Treasury faces FCA resistance over UK pension disclosure drive

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The UK’s top financial regulator is resisting Jeremy Hunt’s effort to make pension funds reveal more about their investments, setting the scene for a clash with the Treasury ahead of next week’s Budget.

The Financial Conduct Authority has refused to commit to writing new rules wanted by the chancellor that would force pension funds to disclose how much they invest in the UK, people familiar with the matter said.

Hunt wants to announce the transparency measure in his March 6 Budget as part of his drive to encourage pension funds to invest more of their cash into the British economy.

Officials briefed on the proposals said the plan for geographical disclosure would apply to defined contribution funds, overseen by the FCA, rather than defined benefit funds, which are regulated by The Pensions Regulator.

The FCA, which has an extensive to do list as it grapples with post-Brexit regulation and new areas such as crypto, has pushed back because there was no evidence that consumers or markets were being harmed by the absence of such disclosures, one of the people familiar with the matter said.

The FCA’s mandate includes protecting consumers, and promoting well functioning markets.

“Where we set standards we do so with end consumers’ needs in mind. Any new proposals we introduce will be subject to our normal consultation and cost benefit analysis, as mandated by parliament,” the FCA told the Financial Times.

The agency added it was “working closely with the government to ensure that transparency on pensions helps to provide good outcomes for consumers in the long term”.

Government officials said ministers are determined to press ahead with the reforms in the Budget, despite the FCA’s objections. “The FCA doesn’t determine policy on pensions — the chancellor does,” said one.

“The FCA should stop trying to make policy. Pension schemes don’t invest enough in UK capital markets or the UK in general, in comparison with other jurisdictions,” they added.

Industry-level aggregate data from the Pension Protection Fund shows that UK defined benefit pension plans invested 10 per cent of their equity allocations into domestic listed companies in 2022, down from 48 per cent in 2008.

Over the same time, the proportion in overseas quoted stocks grew from about 52 per cent to nearly 69 per cent.

Hunt does not want to mandate pension funds to invest in Britain, but set out a series of reforms to encourage investment into high growth companies in his 2023 Mansion House speech.

The chancellor also wants to use transparency — or rules around disclosure of investment decisions — to encourage them to invest in the UK. “It’s a very British solution,” said one official involved in drawing up the policy.

The Treasury said it was working “constructively with relevant partners, including the FCA, on pension fund policy”.

“We remain committed to growing the economy and increasing investment in UK businesses,” it added.

The pensions industry has lobbied against any push by the government to dictate how they invest on behalf of their members.

British retirement funds hold more than £1tn in assets on behalf of tens of millions of savers but they have come under fire from policymakers and City asset managers for allocating more cash to global equity markets, over domestic companies and projects.

The Pensions and Lifetime Savings Association (PLSA), which represents the workplace pension funds, said the industry was “happy” to provide a high-level overview of scheme investments — including whether the assets are based in the UK — “provided it does not entail excessive cost”.

Hundreds of delegates attending the PLSA’s annual investment conference in Edinburgh on Tuesday were told the government could take further action to promote investment in UK growth, including providing better investment opportunities and regulatory reforms.

“We hope the government is considering these points as we approach next week’s Budget,” said Nigel Peaple, of the PLSA.

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