Pension Industry Updates
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UK pension fund administrators balk at government efforts to encourage them to spend billions on the country’s economic recovery, warning of potential conflicts of interest for their savers.
In an unprecedented intervention last week, Prime Minister Boris Johnson and Chancellor Rishi Sunak issued a letter to the industry, urging it to invest more money in sectors such as infrastructure, to help the nation to “rebuild better” in a “big bang of investment” after the Covid-19 pandemic.
But UK pension funds, which have more than £ 1 billion in assets, are generally wary of investments in private markets such as infrastructure and venture capital, fearing high fees that can erode returns on companies. pensions and poor liquidity that can impact the timing of pension payments.
“Suggestions that directors should foster opportunities in the UK to help us ‘build back better’ are not in my opinion,” said Andrew Warwick-Thompson, director of Capital Cranfield, the firm of professional directors , and former senior executive of The Pensions Regulator. “UK illiquids will have to go through the same due diligence process as any other investment decision.”
Scottish Widows, one of the UK’s leading pension providers, supports broader investment in infrastructure to help the country’s recovery, but said any framework to push pension assets in that direction should offer a level risk-adjusted return at least as good as those available elsewhere.
“Those who manage retirement assets on behalf of savers have a duty to achieve the best possible returns for clients,” said Pete Glancy, policy manager at Scottish Widows. “It is a circle that the government will have to crisscross. “
Sir John Kay, the economist who led the 2012 independent review on UK stock market reform measures, said the government needed more details on infrastructure projects that could attract investment from the regimes of retirement.
“There is already long-term financing available for investments in infrastructure such as toll roads and airports, but this is really a refinancing of existing assets,” Kay said.
“It is not certain that pension schemes provide the answer to the financing needs of new national projects, such as [rail project] HS2 and the Hinkley Point nuclear power plant. These are terrible financial investments for individual retirement savers and such projects are only really attractive to large institutional investors as the government and consumers will have to put in a lot of money to subsidize them. “
Johnson announced plans to hold an investment summit in Downing Street in October, to consolidate efforts to boost institutional investment in so-called productive finance, such as infrastructure.
Private market leaders welcomed the move. The British Private Equity & Venture Capital Association said the speech by the Prime Minister and Chancellor was “excellent news” for British retirees.
“Industry is the driving force behind many essential innovations in the UK, creating enormous economic and social value for our country in the form of jobs, growth and leading products and services,” said Michael Moore , Managing Director of BVCA. .