House of Lords to vote on removing Mandation from Pension Schemes Bill - Monday night Ping Pong

• Pension Schemes Bill - Ping Pong on Monday will try to ensure Government pensions power grab does not become law
• House of Lords expected to stand firm against Mandation
• Government has watered down the powers, but it still clearly intends to force reluctant pension funds to invest in high-risk private assets

House of Lords will vote on Pension Schemes Bill Ping Pong on Monday night: After passing important amendments to the Pension Schemes Bill, which would have better protected people's pensions, the Commons has thrown out every single one of them. The Lords will try to reinsert some of the most important changes on Monday evening, when we discuss the Pension Schemes Bill again.

Government has watered down its attempted power grab, so it fits better with the voluntary Mansion House Accord, but pension dangers remain: The Government still seems determined to force reluctant pension managers to invest in private assets, even if pension managers in future decide that these investments are not appropriate for their members. The House of Lords is expected to stand firm against this power grab. It is certainly welcome to see the Government's amendment which changes the apparent unlimited powers with intentions to ‘only' stick to the Mansion House Accord limits. But this still means Ministers can force schemes to invest as Government dictates. Any providers who do not invest at least 10% of their workplace default funds in high-risk unlisted assets (such as private equity, private credit, venture capital and interests in land), with at least half in the UK, will be banned from auto-enrolment. Ministers insist these are just ‘backstop' powers which won't be needed, but that is no reassurance. They will be used to force schemes who decide that investing so much of their funds in these high-risk private assets is not appropriate, to do so anyway. That is how Mandation works.

The Mansion House Accord requires Government itself to make several changes, but the new amendment would override these requirements: The voluntary investment commitments in the Mansion House Accord depend on Government ensuring pension funds have a good pipeline of investible projects, switching value for money emphasis away from just low-cost, to allow for the higher costs of managing private assets. In practice, however, even if the Government does not deliver its commitments, the new legislation could just force the funds to invest in those assets anyway, even if the pension trustees would not do so on purely economic or financial grounds. 

Government does not know best when it comes to managing pension assets: Serious concerns remain that forcing schemes to invest in illiquid private assets could create asset bubbles and put pension outcomes at risk. It is true that such assets can deliver higher long-term returns, but the risks associated with these and the timing of the investment, also require sound judgment. Forcing investment at the wrong time, perhaps in overvalued private equity and private credit, could mean lower returns and lower pensions in future for millions of workers, even though the Government believes returns should be higher over time. Investing in a limited pool of UK or even overseas projects could drive up asset prices, creating market bubbles and exacerbating risk. Another worrying element is that the Government intends to ban the use of listed, closed-ended investment trusts or REITs, thus restricting the investment options even further, with associated market distortions, again damaging members' pension prospects.

Banning investment trusts and REITs shows Government cannot be trusted to mandate investment allocations: Ministers have specifically stated, without any coherent justification, that pension funds cannot use closed-ended, listed investment companies, such as investment trusts or REITs, even if they hold private assets of exactly the type which Government wants pension funds to support. It intends to close off this option, so pension managers can only use either unlisted Long-Term Asset Funds (which are open-ended structures) or direct investments in the relevant assets. Closed-ended listed investment companies are potentially the most suitable means for some pension funds to invest in private assets. These companies have long-standing experience in managing private and real or illiquid growth assets, and therefore offer pension funds without such expertise, the option to invest in ready-made, expertly managed diversified portfolios of the relevant assets. Specifically excluding the use of these more suitable closed-ended listed companies, shows that Government cannot be trusted to decide which assets pension funds must invest in.

The Pension Schemes Bill needs to be amended to protect ordinary workers' pensions.