The government has tabled an amendment that would modify the reserve mandation power over defined contribution defaults to limit this to what was agreed in the Mansion House Accord.  

The government is reinstating the temporary power for ministers to tell multi-employer DC schemes how to invest default funds, but with new percentage limits. Last month, pensions minister Torsten Bell indicated that the power would stay but reflect the Mansion House Accord, whereby schemes had agreed to invest 10% of savers’ money in ‘productive finance’, half of this in the UK.

The amendment softens the mandation power over fears that future governments would get too much sway over pension funds. Critics of this limited mandation power pointed out previously that mandating something that was agreed on a voluntary basis defeats the object of making such deals voluntary.  

After months of industry lobbying and debate in parliament, the Lords had removed the controversial power from the bill, which many feel would undermine trustees’ fiduciary duty.

As the pension schemes bill is set to return to the House of Commons next week, the government, which holds a large majority in the Commons, has overturned nearly all other amendments.  

The amendment addresses the most serious concern and brings the legislation in line with the government’s stated intention of acting only as a backstop to the Mansion House Accord, said Pensions UK’s chief executive Julian Mund, noting the association is pleased the government is listening to concerns.   

However, he added: “We would like, in addition, to see the sunset clause brought forward to lessen the political risk attached to the power.”  

Pensions UK had previously called for the power to end in 2032 instead of 2035. The next election must be called in 2029 at the latest.   

Mund said that Pensions UK remains opposed in principle to the government directing how DC schemes invest savers’ money. He said the group is “concerned by the precedent set by the inclusion of any reserve power”, noting that schemes are already committed to delivering the Mansion House Accord.   

Pensions UK will be publish its thoughts on how the delivery of the investment aims can be supported by the government and its agencies later this spring, as the Accord is contingent on there being suitable investment opportunities for schemes.  

The Society of Pension Professionals has called the amendment a “practical compromise”. 

 

“As the pension schemes bill reaches its final stages of consideration, we appreciate that whilst the Lords had voted for the mandation power to be removed, a practical compromise ensuring that the mandation power is brought into line with the Mansion House Accord, does demonstrate that the government has listened to the pensions industry on this vitally important issue and is a welcome, practical solution to what we acknowledge is a complex matter,” said SPP president Sophia Singleton.