The Pension Schemes Bill currently going through Parliament could allow ministers to force pension funds to invest in “high risk assets,” former Pensions Minister Baroness Ros Altmann has warned.
Baroness Altmann says she fears “astonishing powers” in the Bill will government ministers the right to use so-called ‘Henry VIII’ clauses which set no limits on the amount or type of assets which Government could force pension funds to buy.
This could mean ministers ordering pension funds to invest in 'high risk, pet projects' which may suit government political strategy but will leave pension scheme members subject to excessive risk.
She says the House of Lords is fighting to amend the to remove the ‘mandation’ clause that could force pension schemes to invest part of their funds into UK companies.
She wants the ‘mandation’ power to be removed or watered down to the Mansion House Accord limits.
Chancellor Rachel Reeves wants pension schemes to invest part of their funds into UK companies to boost investment in UK business growth.
Baroness Altmann claims that the government wants, “unlimited powers to put workers’ pension funds into high-risk private equity, private credit ‘pet projects’."
She cays Clause 40 of the Pension Schemes Bill, currently going through the House of Lords, contains “astonishing provisions” which would enable Government Ministers to issue diktats to pension schemes that they must invest in whatever projects or assets – and in whatever quantities – ministers decide.
She said: “Mandation is supposedly based on the Mansion House Accord – but it could turn a voluntary agreement into compulsory directions.
“Under the voluntary Mansion House Accord, pension funds have pledged to invest at least 10% in such private or unlisted assets by 2030, with half (at least 5% of the funds) in the UK. Ministers insist these are just ‘backstop’ powers. They will only be used to force schemes to invest as Government dictates, if they don’t do it themselves, so we shouldn’t worry about the Mandation clause. But that is precisely the worry. Once the measure is in Primary Legislation, the Government could use it as it wishes and any assurances about not intending to use it may prove worthless.”
She says the pension providers' investment intentions are dependent on the Government itself complying with several requirements.
The voluntary investment commitments in the Mansion House Accord depend on Government fulfilling certain obligations, such as ensuring pension funds have a good pipeline of investible projects, moving value for money emphasis away from lower costs to better value and encouraging larger scale funds.
However she added: “In practice, however, even if the Government does not deliver its commitments, the new legislation could just force the funds to invest in any assets it tells them to. These could be projects that pension trustees would not wish to back on purely economic or financial grounds, but as this is written into law, they may be unable to refuse.”
There has been significant Parliamentary and industry pushback against the Bill’s extensive ‘Henry VIII powers.’
Pensions UK, the Association of British Insurers (ABI) and other industry bodies have all expressed concern about the wording of the Bill's provision on mandating.