Pensions industry updates
Subscribe to myFT Daily Digest to be the first to know the latest developments in the Pensions industry.
Boris Johnson has called on British pension funds to raise more money in savings banks in the UK to raise a “big investment bang” to support the economic recovery.
In a letter to the investment industry, Prime Minister and Chancellor Rishi Sunak said UK institutional investors needed to “seize the moment” and use their “hundreds of billions of pounds”. to support assets that often carry a long-term payback such as infrastructure, which includes bridges, roads and wind farms.
They argue that British assets have been neglected by domestic investors. “UK institutional investors are underrepresented in the dominance of British assets,” the letter says. “More than 80 per cent of investments in defined contribution pension funds in the UK are in top-listed securities, which account for only 20 per cent of UK assets.”
Some of the world’s largest pension funds, including Canada and Australia, have been active in supporting infrastructure projects, even in the UK, which officials say has provided a long-term return for its investors.
Ministers also want millions of pension savers to be better able to support high-growth UK technical societies, which often lack institutional investment given a nervousness among fund managers to support riskier and losing start-ups.
Pension fund trustees have a duty to act in the best interests of their members with the rights and higher costs associated with non-standard investments, such as infrastructure and private equity, seen as and a barrier to driving numbers in these sectors.
To address this, the government this year loosened a charge of 0.75 percent cap protects millions of savers in high-tax defined contribution pension schemes, so trustees can invest in sectors such as private equity, Where heavy performance costs are common.
The Financial Conduct Authority is also helping to create the Long-Term Asset Fund, an investment vehicle designed to increase investment in pension funds. illicit assets and in the long run. This was supported by the Productive Finance Working Group, chaired by City Minister John Glen, which looks at barriers to investment in such assets.
The letter says the government is doing “everything possible – except to send more investment into these areas as some have argued – to encourage a change in mentality and behavior among institutional investors.”
“The government remains open to addressing further barriers where they are identified,” he adds.
Dom Hallas, executive director of technology group Coadec, said investing in pension funds was “the next big step for the UK start-up ecosystem … as soon as we can move from discussion to allocation of capital, the better. ”
The Association of Pensions and Savings for Life, which represents pension schemes with 30 million savers and more than £ 1.3 billion in assets, said it supports the government’s ambition to ensure that funds pensioners have the opportunity to invest in the widest range of assets.
“It’s also welcome to see.” [them] recognizes that there is no single “right answer” when it comes to how much pension fund trustees should invest in long-term assets in the UK, ”said Richard Butcher, president of the PLSA.
The government’s efforts to encourage trustees to direct more pension money to help the nation’s economic recovery have caused concern in some areas of the industry.
Andrew Warwick-Thompson, former executive director of the pension regulator for regulatory policy, accused the government in May of “pandering” asset managers with their reforms to cap the pension tax in the workplace, which has been said to raise taxes for millions of pensioners at work.
Roger Barker, director of policy at the Institute of Directors, also said there was a lack of detail on how the government will achieve its goals.
“The business models of many institutional investors in the UK are very much geared towards delivering short-term financial benefits. It is unclear how the changes suggested by the government in this letter will fundamentally realign their approach towards the longer term.”