Chancellor Jeremy Hunt has been urged by the UK pensions industry not to force retirement schemes to invest in riskier and complex assets including fast-growing young British companies, and infrastructure.
Hunt has said he would not be “instinctively comfortable” with ordering pension funds where to invest some of their money, but has not ruled out such a move as he looks for ways to boost Britain’s sluggish economy.
The chancellor’s preference would be for Britain’s highly fragmented pensions market — with roughly 28,000 defined contribution schemes — to be consolidated, along Canadian or Australian lines, so as to boost investment in UK companies.
But Treasury insiders said Hunt has not yet figured out exactly how this consolidation might be achieved and the degree to which some form of government intervention is needed.
Hunt promised last month to use his Autumn Statement to “unlock productive investment from defined-contribution pension funds and other sources” — so as to create a more diverse financing system to help high-growth companies.
He is expected to give more details of his thinking in his annual Mansion House speech to City of London grandees in July, as he tries to mobilise more capital to increase Britain’s economic growth rate.
Hunt has left open the idea of “mandating” pension funds to make certain investments if he cannot achieve the kind of consolidation in the industry he is seeking.
On Wednesday a trade body representing thousands of workplace pension plans said it opposed any move to take away full investment freedom from trustees.
“Trustees are adamant that their role is to look after the savings of their members,” said Nigel Peaple, director of policy and research with the Pensions and Lifetime Savings Association, whose members provide income to more than 30mn savers.
“Trustees are open minded about what we can do collectively to help the UK economy but it is essential that this operates in the interests of savers.”
The Pension and Lifetime Savings Association believes the government has not ruled out forcing retirement schemes to invest in riskier and complex assets. “I wouldn’t say it’s completely off the table,” said Peaple. “It’s early days.”
Prominent business figures, including Sir Nigel Wilson, head of the insurer Legal & General, and Nicholas Lyons, the City of London mayor, have pressed Hunt to take the radical step of compelling some pension schemes to invest in fast-growing young companies and in infrastructure.
While these investments can help the UK economy, by providing a financial boost for start-ups and other businesses, they can be risky.
Hunt said last week that Britain’s pensions industry was in need of “big reform” to ensure that savers were getting good returns on their retirement investments.
Speaking on a visit to Washington, Hunt said that Australia and Canada “have found a way of making sure they get better returns by consolidating their pension fund industry in a way that makes it easier for them to invest in unlisted and potentially higher-growth vehicles”.