Pensions and Lifetime Savings Association (PLSA) welcomes the UK government’s Long-term Investment for Technology and Science (LIFTS) Initiative.
The LIFTS initiative will contribute £250m to encourage investments made in the science and technology industry by Defined Contribution (DC) pension schemes.
Pension fund participation will depend on the investment case of each proposition because fiduciary requirements require them to act in the best interests of scheme participants. But, the delivery options will succeed in achieving the goals of the LIFTS initiative if a strong investment case is offered.
These delivery methods include:
1. Investment collaboration and information exchange
2. Pari passu co-investment
3. Co-investment with capped returns for government
4. Management fee offset mechanism.
The PLSA says that options 3 and 4 are more desirable for DC schemes since they support the business case for investing in the industry. Options 1 and 2 are not compelling enough to draw attention in a market that is competitive. As it would help to achieve the best risk-adjusted returns, Option 3 will probably support an investment case. Option 4 received a lot of support from the members, but the PLSA advises the government to make it even better before implementing it to prevent the creation of an extra administrative burden.
The suggested fund or structure threshold is welcomed by the PLSA, and its members think that the minimal amount of 50 per cent would not significantly affect the outcome either way. The PLSA emphasises the need to prevent the creation of an undue administrative burden when determining whether investments fulfil the criteria of qualifying investments. The definition of qualifying investments is reasonable and acceptable.
The PLSA encourages members to communicate their opinions to the government directly, giving them a more complete picture of the possibility that DC schemes will participate in the initiative and submit suggestions. On the PLSA website, you can download the whole submission to the LIFTS initiative.
PLSA director policy & advocacy Nigel Peaple says: “It is sensible and reasonable for the Government to explore the degree of alignment between the long investment horizons of defined contribution pension schemes and open DB schemes with the capital needs of innovative UK companies.
“As an industry we have been arguing for the reduction of barriers for pensions investing in illiquid assets for more than five years. In 2017 the Patient Review Capital panel proposed several initiatives on this topic and the PLSA was pleased to take part in the Productive Finance group and to help produce guidance for pension funds on this topic last November.
“LIFTS provides another useful step forward in the Government’s set of measures to support pension fund investment in illiquid assets. Others include the Long-Term Asset Fund (LTAF), changes to the charge cap regarding performance fees, and new illiquid asset reporting requirements. We expect them to all be helpful, although Government should recognise that it will take many months, and maybe some years, before they will materially affect investment behaviour.
“It must be stressed, however, that although greater choice of investment vehicles and additional incentives strengthen the investment case, pension fund participation will be dependent on the investment case of each proposition, given that they are rightly bound by their fiduciary duties to act in the interests of scheme members.”