Pension industry shake-up to boost  investment in the UK economy

Business boost: Ministers want to use the financial firepower of pension funds to invest in UK companies

The UK pension industry is set for a shake-up under Jeremy Hunt’s plans to boost investment.

Ministers want to use the funds’ financial firepower to invest in UK businesses amid fears promising firms and start-ups are undervalued and being left vulnerable to takeover bids from overseas.

The Chancellor outlined moves to allow funds to invest in a ‘diverse portfolio’ of assets while consolidating the market and providing ‘better outcomes for savers’. 

Among them was a move to encourage the Local Government Pension Scheme, which looks after the nest eggs of 6million council workers and has total assets of £360billion, to allocate 10 per cent of its investments in private companies, unlocking an estimated £30billion.

It outlined plans to pump £250million into investment vehicles, tailored to the needs of pension funds, which could generate over £1billion of investment for UK science and technology companies.

Hunt also announced the creation of a fund run by the British Business Bank, a state-owned firm designed to offer loans to small and medium-sized firms, to invest in promising firms.

And there are plans to overhaul Solvency II, regulations inherited from the EU which stipulate where insurers and funds can invest and how much cash they need to hold. 

The Government wants to loosen these rules to make it easier for pension funds to invest in higher-risk assets.

The proportion of pension assets invested in UK-listed companies has fallen from 53 per cent in 1997 to 6 per cent in 2021.