The OECD has warned governments against tapping into private pension assets for “pet projects” as nations look to retirement scheme cash to help drive the post Covid-19 economic recovery.
Trustees of pension schemes in the UK have a duty to act in the best interests of members, but in spite of their investment freedoms, their portfolios predominately invest in equities and bonds.
Pension schemes with hundreds of millions of members globally are facing pressure from policymakers and industry to boost holdings of more expensive and riskier alternative assets, such as infrastructure and venture capital.
Pablo Antolin, a senior executive with the OECD, said the Paris-based international organisation had seen “a lot of pressure on pension fund managers and trustees to use their assets earmarked for retirement”.
“Those assets are an important asset for any society,” Mr Antolin, principal economist at the private pension unit of the OECD financial affairs division, said in an interview with the Financial Times.
“[Pension assets] can contribute to the post recovery but they should not be used for any pet project that policymakers or politicians want.”
The comments come as nations around the world have racked up large debts to support their economies through the coronavirus crisis.
The OECD has said that it backs the use of assets earmarked for retirement to support the economy, but that safeguards must be put in place to ensure decisions are in the best interests of members.
“Strong governance and appropriate investment strategies will allow pension providers to invest in projects that can support businesses and fuel a recovery, while ensuring that they act in the best interest of members,” the OECD said in its recent Pensions Outlook document.
“In particular, ensuring the accountability and suitability of the governing body of pension providers, defining an appropriate investment policy, designing a sound risk management strategy and having appropriate investment regulations can all contribute to safeguard members’ assets while financing the recovery.”
The OECD suggested pension governing bodies should be held to account in court, if necessary, for investment mistakes as an additional safeguard.
The OECD’s comments, made in reference to global retirement systems, came a month after Andrew Bailey, governor of the Bank of England, signalled a loosening of financial rules would encourage defined contribution pension schemes to invest in illiquid assets, helping the UK’s recovery.
At the same time, the UK government is loosening a 0.75 per cent cap on workplace pension charges for auto-enrolled workers to allow their schemes to invest in more expensive illiquid assets, such as infrastructure and start-up businesses.
“Investment in long-term assets will help to modernise the UK’s infrastructure, support innovation and accelerate the transition to net zero,” the Treasury said.
“We want to make it easier for defined contribution pension schemes that have longer investment horizons. Tackling the current barriers to investment in long-term assets will require close collaboration between government, regulators and the industry.”