Realigning interests and reducing regulation: ShareAction launches its policy vision for pensions success

22 July 2015

Policymakers should stop using heavy-handed regulation to promote behavioural change in the pensions sector and focus instead on encouraging fit-for-purpose business models and governance structures, says a new report from ShareAction funded by the Nuffield Foundation. 

In its budget, the UK Government announced an open consultation on the UK pensions system, acknowledging that consumers’ expectations around savings products have shifted in light of a range of factors, many of which are highlighted in ShareAction’s report. The Government is focusing on tax incentives, but risks overlooking other crucial questions about business and governance models, which ShareAction has identified as essential for good saver outcomes.

ShareAction has undertaken significant research into the best-performing pensions systems globally, and is highlighting areas where the UK falls short relative to that benchmark in a new report funded by the Nuffield Foundation. ShareAction says the UK’s pensions system is creaking, with two regulators, two legal regimes, and ever more detailed rules and codes of practice. Even one of the regulators appears to agree that the structure is too complicated for many schemes to meaningfully comply with.

This is all bad news for Britain’s millions of savers, including the nine million people being brought freshly into the pensions system through auto-enrolment. Under automatic enrolment, members are expected to make complex choices at retirement but are ill prepared. On the run in towards retirement—the so-called accumulation phase—savers have inadequate access or rights to information about their savings. Scheme accountability and communication is a particularly weak feature of the UK’s pensions landscape compared to other well-performing pension systems around the world, and the governance requirements of many schemes are not helping.

ShareAction’s report is presented in light of John Kay’s report into UK Equity Markets, which concluded that: “regulation should focus on the establishment of market structures which provide appropriate incentives, rather than the fruitless attempt to control behaviour in the face of inappropriate commercial incentives.”

In comparing private pension systems globally, ShareAction finds that good outcomes emerge in the context of modest fees and charges, consistent investment returns, trust, accountability, and the incorporation of a Responsible Investment and stewardship approach. Workplace schemes that deliver well for members are found to have a strong alignment of interests between beneficiaries and the people managing their money; diverse and independent boards including member representatives; and accountability and transparency in board decision-making. ­

Regulation is a poor tool for adjusting behaviour, and so ShareAction is proposing several structural ways for policymakers to align interests within the pensions sector to the benefit of savers. Recommendations include: requiring senior management of companies to place a significant portion of their pensions in the same scheme as the rest of the workforce; consolidating schemes to remove underperforming small players from the market; and redressing the balance of power in savers’ interests by improving scheme communication, transparency and saver education.

The report compares trust-based, contract-based, and Master Trust schemes in the UK, as well as Dutch, Danish and Australian workplace pension systems. After charges and inflation but before tax, Danish workplace savers received annualised real net returns of 3.8% between 2000 and 2012, compared to an average of negative 0.7% for UK savers over the same period (see notes to editors, below). In Australia, policymakers have promoted consolidation where the average scheme now has 26,000 savers compared to an average of just 2,500 in the UK. The huge difference in overhead costs delivers material benefits to Australian pension savers.

Author of the report, Camilla de Ste Croix, Senior Researcher and Policy Officer at ShareAction, says: “The Government has emphasised the benefits of giving savers freedom and choice at the point of retirement. But during savers’ working lives, most find the system to be completely impenetrable and off-putting. Our research suggests that the key to successful reform is not more red tape. What is needed is for pension funds to adopt business models and governance models that achieve alignment with savers’ interests, and be encouraged to do so through smaller, better targeted regulatory adjustments. Other countries we studied have fit-for-purpose business models in their pensions sector with results that are positive for savers, taxpayers and the robustness of their economies.”

Notes for editors:

The full report is here

Policy briefing for policymakers is here

ShareAction is the UK-based movement for Responsible Investment. For further information, please contact Matt Davis, Director of Communications and Public Engagement at ShareAction on 07564 438 804 or

The Nuffield Foundation is an endowed charitable trust that aims to improve social well-being in the widest sense. It funds research and innovation in education and social policy and also works to build capacity in education, science and social science research. The Nuffield Foundation has funded this project, but the views expressed are those of the authors and not necessarily those of the Foundation. More information is available at

Source of net returns for UK versus Danish savers: Better Finance report, the European Federation of Investors and financial Services Users (p.16):