The mere threat of mandation is "the worst of both worlds", the Society of Pension Professionals has warned, arguing that further clarification is needed on the government's plans for a reserve power in the Pension Schemes Bill.

Although the bill has been broadly welcomed by a diverse range of the SPP’s members, the group argued that the inclusion of a time-limited power to compel pension funds to invest in a certain way is a measure that the SPP "cannot support".

The SPP's paper, Power in Principle? Balancing Mandation and Market Confidence, warned that the reserve power would raise more questions than it answers, particularly in terms of who is legally accountable for underperformance and how the assets that are within scope will be determined.

In addition to this, it pointed out that, far from being a reserve power, the current drafting means the provisions in the Pension Schemes Bill would require schemes to comply with the asset allocation requirement from 2030, as its introduction is linked to the introduction of the new scale requirements.

"Irrespective of timings, this aspect of the legislation requires amendment to ensure it is indeed a reserve power as intended," it stated.

The paper also highlighted broader concerns, warning that mandated investment runs a "very real risk" of misallocating capital, with pricing no longer fully reflecting fundamentals.

"This is not just an economic theory; there are tangible examples of this occurring in practice," the SPP stated, highlighting the Chinese government's stimulus plan following the 2008 financial crisis as one such example.

The association warned that it could also undermine public trust, given that scheme members or those thinking of saving in a pension may worry that saver returns are no longer the main priority.

In particular, the SPP warned that savers could think that pensions have become a "tool" for government agendas and that ultimately, investments are being made for the interest of the government of the day, not for individual benefit and security.

However, the SPP was more divided on the inclusion of a sunset clause preventing the use of the mandation power beyond 2035, with mixed views amongst SPP members as to the suitability of this sunset clause expiring in 2035.

Industry experts and MPs have previously called for this date to be brought forward in order to align with the end of the parliamentary term.

Despite this, the SPP argued that whilst there is a logical argument for doing so, these changes will take time to bed in and will require master trust and group personal pension
schemes to have at least £25bn in assets by 2030, or a credible pathway to being there by 2035. This means some will almost certainly not be there until 2035.

Given this, the SPP said that, if the mandation provision is retained, it makes sense to have a 2035 expiration date.

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