Research reveals 'significant' industry interest in Mansion House reforms

Industry research has revealed “significant interest” in the Mansion House reforms, with the most excitement surrounding plans to further develop collective defined contribution (CDC) schemes.

A poll from Aon found that more than a third (36 per cent) of respondents were most excited about the development and expansion of CDC, while 29 per cent were excited about the package of reforms to traditional defined contribution (DC) schemes.

This included 16 per cent who had particular interest in the proposals around small DC pots consolidation, and 13 per cent who were excited specifically for the proposals to increase the focus on value for money.

Among the other options chosen, running-on defined benefit (DB) schemes with an investment strategy aimed at maximising value for scheme stakeholders - including the sponsor – was the second most popular single reform at 17 per cent.

Aon partner and head of UK pension policy, Matthew Arends, highlighted both the support shown for and the level of engagement with the proposals outlined in the Chancellor’s Mansion House speech as "genuinely significant".

"Most important – and highlighted by the Chancellor as the first golden rule - is that anything proposed has to be with the aim of securing the best possible outcome for pension savers," he continued.

“This key precept lies behind the DC reforms that seek to create a framework for consolidating members’ small pots, aim to increase efficiency and traceability, and intend to enhance the focus on value for money, so that member outcomes are viewed in the round and better decisions can be reached - and not just narrowly in relation to costs.

“Similarly, it is clear that additional ways to extract surplus from ongoing DB schemes are also of interest to scheme stakeholders – provided that the interests of members are protected, too.”

Adding to this, Aon partner and head of CDC, Chintan Gandhi, said: “The Mansion House reforms have added to the momentum around CDC – and that really is to be welcomed.

"The Chancellor has recognised that CDC schemes have the potential both to offer better outcomes and to facilitate wider investment opportunities – one of his key objectives for the broader economy.

“By pooling risk and aspiring, but not guaranteeing, to provide increases to pensions, CDC schemes can help navigate new forms of volatility and hold more return-seeking investments - and over a longer period - than DC and closed DB schemes.

“For investment strategies, this means the time horizon of a typical CDC scheme will be longer than the lifespan of a typical individual DC member - and allows for all members to take a less conservative investment strategy and with a longer time horizon.

"That, in turn, means that CDC can allow members to have access to a wider investment opportunity set than typically seen with closed DB or individual DC schemes.

“Infrastructure is a great example of how this could generate returns and aid the transition to the low carbon economy. However, CDC schemes can go further, including through investment in private equity focused on new and emerging technologies with broader environmental or social impacts – and potentially address the bigger goal of helping grow the UK’s economic prosperity.”

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