A "broader approach" to pension reform is needed to make the UK more attractive for both domestic and international investors, the Investment Association (IA) has said.

Ahead of the government's pension review, the IA outlined its recommendations designed to ensure that any reforms undertaken deliver better retirement outcomes for UK pension scheme members and support economic growth.

The IA said the investment industry wants to ensure that the UK pensions system is fit for purpose to secure the financial futures of UK individuals who will rely on their pensions later in life.

The IA suggested that by implementing targeted reforms and improving the attractiveness of UK capital markets for all investors, both domestic and international, investment managers believe the government can build a new consensus to achieve its growth objectives without having to mandate or direct pension capital.

In particular, the association set out a series of 10 recommendations for the UK pensions market.

The IA called for a focus on ‘sophisticated scale’, suggesting that size alone would not set pension schemes up for investment success, and that instead there needs to be an emphasis on the importance of strong governance, accountability and appropriate investment expertise as the starting point for delivering the best investment outcomes.

In addition to this, it said that a cultural change that places long-term outcomes over price when defining value was needed.

It emphasised that ensuring member value through the delivery chain required both a shift in mindset and a greater focus on the operational issues that are “complicating” investment allocations, particularly daily dealing mechanisms which inhibit access to less liquid or illiquid asset classes.

The IA also called for more competitive and innovative UK capital markets, suggesting that the government needs to address frictions and disincentives in the UK capital markets that impact the behaviour of all investors, including UK pension schemes, including the abolition of stamp duty on UK listed equities.

The association pointed out that increased UK competitiveness would have a “significant” impact on capital allocation by both domestic and international investors and therefore in turn boost economic well-being.

Alongside this, the IA called for improved scale and retirement outcomes through increased pension contributions, stating that scheme consolidation and increasing investment effectiveness, while important, would not on their own, move the dial in terms of better investor outcomes in defined contribution (DC) schemes.

Instead, it suggested that this would only happen if contribution levels in the DC market also increased over time.

It also supported measures for a better retirement experience, saying that new measures should be put in place to support pension savers in making retirement income decisions, and to allow a new generation of retirement products specifically geared towards the provision of retirement income.

The association stated that this would benefit both pension savers and the overall availability of investment capital.

Commenting on this, the IA director of policy, strategy and innovation, Jonathan Lipkin, said: “Getting the UK’s pensions system right is crucial for the millions who will rely on their retirement income to live comfortably in later life.

“Our recommendations outline how a focus on sophisticated scale, a pivot from cost to a wider consideration of long-term value, and greater access to more diversified investments, can help achieve better retirement outcomes. 

“While pension reform - including higher aggregate contribution levels - can help to create a different dynamic for UK investment, our recommendations emphasise the importance of a broader approach to make the UK more attractive for both domestic and international investors.

“The investment management industry is fully committed to help drive the process forward, and we welcome the opportunity to engage with government and policymakers.”

---