DC pension providers should be required to offer savers the option to invest in a government-backed investment vehicle, akin to the French ‘Solidarity Investment Fund, and will get tax relief beyond their lifetime allowance if they invest in it, Budget documents reveal
The Patient Capital Review industry body response, published on the Treasury website alongside Budget documentation, calls for the creation of a ‘Patient Capital Investment Vehicle’ (PCIV) to tap into pension assets to fuel investment growth in UK businesses. Chancellor Philip Hammond said in his budget speech today that he would be ‘facilitating pension fund access to long term investments’ to fuel growth in UK scale-up businesses and capital-intensive start-ups.
The Patient Review Capital industry body has put forward a proposal that there be an “opt-in” requirement on new payments into DC pension schemes to attract retail capital into the PCIV. This would require that DC schemes offer members an option to allocate a small proportion of their pension to the PCIV. The intent would be to emulate the successful implementation of the French LME Law in 2008 which mandated that corporate schemes must offer a Solidarity Investment Funds option. This resulted in significant growth in the amount of capital allocated to Solidarity Investment Funds from €200m to €6bn between 2002 and 2016. This approach would require secondary legislation.
Further retail investment could be encouraged through a specific higher annual and/or lifetime pensions allowance for investments with the PCIV. Consideration could also be given to removing the taper allowance for high earners who invest in the PCIV. The lifetime pensions allowance currently stands at £1m, reduced from £1.8m in 2011. Given the low interest rate environment, the panel argus adjusting the pensions allowance for the PCIV would tap into a significant demand. However, any adjustment made for PCIV investments alone would be likely to bring the PCIV’s activities within the scope of the state aid rules, and require prior authorisation by the European Commission.
Isa savers would be able to access the PCIV through existing channels and retail products, as this is likely to be more effective than creating a new retail savings product, says the paper. This will require the PCIV to set up and manage standard retail vehicles, such as investment trusts.
The panel recommends that the UK Government act as a cornerstone investor, leveraging the strength of the “Government” brand. It argues would signal strategic intent and stability and could help attract initial investment from a range of sources, as well as top investment talent to manage the mandate. To avoid a state aid clearance requirement, Government capital would need to be invested on the same terms as the private capital which comprises the majority of funding.
Chancellor Philip Hammond said: “Today we’re publishing our ‘Action Plan’, to unlock over £20 billion of new investment in UK scale-up businesses.
“Including through a new fund in the British Business Bank, seeded with £2.5 billion of public money.
“By facilitating pension fund access to long term investments. And by doubling EIS investment limits for knowledge intensive companies, while ensuring that EIS is not used as a shelter for low-risk capital preservation schemes.”
Royal London director of policy Steve Webb says: “The opt-in is neither here nor there – we all know about the power of inertia. But for higher earners at the LTA, this would be revolutionary. Particularly for those up against the tapered annual allowance, people would be queueing round the building to invest in patient capital and get tax relief.
“What is not clear is whether this is a proposal or a Treasury recommendation.”
