UK’s largest private sector pension fund cautions ministers on reform

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The leader of the UK’s biggest private sector pension scheme has urged the government to refrain from excessive intervention in how retirement funds are managed.

Speaking last week, before the Treasury outlined plans for a major reform of the sector, Carol Young, chief executive of the £73bn Universities Superannuation Scheme, said she had no problem with new disclosure requirements on schemes to report how much they invested in the UK.

But she told the Financial Times she would have “cause for concern” if ministers were to go a step further and direct trustees as to where funds should be allocated.

“There’s no question that the primary purpose of [pensions] is to deliver in the members’ best financial interests,” Young said. “Trustees need to exercise their fiduciary duties and these are heavy responsibilities that are placed on them. They need the rights that go with that and one of those is the right to select their investment strategy.”

The government declined to comment on Young’s remarks, which were made before the Treasury announced a set of pension reforms at the weekend. These are part of chancellor Jeremy Hunt’s efforts to stimulate the economy by unlocking billions of pounds of retirement savings to invest domestically.

The proposals include a requirement for defined contribution pension schemes to disclose from 2027 how much they invest in the UK. Funds will also have to publish data comparing their performance to rivals and poorly performing schemes will be banned from taking on new business.

Announcing the shake-up, Hunt said: “British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”

Young said she would back any effort to make it more attractive for schemes to invest in the UK. She said the USS already had about half of its £73bn portfolio invested domestically. “If the government wants to create investment opportunities in the UK, we’d love to see that.”

Her comments reflect concerns in the pensions sector over how far the government could go to achieve its goal of channelling more retirement savings into British businesses and projects, given the amount of pressure on public finances.

Over the past year, the government has put forward a series of measures to encourage funds, managing more than £1tn, to invest in high-growth unlisted companies, which can be more expensive assets for savers to hold in their retirement portfolios.

One key measure was the introduction of a Value for Money regime, aimed at encouraging trustees to shift focus to returns, which may come from more expensive investments, over a sole focus on low-cost charges.

The City of London Corporation, which has collaborated with the government to channel long-term capital from pension funds into UK companies, said the chancellor’s new pension measures would “turn the dial to drive investment into UK businesses”.

Separately, Young, who became chief executive of USS five months ago, said she and other stakeholders were “working really hard” on ways to avoid a repeat of a fractious and drawn-out industrial dispute by university staff.

One of the triggers of the dispute was a 2020 valuation of USS at the height of a market crash, which recorded a deficit of £14bn and led to a cut to benefits, resulting in criticism of how the scheme was managed.

Those cuts have been reversed after the scheme swung into surplus just two years later.

Young said the USS and university and union leaders had formed a working group to look at ways of making the scheme’s funding position more stable. “We are all pointed in the same direction,” she said.


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