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Government publishes proposals to diversify pension investments

by LLB Reporter
30th Mar 22 11:58 am

The Government this morning published proposals to help pension schemes boost investment diversity.

What our pensions are invested in may not preoccupy our daily thoughts, but it can have a huge impact on our eventual standard of living in retirement and even whether a pension is enough to retire on at all.

So while a policy to boost investment diversity might not bear obvious relevance to our individual retirement plans – it is important. The Government proposal to make it easier for schemes to invest in ‘illiquid’ assets (those that cannot easily be sold) ‘if trustees deem it in members’ interests’, is a key caveat to the proposals. Any changes should be made with the individual interests of millions of savers who could be affected as the top priority and any objectives to boost capital investment for the UK economy second.

“In theory, these measures should boost retirement outcomes. Boosting long-term capital investment in low carbon infrastructure is the ideal preserve of pension funds who can take ultra-long-term views on what to invest in, because they invest over many decades,” Becky O’Connor, Head of Pensions and Savings, interactive investor, said.

“However there is also room for error with these plans, if, for example, any increase in charges to cover the higher costs of more esoteric investments is not eventually met with higher returns from unlocking these new investment opportunities.

“It may be very hard for individual pension investors to tell if any extra charges they are paying – if they are aware of them at all – are leading to higher growth for them.

“The proposals do offer an opportunity for more understanding and engagement with pension investments among members – the idea that someone’s pension pot is also building a low carbon future as well as generating growth is inherently appealing. But that message will only land and encourage people to prioritise pension saving if pension schemes make the most of this chance to build communication with their customers.

“The Government may hope its ‘disclose and explain’ suggested approach will ‘bring greater transparency, consistency and encourage further competition based on overall value’. However this could be wishful thinking.”

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