XPS responds to Pensions Investment Review Consultation

XPS responds to Pensions Investment Review Consultation

20 Jan 2025

• XPS believe that a key challenge with the Pensions Investment Review consultation is that it has been drafted on the assumption that significant consolidation will be beneficial for member outcomes, with the consultation focusing on ways to achieve the consolidation.
   
• We think an industry made up of a small number of ‘megafunds’ risks introducing diseconomies of scale that may hamper member outcomes, including:
  • Restricted investment flexibility
  • Potential emergence of silos within DC providers
  • Costs associated with mitigating the significant increase in systemic risk  
• XPS believe there is a simpler approach to improving member outcomes without the risk of the unintended consequences noted above.
   
• We think policymakers should commission an independent third party to construct a ‘league table’ comparing risk-adjusted performance across defaults of multi-employer DC providers.
   
• We think league tables would incentivise investment decision-makers to prioritise maximising risk-adjusted returns rather than minimising costs in order to:
  • Increase the probability of the DC provider winning and maintaining business, particularly if the employer duty component of the reforms is progressed
  • Help drive a ‘green’ VFM score
  • Gain prestige, given the publishing of the league tables would likely gain significant press coverage
• League tables are a key reason the Australian DC market is competitive on the basis of performance rather than fees. Whilst the UK DC market has some differences to its Australian counterpart, well considered league tables are a mechanism we can adapt to the UK market to benefit outcomes for members.