Reeves told the Financial Times that while she thought investment would not need to be mandated, she added: “Nothing is off the table.”
The Labour Party launched the ‘start up, scale up’ campaign at the end of 2022 to support funding for entrepreneurs and start up businesses.
Reeves told FT that “a lack of confidence in Britain’s economy has led to too many businesses leaving our shores”, and she wants to see pension funds working with state owned British Business Bank in order to fund the development of these new companies.
Chancellor Jeremy Hunt is also attempting to appeal to both public and private sector pension schemes to channel more of their assets into the real and emergent assets economies that make up many of the government’s own ‘levelling up’ project.
Like the government, Reeves backs the consolidation of the pension fund market, and she would give addition al powers to the Pensions Regulator to force smaller schemes or those with poor relative performance to wind up or merge to create sufficient scale to take on new investments.
Reeves said she believed schemes with under £200 million in assets may be failing in their fiduciary duty to savers.
Labour would create a framework to allow pension funds to invest in promising new businesses alongside the British Business Bank, which would be responsible for due diligence, she added.
But in all cases, they will have to meet the needs of pension scheme members in line with our fiduciary duty
Giving DC members a stake in the future
The £50 billion growth fund was proposed by Nicholas Lyons, lord mayor of the City of London, with 5% of every defined contribution scheme’s assets invested in it.
UK pension funds invest less in private equity and infrastructure than other nations not only as a result of regulatory barriers, but other structural issues, such as the widely diversified nature of the pension system, said Lyons, who believes these obstacles are surmountable, but they must be overcome by pension funds.
He said that the biggest and most successful pension funds have far higher allocations to private equity and infrastructure and that investing as much as 5% of pension contributions would “give millions of people a stake in the businesses of the future, a stake in the intellectual property of the UK” and help innovative companies remain in the UK. Lyons added: “This will give a much needed boost to our growth economy. But crucially, it will benefit DC pension funds as well as they will reap the rewards and help build better and more resilient funds for policyholders helping everyone to finance their own futures”.
The jury’s still out…
Nigel Peaple, director of policy and advocacy at the PLSA, said while the government and opposition are focused on generating growth in the economy and are exploring the sources of capital are available to invest in UK growth, the PLSA alongside others in the financial services sector, are working to ensure interests could be aligned between savers, pension schemes, and policy objectives.
“We believe that, with the right regulatory or fiscal changes, it should be possible to make investment in less liquid assets of benefit to pension funds,” said people.
“Investing a suitable proportion of assets in a sovereign wealth fund, or in equivalent private sector schemes, might well be appropriate for some schemes.
“But in all cases, they will have to meet the needs of pension scheme members in line with our fiduciary duty.”
Pete Drewienkiewicz, CIO, global assets, at Redington, said: “As often with these types of things, the devil is in the detail and how to protect members from undue risk.
“If taking ‘growth co’ risk was partially underwritten by government, like in an EIS or SEIS, then it could be interesting.
“However, I’m not a huge fan of government forcing actions without thinking of unanticipated consequences.”
Damon Hopkins, head of DC workplace savings, at Broadstone, commented: “Mandated investment feels like an incredibly risky road for any government to take the billions of pounds sitting ‘idle’ in pension funds, but is an enticing target.
“Given the reliance on material investment returns in providing adequate retirement pots for DC pension savers, there seems to be a degree of inevitability around the use of infrastructure, so one would question the need for it to be mandated.
“There is also complexity to be overcome both operationally and commercially in implementing these proposals. For example, the majority of DC pension capital is held on platforms and sourcing enough investment opportunities in infrastructure assets may prove more difficult in practice than principle.’
“If DC consolidation continues, and even accelerates, it may be that relatively small allocations from behemoth schemes will meet this apparent economic demand. It will be interesting to see how these funds are set-up, what they will charge and how any risk warnings for members are communicated.”
