged to deliver “a big bang of reforms to unlock growth” by overhauling aspects of the pension system. She is due to meet with top financiers including Larry Fink, chief executive and chairman of Blackrock, at the Government Investment Summit today.
Responding to a government review of investment in pension schemes, USS said: “We believe the focus should be on the supply of attractive UK assets rather than trying to stimulate or solicit demand from schemes of pensions.
“Government interventions and incentives should rightly focus on making the UK an attractive place to invest. If there are attractive private or public investment opportunities in the UK, the mechanisms are already largely in place to enable well-governed asset owners to access them. Mandating investment in a particular geography or sector is completely inconsistent with the trustees’ fiduciary duty.”
In its response, UK Finance, which represents the banking and financial services sector, said investment incentives “will inevitably be ineffective when they conflict with this fiduciary duty”. TheCityUK said a mandate “would contravene fiduciary duties” and could “undermine trust in pensions and have a negative impact on the UK’s reputation and attractiveness as an open international financial center with strong governance”.
The group said: “This is doubly true if they were framed as mandatory requirements, which the government should avoid. They must also be compatible with the operation of the consumer duty, which requires a similar focus on the best outcome for the consumer. This may not be compatible with prescriptive approaches to asset allocation.”
The Investment Association said it “will not support formal requirements to increase exposures for a number of reasons.” He added: “Firstly, the investment case must be clear from a fiduciary perspective. Second, a tough mandate would be difficult to calibrate across the pension system as a whole and risks channeling large amounts of capital to weak prospects if there is too much money chasing too few investment opportunities.”
A government spokesman said: “We want to unlock more investment to help grow the UK economy and deliver better returns for savers. The Pensions Review is looking at ways to achieve this and is working closely with stakeholders and the pensions industry.”
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