BoE Governor warns against investments mandate
The Government’s pension reform plans has come under fresh scrutiny after the Bank of England’s Governor Andrew Bailey suggested it would not be appropriate for ministers to mandate that pension funds make investments in British assets.
Speaking at a press conference on Wednesday, Bailey acknowledged the need for structural changes to boost pension fund investment in the UK economy. “We’ve had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful to this effect,” he said.
But, he added: “I do not support mandating, I don’t think that’s appropriate.” He did, though, go on to say that reforming the pensions industry would require “a lot of heavy lifting” and stressed any changes should be “natural”.
The Governor’s comments target a provision in the current pension reform bill that would give Ministers the power to force pension funds to invest a minimum amount in private markets. The government describes this as a “backstop power” and insists it hopes not to use it.
Former Pensions Minister Sir Steve Webb said Bailey’s decision to intervene “will not have chosen lightly”, describing his comments as a “nuclear” intervention that would be unwelcome at the Department for Work & Pensions.
The Governor’s stance aligns with growing industry opposition to the mandatory investment measure, with some experts calling for the Government to drop the provision entirely, arguing it is not properly framed as a reserve power.
The comments come during the same week Parliament hosted its first debate on the bill, where Pensions Minister Torsten Bell was pressed by MPs on the backstop clause.
In response, he said: “I do not currently intend to use the power in the Bill, but its existence gives clarity to the industry that, this time, change will actually come.”
He went on to say that – alongside protections for fiduciary duty – the power included an “explicit mechanism” that would allow providers to opt out if there were compelling risks that the investment would have a material adverse impact on savers.
He added the inclusion of the reserve power “reflects the reality that the industry has been calling for the shift for some time, but words have been slow to translate into actions”.
