PLSA SUPPORTS AIMS OF MANSION HOUSE PROPOSALS BUT WARNS OF IMPLEMENTATION ISSUES, UNINTENDED CONSEQUENCES AND CHALLENGING TIMELINES

These are all objectives that the PLSA strongly supports. Further consolidation of pension assets is likely to bring efficiency and governance benefits that will lead to better outcomes for UK savers.

However, we would highlight that the DC scale test as designed will not, on its own, deliver the Government’s core objective of increasing investment in UK productive assets and may have unintended consequences. Responding to separate consultations on the Government’s proposals affecting defined contribution schemes (DC) and the Local Government Pension Scheme (LGPS), the Pensions and Lifetime Savings Association (PLSA) said that there are also aspects of the proposals which would be impractical to implement or risk leading to negative outcomes for savers.

The key points PLSA is seeking to highlight on behalf of its members are outlined for each consultation below.

Pensions Investment Review: Unlocking the UK pensions market for growth

The proposals in the consultation seek to drive scale and the greater efficiency, stronger governance, enhanced investment diversification, and improved bargaining power, it can bring. The PLSA appreciates why Government is looking to accelerate consolidation in DC schemes. Within this, PLSA is very supportive of the proposals for a statutory override on transfers for contract-based schemes, as fragmentation in the GPP market – particularly among legacy products – remains a challenge.

Areas of most concern to PLSA members include:

• The proposals will not in and of themselves lead to more UK investment. There must be an adequate supply of investable assets and delivering broader changes to drive UK growth, such as planning reform, will be key to creating a strong pipeline of opportunities.
• There are numerous drawbacks associated with the minimum size requirements for DC funds related to both the level proposed and the timeframe for meeting it, especially when wider reforms in train are considered. The PLSA is also concerned about the risks of market disruption and loss of schemes which are performing well, delivering good member outcomes, and already allocate to productive assets.
• Existing initiatives, such as value for money, small pots and DC decumulation will themselves have the effect of driving consolidation. Implementing overlapping proposals could be wasteful and compromise the overall efficiency gains intended by the Government.
• The speed and scale of the proposed consolidation could lead to issues of capacity for industry and regulators.
• Rather than scale tests, the PLSA favours greater focus on defining ‘what good looks like’ for the Government in relation to investment in UK productive assets and hopes to work with the industry to this end.
• If scale targets are imposed as proposed, some schemes should be exempt, such as those already allocating to productive finance, hybrid schemes which might have pooled scale across DB and DC, and defaults catering for very specific investment beliefs.
• Additionally, increased competition for assets ahead of a deadline for minimum size requirements would likely lead to a race to the bottom on price, concentrate schemes in the lowest cost investment strategies and act as a disincentive to invest in less liquid asset classes such as infrastructure and private equity.
• The Government should also be careful that any reforms do not stifle innovation or harm the beneficial role employers play in administering pension provision in the UK.

Local Government Pension Scheme (England and Wales): Fit for the future

The Government’s objectives of increasing scale and consolidation in the LGPS, along with improving scheme governance and investment, are broadly welcome. The PLSA supports the Government’s proposal to allow funds to set their own local investment targets within a range rather than imposing a single mandated target. Additionally, the requirement for local authority funds to establish governance and training strategies is a welcome step, as is ensuring that Pension Committee members possess appropriate knowledge and understanding. We also view the requirement for pools to obtain FCA authorisation positively, provided sufficient time is allowed for compliance. These measures collectively enhance governance, capability, and tailored investment approaches.

Areas of most concern to PLSA members include:

• Setting the right asset allocation is the most crucial factor in driving long-term investment returns for a scheme. As LGPS Funds remain accountable to their members, employers and taxpayers they should retain responsibility for strategic asset allocation decisions and setting investment objectives, with pools taking on the responsibility of implementing the strategy.
• The sign-off of the advice given by the pool should permit a review to be conducted by an independent adviser working for the Fund, or a suitably qualified investment consultant to ensure that advice is challenged and there is a debate around the development of the Fund’s strategy.
• It is imperative for pools to be authorised if they are going to be providing advice to Funds. However, not all pools, with their current structures, will have the capacity to fully implement their partner Funds’ investment strategies. Allowances should be made for those pools who are currently building these capacities.
• The 2025 LGPS triennial valuations and the due diligence being asked of pools are some of the issues which will affect timeline compliance. We would support if Government would accept compliance with the deadline if pools showed significant progress with plans in place to comply with the proposals.

Zoe Alexander, Director of Policy and Advocacy at the PLSA, said: “The PLSA strongly supports the Government’s goals of fostering economic growth, driving consolidation and improving outcomes for savers. However, the DC scale test risks unintended market disruption and will not, on its own, deliver investment in UK growth.

“Instead, we urge the Government to carefully consider the sequencing of reforms already in train and focus on increasing the supply of investable UK assets to achieve its aims effectively.

“For the Local Government Pension Scheme, while we support the overall objectives of the reforms, proposals on strategic asset allocation and investment advice require further consideration. Funds must remain accountable to members, employers, and taxpayers for performance. A pragmatic approach will also be essential to ensure compliance within the proposed timeframe.”

Both responses to the consultations on defined contribution schemes and the LGPS can be viewed on the PLSA website.

NOTES TO EDITOR
LGPS MEMBER SURVEY METHODOLOGY

PLSA undertook a survey among its LGPS members. A total of 32 responses were received between 19 November and 3 December 2024.

RESULTS

• 93% of funds in a PLSA survey of its LGPS members preferred to set the strategic asset allocation.
• Two-thirds (65%) of respondents do not favour Funds taking principal advice on investment strategy from the pool, as proposed in the consultation.
• Most of our LGPS Fund members support all pools being regulated by the FCA (74%), since it is perceived to introduce higher standards for pools.
• Almost two-thirds of PLSA LGPS members (59%) regard it as unachievable for pools to move to the new model by March 2026.

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, Senior PR Manager
020 7601 1761 | [email protected]