Pension Industry Updates
Sign up for myFT Daily Digest to be the first to know about pension industry news.
Boris Johnson called on British pension funds to invest more money from retirement savers in British assets to trigger an “investment big bang” to support economic recovery.
In a letter to the investment industry, Prime Minister and Chancellor Rishi Sunak said UK institutional investors need to ‘seize the moment’ and use their ‘hundreds of billions of pounds’ to support assets that often have a longer term return on investment, such as infrastructure, which includes bridges, roads and wind farms.
They argue that UK assets are overlooked by domestic investors. “UK institutional investors are under-represented in UK asset ownership,” the letter reads. “More than 80 per cent of UK defined contribution pension fund investments are primarily listed securities, which only represent 20 per cent of UK assets.”
Some of the world’s largest pension funds, including Canada and Australia, have actively supported infrastructure projects, notably in the UK, which officials say have provided long-term income for their investors. .
Ministers also want millions of savers to be better able to support high-growth UK tech companies, which often lack institutional investment due to the nervousness of fund managers to back riskier, loss-making start-ups .
Pension fund trustees have a duty to act in the best interests of their members with the higher fees and charges associated with non-standard investments, such as infrastructure and private equity, seen as a barrier to flow. liquidity to these sectors.
To address this, the government this year relaxed a 0.75% cap protecting millions of savers in defined contribution pension plans from high fees, so that trustees can invest in areas such as private equity. investment, where high performance fees are common.
The Financial Conduct Authority is also helping set up the Long Term Assets Fund, an investment vehicle designed to stimulate pension plans’ cash investment in illiquid and long term assets. This has been supported by the Productive Finance Task Force, chaired by City Minister John Glen, which is examining barriers to investing in such assets.
The letter says the government is doing “everything possible – unless it requires more investment in these areas as some have advocated – to encourage a change in mentality and behavior among institutional investors.”
“The government remains open to removing other barriers when they are identified,” he adds.
Dom Hallas, executive director of the Coadec technology group of companies, said investing in pension funds was “the next big step for the UK start-up ecosystem. . . the sooner we can move from discussion to capital allocation, the better.
The Pensions and Lifetime Savings Association, 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 pension have the opportunity to invest in the widest range of assets.
“It is also welcome to see [them] recognize that there is no one ‘right answer’ when it comes to how much pension fund managers should invest in UK assets over the long term, ”said Richard Butcher, chairman of the PLSA.
The government’s efforts to encourage administrators to allocate more pension funds to help the country’s economic recovery have raised concerns in some areas of the industry.
Andrew Warwick-Thompson, former executive director of The Pensions Regulator for regulatory policy, in May accused the government of “bowing” to asset managers with its reforms to the workplace pension expense cap, which , he said, would increase the costs of millions of retirement savers in the workplace.
Roger Barker, director of policy at the Institute of Directors, also said there was a lack of detail on how the government will meet its goals.
“The business models of many UK institutional investors are heavily biased towards achieving short-term financial performance. It is unclear how the changes suggested by the government in this letter will fundamentally realign their approach to the longer term. “