Budget 2024: PwC comments on plans to leverage DC Pension funds

Gareth Henty, Pensions Markets & Services Leader at PwC UK, said:

“Today’s Budget saw the Chancellor wield more stick than carrot when it came to harnessing pension funds to help support the UK economy.

“DC funds will now be required to disclose their UK equity holdings (as will Local Government Pension Schemes), with the FCA set to consult on further requirements. With just 6% of pension assets currently invested in UK equities, the Government has recognised we are far behind other countries on using pensions for domestic investment, and has set out a determination on changing this.

“The Chancellor has laid down the challenge for DC providers and employers to offer pensions that invest an increased proportion of their assets in UK equities, whilst also demonstrating value for money for savers and clearly benchmarked investment returns. How these requirements will dovetail is not entirely obvious, particularly with the threat of winding up for schemes deemed to be offering persistently poor outcomes for savers.

“It is positive to see steps being taken to make alternative assets more accessible to long-term savers, including the confirmed shortlist of Long-term Investment For Technology and Science investment vehicles. This move in particular could see engagement from younger pension savers increase, helping to tackle an ongoing issue in the UK.

“DC schemes will also be required to disclose their net investment returns from 2027 to allow easier comparison of performance between schemes, which could help employees decide whether to stick with their current provider when they move jobs as part of the ‘pot for life’ proposal.

“However, these requirements will create additional operational burden for employers and trustees operating DC pension plans. Not only will employers have to deal with making pension contributions to multiple pension schemes, they will also have to monitor levels of UK investment, be more proactive in monitoring returns and charges and think about where the new LIFTS funds fit, as well as providing education to employees on what this all means. These onerous requirements could be a further nail in the coffin for employers offering their own DC schemes rather than using master trust arrangements.”