Pensions Minister, Torsten Bell, has stood firm amid continued concerns surrounding the government’s proposed reserve asset allocation power, arguing that the pensions industry has a collective action problem, which has caused a "failure of fiduciary duty".

During yesterday's (2 September) Pension Schemes Bill Committee hearing, Pensions Management Institute chief of strategy, Helen Forrest Hall, and Society of Pensions Professionals (SPP) president, Sophia Singleton, said that whilst they supported the principles behind the bill, there are still concerns around the reserve power.

The SPP and PMI had also joined a number of industry organisations in calling for the government to address concerns around this proposal ahead of the committee hearings, with industry experts stressing the need for change, including Bank of England governor Andrew Bailey, who cautioned that such an intervention would not be appropriate.

“I do not think we should be interfering with the market; I think it needs to be a free market and, as trustees of pension schemes, we need to be exercising fiduciary duty to choose the right investments for our members and to give the returns,” Singleton said.

However, Bell stood firm on his side, asking both Singleton and Forrest Hall to “reflect on the internal consistency of some of what you have said”.

“Implicit in what you are saying is that pension schemes should have been investing in a wider range of private assets over the course of the past 10 years, and that that is what they should want to be doing in future - so in some ways [the industry has] not been living up to their fiduciary duties in the past, and we are now making changes to do that,” he stated.

“Given that that is the logic, the question is why that has not happened. If you go and ask actual pension providers why that has not happened, they will tell you they have a collective action problem and an industry focused exclusively on cost and not on returns, and that they struggle to deliver against that."

Bell also hit back at claims over a lack of clarity, arguing that the Mansion House Accord provides clarity about the objectives to both industry and savers themselves.

He also pointed out that, when it comes to savers’ interests, the bill includes a carve-out for trustees to say if this isn’t in members’ interests and opt against it.

”Reflect a bit on the consistency of the argument you have made about the real progress you want to see on investment in a wider range of assets....and the changes in the bill," he stated.

Whilst Singleton clarified that the defined contribution (DC) space is "not a mature industry", explaining that operational barriers such as cost have been a historical issue, Bell again disagreed, arguing that "this is not the view of the whole industry, which points to the collective action problem of an exclusive focus on cost".

Singleton acknowledged that "we have said that we need to move the focus from cost to value, and we are seeing that very much come through in the culture within the industry, to be focusing on value".

"The market is moving, going, and will get there," she said, clarifying that "what we are saying is the mandation power is not needed to achieve that, because we are, with your help, getting to the right place".

However, Bell again disagreed, arguing that when you look at the actual history of what has happened, you can see that it is "definitely a failure of fiduciary duty over the past 10 years not ot have made more progress".

"The industry committed to private assets under the previous government, and it is failing to deliver on that because of collective action challenges," he stated. "You have to face up to this at the level of the sector as a whole; I am afraid you are giving answers that are very happy with the status quo, the way you are describing it."

Bell echoed this when asked further about the power by Shadow Economic Secretary, Mark Garnier, who highlighted concerns over whether the inclusion of the power could cause "perverse outcomes in investment management behaviour" purely because it exists, even if it is never used.

Commenting in response, Bell stated: "When you speak to the industry, particularly in private, it is very clear that there is a risk of a collective action problem.

"Under previous Conservative Chancellors, the industry signed up to commitments that it has not been delivering.

"Why has it not been delivering? Because of the collective action problem, because of the risk of being undercut by somebody else who is not making that change, because of the nature of a market that is too focused on cost and not focused enough on returns.

"It is easy to join people in being anxious, but we have to ask ourselves something. There is a reason why the first Mansion House Compact was not delivered.

"Do we want to be here in 15 years saying, “Actually, we all signed up to it and said it needed to happen, but it hasn’t”? No—I am not prepared to do that.

"Change is going to come. Everybody says that change needs to come because it is in members’ interests. All the reserve power does is to say that it is going to happen."

Similar tensions were also seen earlier in the day, as Bell also made comments disagreeing with the idea that mandation is at the "centre" of the bill.

“There is one backstop power and there are a lot of clauses,” he stated, arguing that in reality this provides a comply or explain power, particularly given the carve-out.

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