The Prime Minister and Chancellor have called on the pensions industry to unlock hundreds of billions of pounds and invest massively in UK businesses, to fuel the post-pandemic economic recovery.
Boris Johnson and Rishi Sunak made the plea in an open letter asking institutional investors to support the economy’s recovery, citing that Canadian and Australian funds were benefiting more from their investments into UK assets, than UK institutional investors.
The letter stated, “It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country.”
“While we are glad that international investors prize UK assets, and are working hard to attract even more inward investment, we also want to see UK pension savers benefitting from the fruits of UK ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements.”
“Whether you are a trustee or manager of a DC or DB pension fund, running an insurance company or advising investors on their investment strategy, we are challenging you this summer to begin to invest more in long-term UK assets, giving pension savers access to better returns and enabling them to see their funds support an innovative, healthier, greener future for their country.
“We know that this will require a change in mindset for many investors that won’t happen overnight, but that is why this change needs to start now.”
The letter pointed out that more than 80% of UK defined contribution pension funds’ investments were mostly in listed securities, which represented just 20% of the UK’s assets.
To facilitate this flow of funds from pension pots and change investor behaviour, the government said it would endeavour to remove obstacles and costs for people and funds looking to make long-term, illiquid investments in the UK.
The letter continued, “We recognise the responsibility of the Government to remove obstacles and costs to making long-term, illiquid investments in the UK. The Government is doing everything possible – short of mandating more investment in these areas as some have advocated – to encourage a change in mindset and behaviour among institutional investors, and we remain open to addressing further barriers where they are identified.”
“To help with this, our new UK Infrastructure Bank is open for business and is ready to co-invest in green infrastructure and support regional economic growth. We will issue the UK’s first Green Gilt in September, allowing institutional investors to fund the Government’s vital green commitments.
“The Department for Work and Pensions is reforming the cap on fees that DC schemes can charge to ensure that they are not penalised for over-performance, as well as accelerating the consolidation of the pension sector, including through vehicles such as superfunds.
“We are reviewing the prudential regulatory regime for the insurance sector (Solvency II), and with the support of the Productive Finance Working Group, the FCA will launch in the autumn a framework for a new vehicle for long-term investment, the Long-Term Asset Fund.”
Ultimately, with the coffers looking bare following unprecedented financial support, the Government really needs to tap into this pension money, which could hopefully also provide added benefit and more upside for the UK’s pension savers, as they seek to boost their retirement pots.