PENSIONS

SCOOP — SHAKE UP INVESTMENT RULES TO BRING RISK BACK, SAYS NCC: The government should overhaul volatility measures and liquidity rules to encourage greater risk-taking from savers, a new report from think tank New Capital Consensus has argued.

What’s inside: In a paper looking to “redistribute the risk burden,” the think tank took aim at the overuse of annual valuations and volatility metrics in pensions, which are used to calculate fees, in supervisory assessments, and are sent to savers every year, leading the manager to shoot for reaching yearly highs over achieving long-term growth.

How to fix it: The paper argued that valuing pensions on an annual basis was “the main reason UK insurers and pension schemes have stepped back from the products savers actually need,” and pushed to replace the annual measures with a duration-weighted measure “that recognises a 25- year liability is not at risk of permanent loss from a one-year drawdown.”

And: NCC also argued for greater support for collective defined contribution schemes, arguing that the rise of defined contribution schemes in pensions had led savers to be even more risk adverse in investing their cash.

Daily driver: Another key feature that has led to a decline in risk is the prevalence of daily liquidity requirements, the report said, stating that long-duration liabilities should be matched with assets that carry a deliberate illiquidity premium “without punitive capital treatment.”

Not alone: The report does seem to be tapping into broader concerns around Westminster. Speaking at an NCC event in June, former City Minister John Glen called for “bigger pools of capital that then have got the room to take the risks that we see in other jurisdictions,” while John Grady (PPS in the Treasury) complained about a “cultural issue with risk and entrepreneurialism.”