Proposed Pension Changes by Jeremy Hunt to invest in UK Start Ups

noclaf

In principle it sounds a good idea and dare I say shows some 'ambition'....but am finding it hard to get behind the concept what with the potential risk involved and fees....doesn't instill much confidence.
I would hope that employees aren't 'auto-enrolled' on the basis of being invested in default funds because they don't pay much if any attention to their pensions, there should be a process where the employee is made fully aware of the potential risks/benefits before having the option to accept / decline. 

Pat38493

For my DB scheme as long as the benefits are still the same and guaranteed, I suppose it doesn’t directly matter to me where it is invested.

For my DC assets, it should be up to me where my money is invested.  

From what I can see there’s been a lot of recent stories about local councils getting into issues when they got involved in active investing.  I’m not convinced the UK government can do much better.

also what does it mean by Jeremy Hunt “struck a deal” with pension providers.  In return for what or threatened with what?

RogerPensionGuy

Pat38493 said:

"also what does it mean" by Jeremy Hunt “struck a deal” with pension providers.  In return for what or threatened with what?

I think the quote just about says it all unfortunately. 

I've read a fair amount about this item and it looks to me like a strange deal has been agreed. 

A nice gentle 6 or 7 years whereby these big big funds will need to invest 5% of the funds for many general people in the UK. 

I think it will be very very lucrative for the people feeding off these vast amounts of cash flows.

I ask myself, if it's such a great idea for pension groath and income, was it 1K PA extra in retirement, surely 5% is too small, why wouldn't my pension providers make it 10% or 15% ?

If it's such a great idea, why doesn't the government offer to cover any shortfalls or losses down the road if the data confirms it was negative for pension holders ?

I do wonder if the pension companies said no to this 5% route they must follow what repercussions they would experience ?

I do hope going forward these pension companies have maybe 2 default funds for the masses, one is their own selection and the other labeled as something a little different whereby 5% plonked in funds as per government requested.

Maybe somebody on here will advise what the repercussions will be if the pension companies refuse the government's request ?

Albermarle

noclaf said:

In principle it sounds a good idea and dare I say shows some 'ambition'....but am finding it hard to get behind the concept what with the potential risk involved and fees....doesn't instill much confidence.
I would hope that employees aren't 'auto-enrolled' on the basis of being invested in default funds because they don't pay much if any attention to their pensions, there should be a process where the employee is made fully aware of the potential risks/benefits before having the option to accept / decline. 

As I understand it in some auto enrolment pension schemes 99% are in the default scheme.
Probably however much info is sent to the employee, the large majority of it will not be read at all, or not understood at all, or vaguely understood but no action taken.
The problem is if they declined, then most likely they would not pick anything else but sit in cash. Which is why all these schemes have a default fund in the first place.

Malthusian

frugalandsave said:

What are peoples thoughts about the proposed Pension Changes by Jeremy hunt, to invest 5 % of Peoples Work DC Pension into UK Start Up Companies?

Anyone affected should either switch out of their default fund or assume they will be 5% poorer in retirement, and treat anything left of that 5% as a nice bonus.
Genuinely innovative small companies won't get anywhere near that money, it will all go to grifters with the right political connections. 
Remember, this is the same government that wanted to turn the UK into a "global crypto hub".

noclaf

Albermarle said:

noclaf said:

In principle it sounds a good idea and dare I say shows some 'ambition'....but am finding it hard to get behind the concept what with the potential risk involved and fees....doesn't instill much confidence.
I would hope that employees aren't 'auto-enrolled' on the basis of being invested in default funds because they don't pay much if any attention to their pensions, there should be a process where the employee is made fully aware of the potential risks/benefits before having the option to accept / decline. 

As I understand it in some auto enrolment pension schemes 99% are in the default scheme.
Probably however much info is sent to the employee, the large majority of it will not be read at all, or not understood at all, or vaguely understood but no action taken.
The problem is if they declined, then most likely they would not pick anything else but sit in cash. Which is why all these schemes have a default fund in the first place.

Unfortunately Albermarle....you are likely correct here. I took an interest in my pensions during my mid 30's and then took steps to make tweaks and self manage to the extent I am able to do so.

I talk to friends/family, many who are far smarter than I am and in many cases earn a fair bit more too....hardly any take an interest in pensions, many have told me they leave them in the default fund option so that population will end up funding this adventure one way or another .....

DoublePolaroid

Amusingly the Government's own (presumably rose-tinted) modelling predicts that a typical punter paying the higher end of their assumption for fees will be worse off after 30 years if it's incorporated into a typical 60/40 split portfolio. They helpfully include figures for a 65/35 split that produces a 1% increase in pot size for the median case scenario.

It seems hard to imagine that very many savvy, rational and purely self-interested individuals would choose to do invest this way of their own accord.

ader42

The only time I had a workplace stakeholder pension I was young and green (in both senses of the word) - and had a choice of funds from the provider - I chose “an ethical fund”. Some years later I saw the light. 

I think this turn of events is yet another scheme where those at the top can take another layer of cream off those below and dress it up as doing them a favour.

If Hunt had announced that employers would now have to give an extra 1% to employees and that would be invested in these start-ups I would have been much happier for the recipients - but it won’t affect me as I am 100% SIPP and own choices. I put my big boy pants on and own my own destiny.  

zagfles

This is like the recent obsession with "ESG" in most default workplace pensions. They use language like "ESG risk" which tries to imply companies with bad ESG credentials (however they define that) are more likely to do badly - as if an objective analysis of their prospects isn't already incorporated in the market price! But the trustees of these schemes obviously think they know better than the market.

It's basically using billions of peoples' pensions to achieve political objectives. That's fine if someone makes a conscious choice to eg avoid oil, invest in startups etc, but to use peoples' money to achieve political objectives by default, under a pretence of doing it to improve investment outcomes, is frankly outrageous. But they all seem to be doing it. And I suspect it'll get much worse if Labour win the next election...

https://www.theactuary.com/news/2022/07/19/spike-pension-schemes-incorporating-esg-factors-default-funds

https://www.fca.org.uk/publications/policy-statements/ps-21-24-climate-related-disclosures-asset-managers-life-insurers-regulated-pensions

MX5huggy

Will this mean the next Norton Motorcycle 🏍️ pension scheme scam can be government endorsed?

https://www.theguardian.com/uk-news/2023/jul/24/mps-launch-inquiry-into-prosecution-of-norton-motorcycles-pension

What was the basic “mistake” people made to end up victims of this scam?