A number of major UK pension providers have agreed to sign up to a pledge to aim to increase their investments in UK assets that Chancellor Jeremy Hunt will launch on Monday.
Several defined contribution (DC) pension providers are understood to have agreed to sign up to what is being described by the Treasury as a ‘compact’ to express their intention to endeavour to use pension assets to invest in UK PLC. The pledge does not set a mandatory percentage of assets that must be invested domestically.
Hunt is understood to want to encourage the £3tn of assets in UK pension schemes to invest in start-ups, infrastructure and private equity. He is expected to unveil the compact on Monday at the annual Mansion House dinner.
Some providers are understood to be comfortable with the pledge so long as it is not mandatory. But others have expressed concern that, in the case of schemes set up under trust legislation, the pledge could interfere with trustees’ fiduciary duty to maximise returns for members. A provider representative told Corporate Adviser ‘everyone will sign up for it because you don’t have to do anything’. But at least one provider has said it will not sign up to the compact.
Concerns have also been raised by stakeholders that forcing investment towards UK real assets will fuel a bubble in a sector that already attracts significant interest from institutional investors.
Labour has floated plans that could force pension funds to invest in a £50bn growth fund, with shadow Chancellor Rachel Reeves saying ‘nothing is off the table’.
In May a policy paper from the Tony Blair Institute called for the Pension Protection Fund to be turned into a ‘superfund’ to boost investments into the UK economy. The paper highlighted the significant reduction in UK equities held by pension funds, and the low-risk approach to investment, much of which reflects the maturity of largely closed defined benefit schemes. However, figures from Corporate Adviser’s Master Trust & GPP Defaults Report 2023, which shows the asset allocation and performance attributes of DC pensions investing assets for around 20 million Britons, shows that in the £500bn defined contribution pension sector, equity investment is extremely high. Some funds hold 100 per cent equities, for younger savers, while the average scheme holds 75 per cent of their assets in equities. However, of that 75 per cent equity holdings, just 8.8 per cent are UK equities.