Default LTAF pension investment proposals 'complete madness'

Government plans to allow workplace pension funds to invest a portion of employees’ savings in the Long-term Asset Fund (LTAF) through a default investment option have been branded “complete madness” by deVere Group CEO and founder, Nigel Green.

Green argued that the rumoured plans underscores ministers’ “seeming willingness to delve into people’s pension pots every which way”, emphasising that whilst it would be possible to opt out of the LTAF, the majority of workers would contribute after enrolling into their default scheme.

Instead, he suggested that Chancellor, Rishi Sunak, should focus on support and expansion policies in order to secure much-needed long-term sustainable economic growth.

The comments were made following reports from The Mail on Sunday, which cited sources as confirming that workplace pension funds could invest a portion of employees' savings in the new fund through a ‘default’ investment option – the standard choice which many select when enrolling in their company pension.

Green warned however that, by its nature, the LTAF will presumably be investing in less liquid and more risky assets, arguing that most members simply trust the default fund to be the best option into which they should invest.

“Workplace pensions are auto-enrolment schemes for UK workers who don’t have other options through their employer,” he stated.

“In effect, they are suggesting that the LTAF should be a core holding for the least sophisticated pension investor in the UK. This is complete madness in my view.”

Green continued: “It appears there are no measures that ministers are not willing to consider to tap people’s pensions. They are, it would appear, plotting another potential grab on hard-earned retirement savings.”

“This is likely to result in billions of pounds automatically running into the fund,” he notes.

“How the government can suggest this is a suitable investment as a ‘default’ fund for all workplace pensions is a mystery to me.

“Everyone can understand the pressing, legitimate need to invest in projects to rebuild the economy following the havoc wreaked by the pandemic, but tapping workplace pensions is not the way to do it.

“These potential and controversial plans by the treasury underscore ministers’ seeming willingness to delve into people’s pension pots every which way.”

Commenting in response to the concerns, a government spokesperson said: “We are passionate about making sure people can get the best outcomes from their pension investment and alongside the Financial Conduct Authority and others we are gathering views to deliver this.”

Indeed, Green's comments were also made amid the Financial Conduct Authority's (FCA) recently-closed consultation, which sought views on plans to lift the 35 per cent cap on illiquid investments that can be held in workplace pension funds where a LTAF forms part of the default defined contribution (DC) arrangement.

The consultation had been broadly welcomed by the pensions industry, although experts have warned that further changes may still be needed to address other barriers, such as issues around daily dealing.

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