IMAGE: EVA BEE/IKON IMAGES
PENSIONS
David Snelling, CEO of dual-
registered Hong Kong and UK wealth management company Charlton House Wealth Management, believes Hong Kong could learn from the UK in terms of charges. “In Hong Kong you’ve got passive tracker funds where people pay 1% to track the market,” he says. “In contrast, you invest in an exchange- traded fund in the UK and you’re paying 0.1%. The transparency that came to the UK market in 2013 led to a tightening of investment costs, including pensions.”
ESG agenda Easing restrictions would also enable pension funds to pursue a more vigorous ESG agenda. A May 2022 Pensions and Lifetime Savings Association survey of 91 UK pension funds has found that 74% have net zero plans in place or planned within the next two years. Close neighbours share the UK’s goals
too. Europe Capital Group’s ESG global study 2022 of 565 global institutional investors across 19 countries – nearly half of them pension fund managers – finds 31% of Europeans cite ESG as “central to our investment approach”. In North America that figure is only 18%, and 22% in Asia Pacific. A move towards more DC funds might
tip this balance further. According to a March 2022 survey by Mercer, 38% of DC schemes include an ESG fund as a default and half have made such funds available to members who self-select. DB schemes are mostly invested in bonds and therefore have fewer ESG options.
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// EASING RESTRICTIONS WOULD ALSO ENABLE FUNDS TO PURSUE A MORE VIGOROUS ESG AGENDA //
that in the 20 years before the report, both private and public plans had the same average allocation to fixed income, equities, and alternative asset classes. But over the preceding decade, public plan risk had been 10% higher because, it suggests, public plans benefit from a higher assumed rate of return. In the UK, the compound annual
growth rate for pension assets since 2011 has been 4.5%, according to the Thinking Ahead Institute. This suggests a need to embrace the opportunity regulatory change would bring. Hong Kong in that same period shows
CAGR of 9.4%. But its Mandatory Provident Fund – the country’s compulsory occupational pension, with both the employee and employer contributing 5% – lost nearly a quarter of its value in 2022 because of sell-offs in equity markets.
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Will pension funds seize the opportunity? It remains to be seen whether any of these reforms will change pension funds’ risk-return mindsets, and how the government will respond to the results of its consultation. If the 0.75% fee cap is scrapped, it’s uncertain how many schemes would switch emphasis to illiquid assets. Many are keen to broaden their asset horizons, but the reforms may bring higher charges, potentially compromising funds’ fiduciary duty to give their members value for money. Opening up illiquid asset investment could unleash a torrent of wealth into pension schemes – or could simply result in members paying more money for the privilege of risking their future retirement income.
THE REVIEW MARCH 2023
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