Andrew Bailey told the Pensions and Savings Symposium in Gleneagles that there is an “important macroeconomic dimension to the pensions issue which is growing in its significance”.
Mr Bailey, who is also a member of the Financial Policy Committee of the Bank of England, said: “Retirement saving and pensions is one of the largest issues we face. It needs to be considered broadly.”
He said: “When I look at the issues on the agenda of the FCA with its objective from Parliament to ensure that relevant markets function well, I think that pensions and long-term retirement savings are probably top of the list in terms of their importance to our society.”
He said: “There are some very big issues at stake here: the balance of who takes the risk, between the state, employers and individuals, with the balance shifting to individuals; the potential for large inter-generational shifts in income and wealth; the impact of heightened macroeconomic uncertainty on the ability to write long-term financial contracts which embed assumptions on future return.”
He addressed the argument that pension saving would be assisted by people holding more housing in their stock of pension assets, based on the real appreciation in the value of housing.
He explained he disagreed with this tenet, because of the scale of uncertainty over long-run real returns on assets.
He said: “I would not favour over-weighing to any one asset class, while recognising that a balanced investment portfolio can be exposed to property.
“But, increasing the weight on housing investments could be self-defeating.
“In the FPC we have been concerned about increasing levels of household indebtedness.
“If the effect of increasing the demand for housing as an asset to own is to push up the cost of ownership, an increase in holdings of housing as pension assets will tend to increase the real cost, and thus household indebtedness.”