Don't want the Government controlling your pension? Move it!

Concerned about the Government controlling where some of your pension is invested? Here’s what you can do about it.

The Government is forcing pension funds to invest a portion of their money in private market investments – meaning your retirement cash. 

Under the recently signed Mansion House Accord, 17 major pension providers and schemes agreed to invest 10% of the money in their ‘main default arrangement’ pensions in private markets, with at least 50% of this in British investments. 

You can find out at this link here whether your pension provider has signed up. 

What’s more, the Government plans to use the new Pension Schemes bill to force pension providers to invest 10% of their default arrangement funds in private investments. 

“Although the Bill contains a safeguard where schemes can argue that they should be exempt from this if they are convinced it would not be in the members' interests, this is still a pretty big stick, and will put pressure on schemes to hit the target,” Steve Webb, former pensions minister and partner at pensions firm LCP, wrote on Thisismoney.

“My personal view is that the Government simply should not be doing this.”

Private market investments are not quoted on the stock exchange and can be a riskier prospect than other types of investments, such as listed shares, bonds and gilts.

They may include relatively new businesses or start-up enterprises, private debt or infrastructure schemes. Some pension savers may not want their money to be invested in this way.

‘Pensions hijacked’ by the Government

Nigel Green, chief executive of deVere Group, a financial advisory and asset management specialist, claimed that the UK Government is “gambling” with the pensions of over 30 million people and using their retirement savings to “bankroll political growth narratives with little transparency and even less accountability.”

“This is a slow-motion hijacking of UK pensions,” he warned.

“[Chancellor Rachel] Reeves and the Government are pushing the country’s retirement funds into riskier investments to prop up political and economic headlines, not to protect retirees.”

Green pointed out that around £4.8 trillion is currently held in UK pensions, with around 90% of savers in default schemes. 

This means that hundreds of billions of pounds may already have been shifted into private market investments, without savers’ consent or knowledge, as there has been no public debate on the matter.  

What’s more, while private investments may have the potential to deliver higher returns, they are more illiquid, less transparent, and the fees can be more expensive. 

The annual management charges for private market funds can be as high as 3%, compared to under 0.5% for many public market index funds, noted Green.

Over 40 years, this could reduce your nest egg by tens of thousands of pounds. 

Green argued that the Mansion House Accord “exploits public financial disengagement”. 

“The Government knows most people don’t actively choose their pension investments, so they’re using that apathy to force through policy via the back door,” he said. 

Green also noted that half of the new private market allocation must be invested in Britain, even if there are better returns available elsewhere. 

“This isn’t about maximising your retirement outcome,” he said.  

“It’s about forcing capital into the UK economy to cover up deeper issues: sluggish growth, overregulation and stagnant productivity. They’re using your pension because they’ve run out of other tools.”

What can pension savers do?

If you don’t want your money to be invested in this way, you can move your pension out of your provider’s default pension fund. 

The ‘default arrangement’ is typically what your pension money is invested in by the provider unless you have specifically instructed them to invest it in a different portfolio they offer. 

Many UK pensions can be switched to more globally diversified, lower-cost funds that are better aligned with the saver’s goals and risk tolerance.

However, this is not without risks in itself, as you may incur fees or charges by doing so. 

You must also ensure that you are comfortable with the risk profile of your new pension investment portfolio, Webb warned. 

“Every saver in the UK should now be asking one question: do I want my pension aligned with my retirement - or someone else’s agenda?” said Green.

“The Government is betting you won’t pay attention. Prove them wrong.”