British pension funds being forced by the government to buy UK assets would not be the “right thing” and would be akin to using “a sledgehammer to crack a nut”, the boss of Aviva has warned.
Dame Amanda Blanc said on Thursday that defined contribution funds “need to be invested in the interests of the individual pension savers” and that she did not believe ordering schemes was “a necessary strategy because we do think that pension providers are already willing to invest in the UK and are already, as we have proven, doing so”.
Her comments come amid rising tensions between ministers and the retirement industry after it emerged that a forthcoming Treasury review of pensions investments will recommend the government be given the power to mandate, or force, funds to make allocations to certain assets.
• Pension funds could be forced to invest in UK projects
The Treasury could use this power as a stick to ensure the industry adheres to a voluntary agreement struck this week between 17 of Britain’s biggest workplace pension providers, including Aviva, the FTSE 100 insurance and savings giant, and the government to boost schemes’ investments in UK private assets by an estimated £25 billion by 2030.
This has stoked concerns in the industry that the exercising of such a power would create a clash with the fiduciary duty of pension trustees to choose investments that are in the best interests of scheme members.
“Mandation, we do not believe, is the right thing,” Blanc said. She said the government would need to consider the “unintended consequences” and that there was a “chain of people who need to change behaviour”, not just pension funds, if asset allocations were to shift. These included employee benefit consultants, employees and workers, she said.
“It’s like a sledgehammer to crack a nut. You have to be able to get everybody onboard to do the right thing,” she added.
Under what has been called the Mansion House accord, pension groups including Aegon, Legal & General and Phoenix voluntarily committed to allocating at least 10 per cent of their defined contribution default funds to private markets by the end of the decade, with half of this, or 5 per cent, going into the UK.
While private assets such as infrastructure and start-ups are riskier than other investments, they also potentially yield better returns for investors and the government hopes the move will boost savers’ retirement pots, as well as buoying the domestic economy. The Treasury estimated the pledge would provide £50 billion of additional investment, of which half would go directly to Britain.
However, the pension industry caveated its commitment under the accord, saying it was subject to fiduciary duty and dependent on other factors, including the government and regulators paving the way for additional investment.
While it is understood the government does not believe it will need to use any new mandatory power, Rachel Reeves, the chancellor, has not ruled out forcing pension schemes to buy UK assets, saying on Tuesday: “I’m never going to say never, but I don’t think it’s necessary.”
Aviva is in the process of acquiring Direct Line for £3.7 billion
ALAMY
This provoked opposition from pension groups that signed the agreement, including Aon, Mercer and Royal London. However, Blanc, who is one of Britain’s top business leaders, is the highest-profile figure yet to warn against making any such move mandatory.
Blanc was speaking as Aviva reported first-quarter figures that showed general insurance premiums rose 9 per cent year-on-year to £2.9 billion. The company is in the midst of a £3.7 billion takeover of Direct Line, the motor insurer, and the Competition and Markets Authority said on Wednesday that it had started a preliminary inquiry into the deal. Blanc said this was expected and that the transaction would complete in the middle of the year, rather than be held up by a more detailed review by the regulator.
Shares in Aviva closed up 13½p, or 2.4 per cent, at 585½p.
