On 2 March 2024, Chancellor Jeremy Hunt announced further proposals which build on the Mansion House reforms and the recent work around the Value for Money (VFM) framework.
The proposal that has grabbed the headlines is the plan to require defined contribution (DC) schemes to report, from 2027, on their level of investment in the UK, with the aim of encouraging pension schemes to boost investment in the UK economy.
The proposals include:
- a requirement for DC pension schemes to publicly disclose how much they invest in UK businesses, as well as reporting their costs and net investment returns;
- a requirement for DC pension schemes to publicly compare their performance against competitor schemes (including at least two schemes managing at least
£10 billion in assets); and
- tougher intervention powers for the Pensions Regulator and the Financial Conduct Authority which would enable them to prevent poorly-performing schemes from taking on new business from employers.
In addition, the Chancellor confirmed the government’s intention for the VFM framework to be brought in by 2027, which will see DC schemes making standardised disclosures across investment performance, costs and charges, and member communications and service. Current disclosure requirements are inconsistent across the DC market which makes it hard for savers to compare scheme performance and make informed choices regarding their pension savings.
The measures are subject to a consultation by the Financial Conduct Authority, which is expected to be launched in the next few months.
These proposals come at a time when the government is focusing on driving value for money for pension members, following the success of the automatic enrolment rollout. Since the automatic enrolment measures were introduced, the potential pension scheme investment in the UK has risen by around £26 billion over 10 years.
The Chancellor said: “We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers – and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes. British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses.”
Chief Executive of the Pensions Regulator, Nausicaa Delfas, believes that the reforms will spark competition and crack down on underperforming schemes, leading to value for money for pension savers.
CEO of London Stock Exchange plc, Julia Hoggett, remarked: “Investing in UK companies ultimately benefits those companies and the returns they are delivering, which supports the economy and the country in which pension holders live, to everyone’s benefit and in everyone’s interest.”
Although legislation will be required to implement the full proposed reforms, the requirement to disclose UK investments could be implemented under current powers held by the government and the Financial Conduct Authority.
