Pensions industry updates
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UK pension fund trustees are balking at government efforts to encourage them to spend billions on the nation’s economic recovery, warning over potential conflicts of interests for their savers.
In an unprecedented intervention last week, prime minister Boris Johnson and chancellor Rishi Sunak published a letter to the industry, urging it to plough more cash into sectors such as infrastructure, to help the nation “build back better” in an “investment big bang” after the Covid-19 pandemic.
But UK pension funds, which have more than £1tn in assets, are generally wary of investments in private markets such as infrastructure and venture capital, fearing high fees that can erode retirement returns and poor liquidity that can impact the timing of pension payouts.
“Suggestions that trustees should favour UK opportunities to help us ‘build back better’ get short shrift from me,” said Andrew Warwick-Thompson, a trustee with Capital Cranfield, the professional trustee firm, and a former senior executive with The Pensions Regulator. “UK illiquids will have to stand up to the same due diligence process as any other investment decision.”
Scottish Widows, one of the UK’s leading pension providers, supports wider investment in infrastructure to help the nation’s recovery but said any framework for pushing pension assets in this direction would need to offer a level of risk-adjusted return at least as good as those available elsewhere.
“Those managing pension assets on behalf of savers have a duty to get the best possible returns for customers,” said Pete Clancy, head of policy at Scottish Widows. “This is a circle the government will have to square.”
Sir John Kay, the economist who led the 2012 independent review into UK equity market reform measures, said more detail was needed from the government about the infrastructure projects that might attract investment from pension schemes.
“There is already long-term finance available for infrastructure investments such as toll roads and airports but that is really a refinancing of existing assets,” said Kay.
“It is not clear that pension schemes provide the answer to the funding needs of new national projects, such as [rail project] HS2 and the Hinkley Point nuclear facility. These are terrible financial investments for individual retirement savers and such projects are really only attractive to large institutional investors because the government and consumers will have to put up a lot of cash to subside them.”
Johnson has announced plans for an investment summit at Downing Street in October, to cement efforts to boost institutional investment in so-called productive finance, such as infrastructure.
Executives in private markets have welcomed the move. The British Private Equity & Venture Capital Association said the intervention by the prime minister and chancellor was “great news” for British pensioners.
“The industry is the driving force behind many critical innovations in the UK, creating huge economic and social value for our country in the form of jobs, growth and world-leading products and services,” said Michael Moore, director-general of the BVCA.
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