UK pension funds urged to back ‘big bang’ investment

[ad_1]

Pension Industry Updates

Subscribe to the myFT Daily Digest to be the first to know about the pension industry news.

Boris Johnson has called on British pension funds to pump more retirement savings money into UK assets to spark a “big investment explosion” to support the 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 “hundreds of billions of pounds” to back assets that often carry a long-term return such as infrastructure, which includes bridges, roads and farms. wind.

They argue that domestic investors are ignoring British assets. The letter stated that “UK institutional investors are under-represented in holding assets in the UK”. “Over 80 per cent of UK defined contribution pension fund investments are predominantly in listed securities, which represent only 20 per cent of UK assets.”

Some of the world’s largest pension funds, including from Canada and Australia, have been active supporting infrastructure projects, including in the United Kingdom, which officials say has provided long-term income to their investors.

Ministers also want millions in pension savings to be better able to support high-growth British tech companies, which often miss out on institutional investment given the tension among fund managers to support riskier, loss-making start-ups.

Pension fund trustees have a duty to act in the best interests of their members through higher fees and costs associated with non-standard investments, such as infrastructure and private equity, that are seen as an impediment to channeling cash into these sectors.

To address this, the government this year eased a fee cap of 0.75 percent to protect millions of savers in defined contribution retirement plans from high fees, so that trustees can invest in sectors such as private equity, where exorbitant performance fees are common.

The FCA also assists in the creation of the Long-Term Asset Fund, an investment vehicle designed to promote cash pension investment in illiquid and long-term assets. This has been supported by the Productive Finance Working Group, chaired by City Secretary John Glenn, which is looking at barriers to investing in such assets.

The letter says the government is doing everything possible – except for more investment in these areas as some have called – 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 Halas, chief executive of tech business group Quadec, said investing in the pension fund was “the next big step for the UK startup ecosystem… and the sooner we move from discussion to capital allocation, the better”.

The Pensions and Lifetime Savings Association, which represents pension plans of 30 million savers and with more than £1.3 trillion in assets, said it supports the government’s ambition to ensure pension funds have the opportunity to invest in the widest range of assets.

recommended

“It’s welcome to see that too [them] It acknowledges that there is no single ‘right answer’ when it comes to how much pension trustees invest in long-term assets in the UK,” said Richard Butcher, President of PLSA.

The government’s efforts to encourage trustees to direct more pension money to help the country’s economic recovery have caused concerns in some areas of the industry.

Andrew Warwick-Thompson, formerly executive director of regulatory policy at the Pensions Organisation, accused the government in May of “pimping” asset managers with its reforms to capping workplace pension fees, which he said would increase fees for millions of workplace savers. .

There is a lack of detail about how the government will achieve its goals, said Roger Parker, director of policy at the Institute of Directors.

“The business models of many institutional investors in the UK are largely geared towards achieving short-term financial performance. It is unclear how the changes proposed by the Government in this letter will fundamentally realign its approach to the longer term.”

[ad_2]