Work and Pensions Committee

              3 March 2023

Written evidence from WTW LDI0084

This response to the Committee’s latest call for evidence has been drafted by WTW’s Investments business in the UK. Our investments business works with a diverse range of institutional investors, including pension funds, insurance companies, sovereign wealth funds, government funds, wealth management companies, endowments and foundations. We provide fiduciary management and advisory investment services to our clients as well as the management of specialist portfolios through our internally managed pooled funds. We advise on >£3 trillion of assets and manage £137 billion of discretionary assets.

Our response to the Committee’s two additional concerns is as follows:

•              WTW believes any potential herding in pension scheme investments can result from the introduction of minimum standards, but may also result from inherent natural similarities. Whilst in our experience there is an element of the two acting in tandem, we believe that the underlying natural similarities are ultimately the much stronger factor. The influence of these underlying natural similarities has, in our view inevitably, strengthened and become more closely aligned as many defined benefit (DB) pension schemes have moved towards the later part of their lifecycle. In our view it is also inevitable that imposed standards for DB pension schemes will need to reflect both the underlying natural similarities and increased maturity of many DB pension schemes. There may be additional potential herding concerns resulting from regulatory standards that place constraints on diverging behaviours. WTW supports the Pensions Regulator’s consultation on its draft funding code of practice but also recognises the risk of unintended consequences from its detailed implementation. As a final comment we do not believe these themes are specific to DB pension schemes as they arise in the standard setting for insurance companies, banks and indeed pretty much any type of activity where standards are required.

•              WTW recognises the importance of financial stability and that various regulators have an important part to play in that. The task of such regulators is not an easy one and it is right that regulation should evolve as necessary in light of both lessons learnt and changing circumstances. We agree with the FPC that LDI Funds should maintain financial and operational resilience to withstand severe but plausible market moves, including those experienced during the recent period of volatility. From Sarah Breeden’s evidence to the Committee (1 February 2023), we understand that the FPC is discussing and deliberating on the appropriate steady-state response. In our view this should result in an appropriate framework of measures addressing the relevant issues from as broad a perspective as possible. We believe that more detailed comment from WTW should await any consultation or engagement activity from the various regulators.

March 2023