The Investment Association has set out a series of recommendations it hopes will ensure that reforms undertaken as part of the Government’s Pension Review deliver better retirement outcomes and support economic growth.

UK investment managers look after £2.2trn directly for UK pension schemes and £1.1trn indirectly through insurers. 

The industry body said it wants to ensure that the UK pensions system is fit for purpose to secure the financial futures of individuals across the UK who will rely on their pensions in later life.

It said that by implementing targeted reforms and improving the attractiveness of UK capital markets for all investors, the government can build a new consensus to achieve its growth objectives without having to mandate or direct pension capital.

In a series of 10 recommendations for the UK pensions market, the Investment Association has called for:

• A focus on ‘sophisticated scale’. It said size alone will not set pension schemes up for investment success, there needs to be an emphasis on the importance of strong governance, accountability and appropriate investment expertise as the starting point for delivering the best investment outcomes.
• A cultural change that places long-term outcomes over price when defining value. The IA said ensuring member value through the delivery chain requires both a shift in mindset and a greater focus on the operational issues that are complicating investment allocations, notably daily dealing mechanisms which inhibit access to less liquid or illiquid asset classes.
• More competitive and innovative UK capital markets. The trade body said the government needs to address frictions and disincentives in the UK capital markets that affect the behaviour of all investors, including UK pension schemes – including the abolition of stamp duty on UK listed equities. Increased UK competitiveness will have a significant impact on capital allocation by both domestic and international investors, and in turn boost economic well-being, it said.
• Improved scale and retirement outcomes through increased pension contributions. Scheme consolidation and increasing investment "effectiveness, while important, will not on their own move the dial in terms of better investor outcomes in DC schemes. This will only happen if contribution levels in the DC market are also increased over time.
• A better retirement income experience. New measures should be put in place both to support pension savers in making retirement income decisions, and to enable a new generation of retirement products that are specifically geared towards the provision of retirement income. This will have benefits both for pension savers and the overall availability of investment capital.

Jonathan Lipkin, director, policy, strategy and innovation, the Investment Association, said: “Getting the UK’s pensions system right is crucial for the millions who will rely on their retirement income to live comfortably in later life. Our recommendations outline how a focus on sophisticated scale, a pivot from cost to a wider consideration of long-term value, and greater access to more diversified investments, can help achieve better retirement outcomes."

He said that while pension reform - including higher aggregate contribution levels - can help to create a different dynamic for UK investment, "our recommendations emphasise the importance of a broader approach to make the UK more attractive for both domestic and international investors. The investment management industry is fully committed to help drive the process forward, and we welcome the opportunity to engage with government and policymakers.”