IMA warns MPs against pensions over-regulation

The Investment Management Association (IMA) has urged MPs not to increase regulation of workplace pensions, warning rigid rules could ‘err on the side of excessive caution’.

In written evidence to the Work and Pensions Select Committee inquiry into workplace pensions the IMA gave its view on a number of key issues, responding to calls for more collective defined contribution (DC) schemes, more cautious investment strategies and regulatory reform.

It said a move to more prescriptive regulation could stifle innovation and would not be appropriate for the way workplace pension investment is carried out.

‘Principles-based regulation should underpin the governance process and a major focus for the scheme decision makers will need to be default fund design. In this respect the nature of investment militates in favour of guidance rather than rigid regulatory requirements. Such requirements might prove unable to keep pace with changing practice and have the potential to err on the side of excessive caution.’

The IMA voiced concerns over low volatility investment strategies, such as that offered by the National Employment Savings Trust, which begins with a cautious approach for members and only increases risk after a few years.

‘We are concerned that an unduly cautious investment strategy could result in reckless conservatism, while guarantees can sometimes be very costly relive to the protection that is really needed,’ it said.

The IMA also called for the development of a ‘universal hub’ which would show people their total state and private pension contributions in one place. It said this mechanism would help individuals and their advisers and could help solve the problem of multiple stranded pension pots.

Responding to calls for more collective DC schemes, where several members pool their contributions into one set of investments, the IMA warned such schemes would be caught between DC and defined benefit (DB) regimes, offering the benefits of neither.

‘We are concerned about the danger that collective DC may offer neither the certainty of DB nor the transparency and portability of pure DC. In particular, the risk of inequitable intergenerational transfers would need to be mitigated and employees would require valuation clarity with respect to moving between schemes.’