Pension funds could be given green light to invest hundreds of billions of pounds in building up Britain as part of Chancellor’s Covid recovery plan
Pension funds could be given the green light to invest hundreds of billions of pounds in building up Britain as part of Chancellor Rishi Sunak’s Covid recovery plan.
Discussions are being held between insurance giants and senior Ministers on allowing pension funds to invest in affordable homes, regional developments and start-up companies as part of a bold plan to help regenerate the nation.
Sunak could announce details in Wednesday’s Budget to help the UK to ‘build back better’ in what is expected to be an otherwise bleak speech.
Recovery: Sources said a plan to allow workplace pensions to invest in property trusts could be approved first
Sources said a plan to allow workplace pensions to invest in property trusts – which typically own commercial buildings and developments – could be approved first.
One insurance chief executive said: ‘We will see a broadening of what pension funds can invest in.’
He pointed to affordable housing, infrastructure and helping the North to ‘level up’ with the South – one of Prime Minister Boris Johnson’s pledges ahead of the 2019 General Election.
Pension and insurance bosses have been working on drafting new rules with the Treasury, the Government’s business department and the Bank of England to open up multi-billion-pound workplace pension pots as a crucial source of funding for the economy. Andy Briggs, chief executive of Phoenix, the UK’s largest retirement business, said: ‘At the moment the regulations do make it harder for pensions to invest in illiquid assets. We’ve been keen on seeing change.’
Another insurance boss said: ‘It’s because the scale of these defined contribution and defined benefit schemes is so large that small tweaks in those rules will allow quite a bit of capital flowing into these new areas. It’s capital that can be looked upon as sort of a 20- year investment in start-ups.’
A pensions expert said: ‘The Government has areas where it needs money to do things and it can’t do it on its own. So what it’s thinking about is how do we get pensions money – the nation’s savings – invested in creating things that will build a future that’s worth living in?
‘The Treasury is looking at pensions and thinking there’s loads of money in there. At the moment, it’s all going into equity markets. The biggest companies in the UK are oil and gas companies. And they are not helping us build the future that we want to live in.’
Phoenix and Legal & General are among the pension and insurance giants looking to put billions of pounds of pension money into infrastructure, real estate, green energy and the push to level up Britain.
Experts say the UK lags behind other countries – including France and Australia – in investing in sustainable finance, property and infrastructure.
These are considered ‘illiquid’ assets because they are hard to sell quickly in a crisis, but they can often generate higher returns. In France, pensions are required to report the environmental and social impact of their investments.
Some argue that pension savers do not need quick access to their money below a certain age, so it makes sense to invest some in illiquid assets.
But there are barriers including the cap on pension charges and the large number of small pensions that lack the firepower to invest.
It is understood that Pensions Minister Guy Opperman will be meeting with Phoenix executives shortly to discuss the future of retirement savings.
Briggs at Phoenix added: ‘I think there’s a huge opportunity for insurers to make a big contribution to the build back better and greener agenda.’