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IMA warns MPs against pensions over-regulation

by William Robins on Nov 20, 2012 at 17:30

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.’

2 comments so far. Why not have your say?

David Botterill-Scott

Nov 21, 2012 at 12:21

It's about time the medlers remembered that pension schemes are not a right, they are a benefit that is intended to reward loyalty.

The provider of the benefit should be allowed to structure it as they see fit, and is likely to try to do the best they can to make it a real and genuine benefit by acheiving decent returns without taking undue risks.

Overcaution may lead to poorer long-term returns, which will diminish the perception of the benefit, and mean that more employees are likely to opt out and either do their own thing or simply not bother.

They'll be telling car manefacturers to mechanically limit their cars to do no more than 70 mph next.

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Richard Hardy

Nov 21, 2012 at 16:29

That' will exclude regulation of MP's pensions of course!!

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